## _wp05122

## Source details

**Canonical URL:** [_wp05122](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05122.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05122.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05122.pdf.json)

---

### I. Introduction and context
- Most national exchanges in southern and eastern Africa are relatively new, operating since the late 1980s and 1990s.
- Johannesburg Stock Exchange (JSE), founded in 1887, accounts for nearly 90 percent of the total market capitalization in sub-Saharan Africa.
- Paper objective: assess whether cooperation and/or integration of stock exchanges in southern and eastern Africa could overcome impediments to exchanges’ development.

### II. Characteristics and impediments to development
- Common impediments:
  - A small number of listings (particularly by indigenous companies).
  - Low liquidity levels (value of shares traded in relation to total market capitalization).
  - Inadequate market infrastructure.
- Additional constraints:
  - Share ownership historically dominated by a small number of large conglomerates.
  - Trading concentrated in one or a few stocks.
  - High poverty levels and weak economic fundamentals.
  - Reluctance by local companies to issue securities; low public awareness of share investment benefits.
- Even the JSE has low liquidity levels by global standards.

### III. Ongoing development efforts by exchanges
- Instruments and issuance:
  - Introduction of mutual funds and other collective investment vehicles.
  - Encouraging national authorities to issue government securities and use exchanges for privatization.
- Modernization and outreach:
  - Plans to move from manual to automated trading systems.
  - Establish over-the-counter markets and/or secondary/tertiary markets with less strict listing requirements to attract indigenous firms.
  - Increase public education and promotional programs; some propose regional public awareness campaigns.
  - Most exchanges now operate websites with updated trading information.

### IV. Regionalization, liberalization, and integration trends
- Since early 1990s liberalization of exchange controls on inward portfolio investment has spurred crossborder listings and closer regional links.
- Integration is framed within a broader push to remove barriers to movement of people, goods, services, and capital.
- Potential regional approaches include cooperation, harmonization, and networked integration (preserving national exchanges).

### V. Assessment: potential benefits and cautions for regional integration
- Potential benefits:
  - Improve liquidity, efficiency, and competitiveness if paced pragmatically.
  - Overcome impediments faced by fledgling and illiquid national exchanges.
  - Promote crossborder listings, technology and information sharing, and training.
- Cautions and obstacles:
  - Rapid move to a fully integrated regional market could create a large illiquid market.
  - An integrated network of autonomous national exchanges likely to garner more support than a single replacement regional exchange.
  - Establishing regional stock market segments specializing in industry sectors or share types could foster development.

### VI. Literature review: stock markets and growth (selected findings)
- Historical/theoretical lineage: Schumpeter (1911); Gurley and Shaw (1955); Patrick (1966); Goldsmith (1969); McKinnon (1973); Shaw (1973); Cameron (1975).
- Empirical views:
  - Levine and Zervos (1995, 1996): positive relationship between stock market development and long-run economic growth.
  - Atje and Jovanovic (1993): substantial effect of stock markets on growth; no bank lending effect.
  - Calamanti (1983); Fry (1998); Hamid and Singh (1992); Singh (1999): caution that stock markets can be costly or irrelevant in many African economies.
- Factors affecting market development (Demirgüç-Kunt and Levine (1993) taxonomy):
  - Institutional: regulations, disclosure, transparency, trading costs.
  - Traditional: market capitalization, new capital raised, number of listed companies, turnover.
  - Asset pricing: pricing efficiency, degree of integration into world markets.
- Macroeconomic prerequisites: sound, stable macro policies; lower inflation variability; fewer exchange controls.

### VII. Regional integration: possible benefits and obstacles
- Benefits of integration/cooperation:
  - Diversified risk, more efficient and competitive markets, lower costs, higher returns.
  - Pool resources to boost liquidity and mobilize capital for private-sector and infrastructure development.
  - Platform for privatizations and for attracting foreign capital.
  - Harmonization of regulations, accounting standards, corporate governance.
- Key caveat:
  - Liquidity is essential; premature integration risks producing a large illiquid market.
- Preconditions and priorities:
  - Promote collective investment vehicles, public awareness, pension funds and institutional investor participation.
  - Strengthen institutional capacity, enforcement, market infrastructure, ICT access.
  - Recognize variance in development stages across national exchanges.
- Structural/regional obstacles:
  - Overlapping memberships in COMESA, SACU, SADC, EAC causing duplication and inconsistent aims.
  - Sovereignty concerns and resistance to relinquishing national exchanges.
  - Deep poverty and large informal sectors limit issuer and investor bases.
  - Technology and cost barriers linking with JSE (which itself is linked to LSE).

### VIII. Progress toward regional integration and cooperation (A–D)

- A. Southern African Development Community (SADC)
  - SADC members with established exchanges: Botswana, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe.
  - COSSE (Committee of SADC Stock Exchanges):
    - Formed in 1997 as private sector initiative.
    - Aims for integrated, real-time network of national securities markets accessible from a single desktop workstation; target date of 2006.
    - Objectives: transparent regulatory environment, improved operational capacity, cooperation, harmonization of trading/clearance/settlement, forum for information exchange.
  - Harmonization and technology links:
    - By 2000 all SADC exchanges harmonized listing requirements based on 13 principles of JSE listing requirements (national rules retain slight differences).
    - JSE JET system installed at Namibia exchange in November 1998 via telecom link to JSE.
    - NSX adopted LSE’s SETS in May 2002.
    - LSE provides SETS technology and technical support to JSE under a five-year agreement.
    - JSE/FTSE Africa indexes launched; FTSE calculates/distributes NSX indexes as part of series.
    - Since 1998 JSE has offered its trading system and technical assistance to other SADC exchanges.
  - Pan-African board proposal:
    - August 2003: JSE discussions with exchanges (including Ghana, Namibia, Zambia, Zimbabwe) to set up virtual pan-African board for large companies to list simultaneously; JSE envisioned as overseer; critics fear capital flight to JSE.
  - Clearing/settlement and broker standards:
    - SADC exchanges examining common clearing/settlement framework, linked CDSs; COSSE drafting common broker standards; regional surveillance envisioned.

