Government engagement and political leadership have a key role to play in the development of capital markets in the southern and eastern Mediterranean region, according to a new report from the European Bank for Reconstruction and Development and the Arab Monetary Fund (AMF).
The report has been delivered under the Deauville Partnership as part of the international community’s response to the events of the 2011 Arab uprising. It covers markets in Egypt, Jordan, Morocco and Tunisia, where the EBRD has been investing since 2012.
“The establishment of well-functioning local capital markets is an integral part of the process of economic rejuvenation. This report is aimed at driving capital market development forward and supporting future economic growth and prosperity,” said André Küüsvek, Director, Local Currency and Capital Market Development at the EBRD.
The report outlines a series of 16 recommendations, of which 10 are seen as short-term, fast responses. In addition there are three medium-term and three-longer term proposals.
In assessing the current state of markets in the region, the report notes that, despite national differences, all of the four countries face common challenges.
Structural problems are holding back the markets in their ability to stimulate entrepreneurship and job creation, a key issue in economies where youth unemployment in particular is a major social problem.
The short-term recommendations put an important focus on steps by authorities at a senior political level, including the creation of a national capital markets committee headed by the prime ministers of Egypt, Jordan, Morocco and Tunisia.
Establishing such taskforces at the appropriate level would ensure the political support and coordination needed to achieve meaningful capital market development.
Other short-term measures included the development of a government debt management strategy to support the building of a well-defined and well-representative yield curve as a benchmark for pricing other financial assets.
It was also important to focus on such issues as issuer and investor education and to increase the enforcement capabilities of supervisors and regulators.
The report, which was also the result of cooperation with other international financial institutions, sets out a road map for progress in the development of capital markets, which are seen as a key element in underpinning overall economic transformation.
However, some progress has already been made, including the development of capital market action plans in Jordan and Tunisia; improvements to clearing and settlement infrastructure in Egypt are under way; and steps to improve the access to finance of small and medium sized enterprises, most notably in Morocco and Egypt.
The report’s medium-term proposals include providing incentives to develop the private pension industry and to strengthen existing pension schemes and also to encourage the professional management of insurance company investments.
The longer-term recommendations are all outward looking, proposing actions to attract international investors to the local markets, to work with index providers to upgrade the markets from frontier to emerging status, and to seek international credit ratings that would stimulate international investor appetite.
Since September 2012, the EBRD has invested close to €2.3 billion in more than 70 projects across the four countries, in addition to €82 million in technical assistance.
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