- B. Common Market for Eastern and Southern Africa (COMESA)
  - COMESA members with established exchanges: Egypt, Kenya, Malawi, Mauritius, Swaziland, Uganda, Zambia, Zimbabwe.
  - COMESA role: build on SADC and EAC achievements; encourage harmonization of listing requirements toward full integration.
  - LuSE study (December 2000) proposal:
    - Closed-end fund crosslisted on COMESA exchanges to buy shares on national exchanges, package into “regional share units,” and sell to regional and overseas investors.
    - Recommendations: appoint reputable investment bank to coordinate/manage; COMESA preparing follow-up study to identify constraints, review tax/securities policies, and determine fund size/type.

- C. East African Community (EAC)
  - 1997 MoU among Kenya, Tanzania, Uganda regulatory authorities established EASRA.
  - Article 80 of 1999 Treaty recognizes EASRA: harmonize capital market policies, promote crossborder listing/trading, develop regional rating system.
  - 2001 EAC finance ministers committed to strengthen exchanges, encourage crossborder listings, plan regional exchange with trading floors in each member state; legislate to treat EAC citizens as residents for investment; liberalize capital accounts toward East African capital markets.
  - Government bond issuance progress:
    - Dar es Salaam Stock Exchange issued 5-, 7-, and 10-year government bonds since 2002.
    - Uganda Securities Exchange issued 2-, 3-, and 5-year government bonds since early 2004.
  - Nairobi Stock Exchange (NSE) and Kenya CMA:
    - Coordinate drafting of harmonized foreign investor rules; present upgraded trading rules for EASRA harmonization; lead development of common market infrastructure/regulations.
    - Plans to circulate Central Depository System rules; develop minimum eligibility criteria for crossborder brokers.
    - NSE proposed regional public awareness/educational campaign.
  - Uganda Securities Exchange:
    - Harmonized listing rules with NSE; progress toward common trading and settlement rules; exploring East African Central Depository System and electronic trading platform.
  - EAC Capital Markets Development Committee:
    - Promote privatizations via capital markets; encourage collective investment vehicles; EASRA compiling debt ratio criteria and proposed harmonizing fiscal treatment of income from debt securities.

- D. Regional cooperation: crossborder listings and MoUs
  - Crossborder listings:
    - Since 1990s liberalization, several dual listings occurred; more than 70 percent of equities listed on NSX are dual listed on JSE; NSX trading dominated by dual listed stocks.
    - Selected examples:
      - Anglo American PLC listed on Namibia and Botswana stock exchanges in 2001 (primary listing on LSE; secondary listings on JSE and Swiss exchanges).
      - Alexander Forbes Ltd. and Ellerine dual listed on JSE and Botswana exchange.
      - Bicc Cafca, Falcon Investment Holdings, Old Mutual, Pretoria Portland, Wankie Colliery dual listed on Zimbabwe exchange and JSE.
      - Old Mutual had secondary listings as of end 2004 on Malawi, Namibia, Johannesburg, and Zimbabwe exchanges (primary listing on LSE).
    - EAC crosslistings:
      - EASRA agreed approval procedure in 2000 for crossborder listings.
      - East African Breweries: secondary listing on Uganda Securities Exchange in March 2001.
      - Kenya Airways: secondary listing on Uganda Securities Exchange in March 2002 and crosslisted on Dar es Salaam Stock Exchange in December 2004.
  - Memoranda of Understanding (MoUs):
    - Exchanges signing MoUs to encourage information exchange, technology sharing, crossborder listings, joint product development, and stockbroking profession development via training.
    - JSE signed MoUs with multiple African exchanges including Egypt, Ghana, Kenya, Nigeria, Uganda.
    - Nairobi Stock Exchange signed MoUs with exchanges outside region (Nigeria, Ghana).

### IX. Requirements of a well-functioning regional exchange
- Preconditions:
  - Further national capital market development: sound macroeconomic policies and disciplined fiscal policies to avoid crowding out private investment.
  - Competitive national financial sectors with advanced telecommunications and information systems, skills, and transparent information flow.
  - Creation of appropriate financial institutions, instruments, and services; healthy banking sector to support equity investments.
- Institutional and governance requirements:
  - Build institutions pursuing good governance; improve regulation and supervision to conform to international standards; upgrade accounting and financial reporting.
- Role of collective investment vehicles and institutional investors:
  - Encourage pension funds and collective investment vehicles to increase participation and address illiquidity.
  - In countries with state pension monopolies, allow well-regulated private pension funds to foster competition.
- Poverty, savings, and access constraints (exact figures preserved):
  - More than 40 per cent of Africa’s inhabitants live on less than $1 a day.
  - Africa has experienced falling per capita savings and investment rates over 30 years; savings rates as low as 5 percent in many countries.
  - UN Millennium Project (Sachs, 2005) figures: sub-Saharan Africa average savings rate of about 11 percent versus 34 percent in East Asia and the Pacific, 20 percent in Latin America, 19 percent in the Middle East and North Africa, and 18 percent in South Asia.
- Instruments and supply/demand measures:
  - Enhance liquidity by increasing supply (number of issuers) and demand for securities; attract indigenous SMEs via specialized listing tiers (AltX example: JSE launched AltX December 2003).
- Phased liberalization and monitoring:
  - Further liberalize foreign investment ceilings in a phased, two-tiered manner.
  - Guard against destabilizing speculative capital by improving macro fundamentals, market infrastructure, and regulatory frameworks.
  - Improve data collection and monitoring systems for foreign private capital flows.
- Harmonization and technological prerequisites:
  - Harmonize macroeconomic policies, regulatory and tax frameworks, listing requirements, trading/clearing/settlement procedures, transaction fees, accounting standards, corporate governance, disclosure requirements, broker standards, and capital gains/withholding tax rules.
  - Synchronize electronic trading, clearing, and settlement systems; automate national markets to enable real-time investment decisions.
- Institutional architecture:
  - Adopt a common investment code into national legislation and create a regional securities regulatory body if a regional exchange is created.
  - Near-term focus: closer cooperation short of full integration—information/technology sharing, harmonization, and encouragement of crosslistings.

### X. Regionalization model and implementation challenges
- Model: national exchanges remain in place and be crosslinked to form a network offering automated trading via a regionalized trading system accessible “from a single desktop workstation.”
- Rationale: preserves national exchanges and reduces sovereignty concerns, increasing likelihood of national official support versus replacing national exchanges with a single regional exchange.
- Deadline concern: target date of 2006 “does seem overly ambitious,” particularly because required technology may be beyond financial means of many smaller exchanges.
- COSSE strategy: prioritize adoption of automated and interlinked trading, clearing, and settlement systems rather than implementing a completely uniform single system; maintain slight listing-rule differences to account for national constraints.

### XI. JSE-as-hub scenario: benefits and risks
- Potential benefits:
  - Economies of scale, cost, and efficiency from using the JSE as a single stock market hub given its size and liquidity.
- Risks:
  - Possible shifts in capital flows within SADC toward Johannesburg.
  - Unclear effects on JSE liquidity and value while JSE undergoes change.
  - Recent delisting trend: number of listed companies on the JSE fell from 620 in 1999 to 403 by end 2004.
- JSE-LSE strategic alliance (since May 2002):
  - Access to LSE’s SETS technology; extension of JSE trading hours; introduction of indexes to encourage foreign investment.
  - Immediate effect: Namibian Stock Exchange (NSX) directly affected; other SADC exchanges may benefit but some postponed decisions due to technological and financial difficulties.

### XII. Intermediate regional cooperation measures
- Crossborder listings recommended as key short-term step:
  - Benefits: issuers access wider markets, increase investor choices, and may encourage domestic listings.
- MoUs and technology/information sharing and training foster cooperation.
- Strategic alliances with exchanges outside subregion provide access to technology and innovative instruments.

### XIII. Sectoral segmentation and specialized tiers
- Proposal: establish regional stock market segments specialized by industry or share type to improve efficiency.
- Recent practice: national exchanges are setting up specialized tiers for well-managed, high-growth-potential SMEs; potential to link these tiers regionally to improve liquidity and reduce costs.

### XIV. Key statistics and market indicators (preserved exactly)
- Listing dynamics:
  - Number of listed companies on the JSE: 620 in 1999 and 403 by end 2004.
- Table 1. Turnover Ratios for Selected Emerging Market Country Stock Exchanges (As of December 2004)
  - Pakistan 40
  - Turkey 16.5
  - South Korea 13.4
  - India 10.3
  - Thailand 6.9
  - Brazil 3.5
  - South Africa 3.5
  - Mexico 2.4
  - Mauritius 0.4
  - Zimbabwe 0.4
- Table 2. Market Statistics of SADC Stock Exchanges (As of December 2004 /1)
  - Botswana — Company listings 18; Market capitalization US$2.55 bn; Market cap. as % of GDP 28; Turnover ratio (%) 0.2
  - Malawi — Company listings 9; Market capitalization 5.8 bn; Market cap. as % of GDP 386; Turnover ratio (%) 0.3
  - Mauritius — Company listings 41; Market capitalization US$2.38 bn; Market cap. as % of GDP 38; Turnover ratio (%) 0.4
  - Namibia — Company listings 13; Market capitalization 442.3 mn; Market cap. as % of GDP 8; Turnover ratio (%) 0.4
  - South Africa — Company listings 403; Market capitalization US$455.5 bn; Market cap. as % of GDP 214; Turnover ratio (%) 3.5
  - Swaziland — Company listings 6; Market capitalization 183.6 mn; Market cap. as % of GDP 8.7; Turnover ratio (%) 0.01
  - Tanzania — Company listings 7; Market capitalization 730 mn; Market cap. as % of GDP 7.6; Turnover ratio (%) 0.5
  - Zambia — Company listings 12; Market capitalization 1.65 bn; Market cap. as % of GDP 38; Turnover ratio (%) 0.4
  - Zimbabwe — Company listings 79; Market capitalization 1.94 bn; Market cap. as % of GDP 43; Turnover ratio (%) 0.4
- Notes:
  - /1 Data for December 2004 unless otherwise noted. Data for Tanzania are for February 2005. Data for Malawi and Swaziland are for July 2004. Note that market capitalization for the Malawi Stock Exchange falls to US$119 mn if the foreign company listing OML is excluded.

### XV. Highlights from national exchange overviews (selected exact figures and features)
- Botswana Stock Exchange (BSE):
  - Trading: open outcry; settlement manual T+5.
  - As of December 2004: 18 companies listed; Total market capitalization US$2.55 billion; Turnover ratio 0.2 percent.
  - Foreign ownership limits: maximum 55 percent of share capital; limits on individual foreign investors 10 percent.
- Dar es Salaam Stock Exchange (DSE):
  - Trading: open outcry; settlement electronic T+5 for equities and T+3 for bonds.
  - As of February 2005: total market capitalization just under US$730 million; Turnover ratio 0.5 percent; seven equity listings.
  - Foreign investor ceilings: maximum 60 percent of total number of issued securities of any single issuer (slated to rise to 70 percent later); individual foreign investor limit 1 percent; foreign institutional investors 5 percent.
- Johannesburg Stock Exchange (JSE):
  - Established 1887; renamed JSE Securities Exchange after “big bang” mid 1990s.
  - Since May 2002 trading executed via JSE SETS (a version of LSE’s SETS).
  - Settlement: T+3 via STRATE; electronic central securities depository (CDS) since 1998.
  - As of December 2004: 403 companies listed; Total market capitalization US$455.5 billion; Turnover ratio around 3.5 percent.
  - Delistings: a total of 359 companies delisted over the five-year period through end-2003 versus 116 new listings.
  - AltX launched December 2003 as a specialized tier for high-growth potential SMEs.
- Lusaka Stock Exchange (LuSE):
  - Trades executed via order matching; cleared on T+1 and settled on T+3.
  - Year-end 2004 market capitalization US$1.65 billion; Turnover ratio 0.4 percent.
- Malawi Stock Exchange (MSE):
  - Trading open outcry; settlement T+7.
  - As of mid 2004: total market capitalization US$5.8 billion; nine companies listed.
  - Foreign investment limits: 10 percent for any individual investor and 49 percent aggregate.
- Stock Exchange of Mauritius (SEM):
  - Incorporated 1989; fully automated trading, clearing and settlement.
  - As of December 2004: 41 companies listed; Total market capitalization US$2.38 billion; Turnover ratio 0.4 percent.
  - CDS provides delivery versus payment on a T+3 basis.
- Mozambique Stock Exchange:
  - Launched 1999; as of December 2004 trading activity remained negligible and no further equity listings beyond initial activity.
- Nairobi Stock Exchange (NSE):
  - As of December 2004: 47 companies listed; Total market capitalization US$3.89 billion; Turnover ratio 0.5 percent.
  - Current trading: floor-based open-outcry; settlement T+5. Automation and CDS planned; planned linking with Tanzania and Uganda exchanges via Central Depository and Settlement Corporation (CDSC).
  - Foreign investor aggregate limit: maximum 75 percent (increased from 40% in July 2002) of shares issued by any one Kenyan company.
- Namibian Stock Exchange (NSX):
  - As of December 2004: 13 companies listed; Total market capitalization US$442.3 million.
  - NSX adopted JSE’s JET system in November 1998 and JSE SETS in May 2002; more than 70 percent of NSX equities have primary listings on the JSE.
  - No special restrictions on foreign investment.
- Swaziland Stock Exchange (SSX):
  - Trading manual call-over; settlement T+5.
  - As of mid 2004: six equity issues; total market capitalization US$183.6 million.
  - No special restrictions on nonresident investments.
- Uganda Securities Exchange (USE):
  - As of December 2004: total market capitalization US$1.06 billion; seven equity issues listed.
  - Trading open outcry; settlement T+5. Listings include 2-, 3-, 5-, and 10-year government bonds as of early 2004.

### XVI. Uganda: market structure and recent developments
- Foreign investors in Uganda exchange shares are not subject to special restrictions.
- USE signed MoU with East African Development Bank to set up a US$50 million venture capital fund to help smaller companies meeting corporate governance criteria raise funds outside the traditional exchange.
- Mutual funds/collective investment vehicles began operating in Uganda following passage of the Collective Investment Schemes Act 2003.

### XVII. Zimbabwe Stock Exchange (ZSE): history, performance, and constraints (exact figures preserved)
- Origins: present ZSE opened in 1946 in Bulawayo; second trading floor began 1951 in Harare.
- Performance:
  - Ranked best performing emerging market exchange for 1999-01 and second best in 2002.
  - ZSE registered an increase of more than 100 percent on the S&P global index for 2002.
  - Volatility: steep declines in early 2004 after nominal interest rates rose from around 100 percent in November 2003 to 700 percent by start 2004.
- Market size and participation:
  - As of December 2004: 79 companies listed (down from 81 a year earlier).
  - Market capitalization US$1.94 billion in December 2004 (down from US$4.98 billion in December 2003 and US$20.4 billion in early 2003).
  - Turnover ratio 0.4 percent in December 2004 (down from 1.2 percent a year earlier).
- Foreign participation drivers:
  - Foreign investor participation declined due to eroding property rights, difficulty repatriating earnings because of foreign currency shortages, and increased political and economic uncertainty.
- Systems and limits:
  - Trading is paper based and open outcry; plans to move to automated trading and adopt a CDS.
  - Foreign investment limits: 10 percent for any individual investor and 40 percent aggregate.
  - A maximum of 15% of an individual investor’s hard currency imported to Zimbabwe may be invested in primary share and bond issues.

### XVIII. Conclusions — Main findings and implications
- Main findings:
  - Regional cooperation and integration could help overcome impediments faced by fledgling, illiquid exchanges by improving liquidity, efficiency, competitiveness, and mobilization of local and international capital for private-sector and infrastructure development.
  - Too rapid move to a fully integrated regional stock exchange risks creating a large, illiquid market.
  - SADC has advanced farther than COMESA toward regionalization; COSSE aims for an integrated, real-time network with a target date of 2006.
- Policy implications and priorities:
  - Prioritize national-level capital market development: macroeconomic stability, institutional capacity, market infrastructure, and governance improvements.
  - Promote collective investment vehicles, pension fund development, and SME listing tiers to boost supply/demand and mitigate illiquidity.
  - Harmonize regulatory, tax, and market infrastructure frameworks pragmatically and in stages.
  - Upgrade/harmonize trading, clearing, and settlement technologies with attention to affordability for smaller exchanges.
  - Phase liberalization of foreign investor access while strengthening monitoring systems to manage capital flow volatility.
  - Prefer integration approaches that preserve national exchange autonomy (integrated network) and reserve a single regional exchange for contexts with requisite institutions and possible common currency considerations.

*Source: _wp05122 (selected sections and tables from the supplied PDF excerpt).*

### 1.  Turnover Ratios for Selected Emerging Market Country Stock Exchanges ......................24

### 1.  Turnover Ratios for Selected Emerging Market Country Stock Exchanges ......................24

### I. Introduction and context
- Most of the national exchanges in southern and eastern Africa are relatively new, operating since the late 1980s and 1990s.
- South Africa’s Johannesburg Stock Exchange (JSE), founded in 1887, overshadows all other exchanges in southern and eastern Africa and, indeed, on the entire continent.
- The JSE accounts for nearly 90 percent of the total market capitalization in sub-Saharan Africa.
- The paper assesses whether cooperation and/or integration of stock exchanges in southern and eastern Africa could offer a way of overcoming impediments to the exchanges’ development.

### Characteristics and impediments to development
- Common characteristics that have impeded growth, development, and effectiveness in intermediating capital:
  - A small number of listings (particularly by indigenous companies).
  - Low liquidity levels (the value of shares traded in relation to total market capitalization).
  - Inadequate market infrastructure.
- Even the JSE has low liquidity levels by global standards.
- Other factors hindering development:
  - Historically, share ownership has been dominated by a small number of large conglomerates that originated as mining concerns.
  - Trading in one or just a few stocks often dominates total trading activity.
  - High poverty levels, weak economic fundamentals and environment.
  - Reluctance among local companies to become less reliant on bank finance and issue securities.
  - Lack of public awareness of the benefits of investing in shares among those with the financial means to do so.

### Ongoing development efforts by exchanges
- Exchanges are supporting capital market development through:
  - Introduction of new financial instruments such as mutual funds and other collective investment vehicles.
  - Encouraging national authorities to issue government securities and use exchanges as vehicles for privatization.
- Modernization and outreach efforts:
  - Plans to move from manual trading systems to automated trading.
  - Setting up over-the-counter markets and/or secondary and tertiary markets with less strict listing requirements to attract indigenous firms.
  - Increasing public educational and promotional programs to attract more investors; some propose regional public awareness campaigns (example: Nairobi Stock Exchange proposal for EAC exchanges).
  - Most exchanges now operate websites providing updated information on trading activities and development progress and plans.

### Regionalization, liberalization, and integration trends
- Since the early 1990s there has been liberalization of exchange controls on inward portfolio investment in several countries, spurring crossborder listings and closer regional links between capital markets.
- The idea of working toward closer cooperation and even integration among stock exchanges is part of a renewed, broader push for regional integration—to removing barriers to the free movement of people, goods, services, and capital—within the various subregions.

### Assessment: potential benefits and cautions for regional integration
- Potential benefits of cooperation/integration:
  - Could improve liquidity, efficiency, and competitiveness of the region’s exchanges if carried out at the right pace and in a pragmatic way.
  - Cooperation and integration could offer a way of overcoming some impediments faced by fledgling and illiquid national exchanges.
  - Agreements and alliances that promote crossborder listings, technology and information sharing, and training—both within and outside the region—would help develop national capital markets and foster further regional integration.
- Cautions and obstacles:
  - Too rapid a move to a fully integrated, regional stock market could merely create a large illiquid market.
  - A plan that forges an integrated network of autonomous national exchanges—as envisaged by the Southern African Development Community’s Committee of SADC Stock Exchanges—is likely to garner more support than a plan that closes down and replaces existing national exchanges with a single regional exchange.
  - As regionalization advances, establishing stock market segments across a region, specializing in different industry sectors or types of share issues, might foster further capital market development by improving efficiency.

### Scope and structure of the paper
- The paper is based on primary and secondary sources and takes stock of proposals put forward by regional organizations in southern and eastern Africa.
- It assesses how the subregion’s 12 national exchanges have progressed in terms of regional cooperation/integration and development.
- Following a literature review, the paper examines possible benefits and obstacles associated with regional integration of stock exchanges.

*Source: Excerpt from the IMF working paper chapter titled "1.  Turnover Ratios for Selected Emerging Market Country Stock Exchanges" (page content provided).*

### Section IV surveys progress so far toward regional integration and cooperation among

### _wp05122 - Section IV surveys progress so far toward regional integration and cooperation among

### II. Literature review: stock markets and growth
- Historical and theoretical lineage:
  - Schumpeter (1911): financial intermediaries foster technological innovation and growth.
  - Gurley and Shaw (1955); Patrick (1966); Goldsmith (1969); McKinnon (1973); Shaw (1973); Cameron (1975): concluded efficient financial systems may increase investment and improve allocation.
  - Patrick (1966): first identifying a two-way causality relationship between financial market development and economic growth.
- Empirical findings and divergent views:
  - Levine and Zervos (1995, 1996): positive and robust relationship between stock market development and long-run economic growth.
  - Atje and Jovanovic (1993): stock market development could have substantial effect on economic growth; bank lending effect not found.
  - Calamanti (1983): securities markets in francophone African developing economies often the result, not the cause, of growth.
  - Engberg (1975); Levine (1990): mechanisms for stock markets to raise savings, improve allocation, enable trading/portfolio diversification.
  - Calamanti (1983); Fry (1998); Hamid and Singh (1992); Singh (1999): caution that stock markets can be costly or irrelevant in many African economies, may not raise aggregate savings, and could add fragility.
- Factors affecting market development (Demirgüç-Kunt and Levine (1993) taxonomy):
  - Institutional: regulations, information disclosure, transparency rules, trading costs.
  - Traditional: market capitalization, amount of new capital raised through stock offerings, number of listed companies, turnover.
  - Asset pricing: pricing efficiency, degree of integration into world markets.
- Institutional capacity and regulatory frameworks:
  - Importance of legal/institutional foundations, disclosure requirements, accounting standards, credible contract enforcement, licensing restrictions, and limited but targeted regulation (Chuppe and Atkin; Pardy).
  - Role for foreign institutional investors to alleviate informational asymmetries (Chuppe and Atkin).
- Traditional impediments:
  - Low turnover rates, small number of local investors, few listed securities, limited issuers; listed firms often foreign financed or reluctant to list.
  - Recommendations: promote institutional investors, improve regulation and disclosure.
- Macroeconomic prerequisites:
  - Sound and stable macroeconomic environment critical (Pardy, 1992); high and variable inflation and exchange controls as impediments (Bekaert, 1993).
  - Calamanti (1983): need higher domestic savings, more even wealth distribution, more industrialized/diversified economies.
- Case evidence and regional impediments:
  - Jefferis (1995) on Botswana Stock Exchange (BSE, 1989–1993): limited ability to finance manufacturing and diversify economy; recommended privatization via exchange to increase listings (number of listed companies rose from 10 to 18 in the decade after Jefferis).
  - Okeahalam (2001): nationalist politics and perception of South Africa’s dominance are large obstacles to a SADC merged exchange.
  - World Bank (2002) assessment: “geopolitical difficulties” and undercurrent of resistance in EAC to closer links with South Africa.
- Facilitators to regional cooperation and integration:
  - Harmonizing economic policies and regulatory frameworks, modernizing information technologies, single consolidated electronic platform, single rules for trading/settlement, integrated clearing/settlement (Okeahalam, 2001).
  - Mwenda (1999): harmonizing monetary and fiscal policies; integration as part of political and economic integration agenda.
  - Alvarez and Kalotay (2004): harmonize regulations intraregionally while allowing limited national differences; intraregional capital account convertibility; creation of regional instruments and regional “country funds.”

### III. Regional integration: possible benefits and obstacles
- Potential benefits of regional integration/cooperation:
  - Diversified risk in a wider market; more efficient and competitive markets; lower costs; higher returns; increased crossborder capital flows.
  - Pooling resources to boost liquidity and ability to mobilize local and international capital for private-sector and infrastructural development.
  - Investors access to a broader range of shares; issuers access to a larger investor base.
  - Platform for privatizing large corporations and absorbing large share issues; floating major enterprises can attract foreign capital and encourage indigenous listings.
  - Harmonization of stock market regulations and trading practices can deepen regional integration in taxation, accounting standards, corporate governance, and legal practices.
- Key caveat:
  - Too early or too rapid integration could create a large, illiquid market depending on national market liquidity and harmonization of regulatory/tax frameworks. Liquidity is essential to link stock market development with long-term growth.
- Preconditions and national-level progress needed:
  - Promote collective investment vehicles; public awareness; encourage pension funds and institutional investor participation.
  - Address institutional capacity gaps: enforcement of regulations, market infrastructure, reliable ICT access, tailored regulations suited to local conditions.
  - Consider variance in development stages across national exchanges.
- Structural/regional obstacles:
  - Overlapping memberships in COMESA, SACU, SADC, and EAC leading to duplication and inconsistent aims; COMESA positioning to build on SADC and EAC achievements.
  - Sovereignty concerns: national governments may resist relinquishing symbolic national exchange.
  - Insufficient regional interest/motivation (ASEA example: formed 1993; cancelled 2001 conference due to low confirmations).
  - Deep poverty, large agricultural and informal sectors reduce local issuer/investor base; start-up costs subsidized by donors and IFC; low trading levels mean exchanges often cannot cover operating costs and rely on subsidies/high taxes on members.
  - Technology and cost barriers for linking with Johannesburg Stock Exchange (JSE), given JSE’s links with London Stock Exchange (LSE).

### IV. Progress toward regional integration and cooperation
- A. Southern African Development Community (SADC)
  - SADC members with established exchanges: Botswana, Malawi, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe.
  - COSSE (Committee of SADC Stock Exchanges):
    - Formed in 1997 as a private sector initiative.
    - Aims: facilitate raising of capital with acceptable listing requirements; target date of 2006 for integrated, real-time network of national securities markets accessible from a single desktop workstation.
    - Objectives: transparent regulatory environment, improved operational capacity and technical underpinnings, cooperation among exchanges, harmonization of trading/clearance/settlement, forum for information exchange.
  - Harmonization and technology links:
    - By 2000, all SADC exchanges harmonized listing requirements based on the 13 principles of the JSE’s listing requirements (national rules retain slight differences).
    - JSE’s JET system installed at Namibia exchange in November 1998 via telecom link to JSE.
    - Namibia Stock Exchange (NSX) adopted LSE’s SETS in May 2002.
    - LSE provides trading system technology and technical support to JSE under a five-year agreement; brokers in South Africa and UK can access one another’s markets.
    - JSE extended operating hours and launched JSE/FTSE Africa indexes jointly with LSE to facilitate foreign investor comparison.
    - FTSE calculates and distributes NSX indexes as part of JSE/FTSE Africa series.
    - Since 1998, JSE has offered its trading system and technical assistance to other SADC exchanges.
  - Pan-African board proposal:
    - August 2003: JSE began discussions with exchanges (including Ghana, Namibia, Zambia, Zimbabwe) to set up a virtual pan-African board for large companies to list simultaneously across participating exchanges; JSE envisioned as overseer; critics fear capital flight to JSE.
  - Clearing/settlement and broker standards:
    - SADC exchanges examining common framework for clearing and settlement, including linked network of individual CDSs.
    - COSSE drafting common standards for stockbrokers to allow cross-border presence.
    - Regional surveillance: envisaged regional body informed by national surveillance reports (JSE reported in Windhoek, Namibia in 2001).
    - COSSE encouraging development of subregion’s bond markets and government securities issuance.

- B. Common Market for Eastern and Southern Africa (COMESA)
  - COMESA members with established exchanges: Egypt, Kenya, Malawi, Mauritius, Swaziland, Uganda, Zambia, Zimbabwe.
  - COMESA role: build on SADC and EAC achievements; encourage cooperation (harmonization of listing requirements) toward full integration.
  - LuSE study (December 2000): “International Portfolio Investment Funds in Nascent Markets: The Case for Closed-end Country Funds in Africa”:
    - Proposal: closed-end fund crosslisted on several COMESA exchanges to buy shares on national exchanges, package into “regional share units,” and sell combined regional shares to regional and overseas investors.
    - Aim: generate regulatory and economic reforms, broaden and deepen financial markets.
    - Recommendations: appoint reputable investment bank to coordinate/manage fund; COMESA preparing terms of reference for follow-up study to identify constraints, assess reaction, review tax and securities policies, and determine appropriate fund size/type.

- C. East African Community (EAC)
  - EAC regulatory cooperation:
    - 1997 MoU among capital market regulatory authorities of Kenya, Tanzania, Uganda; established EASRA (East African Member States Securities Regulatory Authorities).
    - Article 80 of 1999 Treaty recognizes EASRA: harmonization of capital market policies, promotion of crossborder listing/trading, development of regional rating system for listed companies.
  - EAC finance ministers (2001) commitments:
    - Strengthen EAC stock exchanges; encourage crossborder listings; plan regional exchange with trading floors in each member state.
    - Legislation to treat EAC citizens as residents for investment; liberalize capital accounts with respect to East African capital markets.
    - Encourage national governments to issue long-term bonds as benchmark securities.
    - Progress: Dar es Salaam Stock Exchange issued 5-, 7-, and 10-year government bonds since 2002; Uganda Securities Exchange issued 2-, 3-, and 5-year government bonds since early 2004.
  - Nairobi Stock Exchange (NSE) and Kenya CMA actions:
    - Coordinate drafting of harmonized foreign investor rules; present upgraded trading rules for EASRA harmonization; lead development of common market infrastructure/regulations.
    - Plans to circulate draft Central Depository System rules; developing minimum eligibility criteria for crossborder brokers.
    - NSE proposed regional public awareness/educational campaign targeting potential issuers.
  - Uganda Securities Exchange:
    - Harmonized listing rules with NSE.
    - Progress toward common trading and settlement rules; exploring East African Central Depository System and electronic trading platform.
    - Automated regional infrastructure could enable future linkages with other African exchanges.
  - EAC Capital Markets Development Committee aims:
    - Promote privatizations via capital markets; encourage development of collective investment vehicles.
    - EASRA compiling debt ratio criteria for banks/insurance companies issuing debt securities; proposed harmonizing fiscal treatment of income from debt securities.

- D. Regional cooperation: crossborder listings and MoUs
  - Crossborder listings:
    - Since 1990s liberalization, several dual listings occurred; more than 70 percent of equities listed on NSX are dual listed on JSE; NSX trading dominated by dual listed stocks.
    - Motivations: brand/image, regional consolidation, mobilize funds, diversify capital sources.
    - Examples and dates:
      - Anglo American PLC listed on Namibia and Botswana stock exchanges in 2001; primary listing on LSE, secondary listings on JSE and Swiss exchanges.
      - Alexander Forbes Ltd. and Ellerine dual listed on JSE and Botswana exchange.
      - Bicc Cafca, Falcon Investment Holdings, Old Mutual, Pretoria Portland, Wankie Colliery dual listed on Zimbabwe exchange and JSE.
      - Old Mutual had secondary listings as of end 2004 on Malawi, Namibia, Johannesburg, and Zimbabwe exchanges (primary listing on LSE).
    - EAC crosslistings:
      - EASRA agreed approval procedure in 2000 for crossborder listings.
      - East African Breweries: secondary listing on Uganda Securities Exchange in March 2001.
      - Kenya Airways: secondary listing on Uganda Securities Exchange in March 2002 and crosslisted on Dar es Salaam Stock Exchange in December 2004 (DSE crosslistings permitted for Kenyan/Ugandan companies).
  - Memoranda of Understanding (MoUs):
    - Stock exchanges signing MoUs to encourage information exchange, technology sharing, crossborder listings, joint product development, and stockbroking profession development via training.
    - JSE signed MoUs with multiple African exchanges including outside SADC (Egypt, Ghana, Kenya, Nigeria, Uganda).
    - Nairobi Stock Exchange signed MoUs with exchanges outside region (Nigeria, Ghana).
    - Uganda exchange notes 2001 JSE MOU as paving way for future cooperation/integration with southern African exchanges.

### V. Requirements of a well-functioning regional exchange
- Preconditions before regional integration:
  - Further national capital market development required: sound macroeconomic policies, disciplined fiscal policies to avoid crowding out private investment.
  - Competitive national financial sectors with advanced technologies (telecommunications and information systems), skills, transparent/free flow of financial information.
  - Creation of appropriate financial institutions, instruments, and services; healthy banking sector to support equity investments.
- Institutional and governance requirements:
  - Build institutions and pursue policies promoting good governance to attract capital and reduce susceptibility to financial crises.
  - Improve regulation and supervision to conform to international standards; upgrade accounting and financial reporting to expand eligible listings.
- Role of collective investment vehicles and institutional investors:
  - Encourage pension funds and collective investment vehicles to increase participation and address illiquidity.
  - In countries with state pension monopolies, allow well-regulated private pension funds to foster competition and better investment management.
- Poverty, savings, and access constraints:
  - More than 40 per cent of Africa’s inhabitants live on less than $1 a day.
  - Africa has experienced falling per capita savings and investment rates over 30 years; savings rates as low as 5 percent in many countries.
  - UN Millennium Project (Sachs, 2005) figures: sub-Saharan Africa average savings rate of about 11 percent versus 34 percent in East Asia and the Pacific, 20 percent in Latin America, 19 percent in the Middle East and North Africa, and 18 percent in South Asia.
  - Limited access to conventional financial institutions and shares traded on exchanges.
- Instruments and supply/demand measures:
  - Need to enhance liquidity by increasing supply (number of issuers) and demand for securities.
  - Attract indigenous SMEs and reduce owners’ fear of losing control; specialized listing tiers for SMEs (AltX example: JSE launched AltX December 2003).
- Phased liberalization and capital flow monitoring:
  - Further liberalize foreign investment ceilings in a phased, two-tiered manner (subregion residents short-term; all foreign investors medium/longer-term).
  - Guard against destabilizing speculative capital by improving macro fundamentals, market infrastructure, and regulatory frameworks.
  - Improve data collection and monitoring systems for foreign private capital flows.
- Harmonization and technological prerequisites:
  - Harmonize macroeconomic policies, regulatory and tax frameworks, listing requirements, trading/clearing/settlement procedures, transaction fees, accounting standards, corporate governance, disclosure requirements, standards for stockbrokers, and national capital gains/withholding tax rules.
  - Synchronize electronic trading, clearing, and settlement systems; automate national markets to enable real-time investment decisions.
- Institutional architecture:
  - A common investment code adopted into national legislation and a regional securities regulatory body would be essential if a regional exchange is created.
  - For the foreseeable future, pursue closer cooperation short of full integration: information/technology sharing, harmonization of regulations, encouragement of crosslistings and cross-border investment.

### VI. Conclusions — Main findings and implications
- Main findings:
  - Regional cooperation and integration of national exchanges in southern and eastern Africa could help overcome impediments faced by fledgling, illiquid exchanges by improving liquidity, efficiency, and competitiveness and enhancing mobilization of local and international capital for private-sector and infrastructure development.
  - However, too rapid a move to a fully integrated regional stock exchange risks creating a large, illiquid market.
  - SADC has advanced farther than COMESA toward regionalization; COMESA’s most recent aims focus on building on SADC and EAC progress.
  - COSSE aims for an integrated, real-time network of SADC national securities markets (see COSSE objectives and target date of 2006).
- Policy implications and priorities (synthesized from Sections III–V):
  - Prioritize national-level capital market development: macroeconomic stability, institutional capacity, market infrastructure, and governance improvements.
  - Promote collective investment vehicles, pension fund development, and SME listing tiers to boost supply and demand and mitigate illiquidity.
  - Harmonize regulatory, tax, and market infrastructure frameworks across participating countries in a pragmatic, staged manner.
  - Upgrade and harmonize trading, clearing, and settlement technologies, with attention to affordability for smaller exchanges.
  - Phase liberalization of foreign investor access while strengthening monitoring systems to manage capital flow volatility.
  - Consider regional integration approaches that preserve national exchange autonomy (integrated network) to reduce sovereignty concerns; reserve full single regional exchange for contexts with requisite regional institutions and possible common currency considerations.

*Source: _wp05122 - Section IV surveys progress so far toward regional integration and cooperation among*

### 2006. As envisaged, all of the national exchanges would remain in place and would be

### _wp05122 - 2006. As envisaged, all of the national exchanges would remain in place and would be

### Regionalization model and implementation challenges
- Proposal: national exchanges remain in place and be crosslinked to form a network offering automated trading in a range of financial instruments via a regionalized trading system accessible “from a single desktop workstation.”
- Rationale: maintaining existing national exchanges reduces sovereignty concerns and increases likelihood of national official support versus closing national exchanges and replacing them with a single regional exchange.
- Deadline concern: the deadline of 2006 "does seem overly ambitious," particularly because the required technology may be beyond the financial means of many smaller exchanges.
- COSSE strategy: prioritize adoption of automated and interlinked trading, clearing, and settlement systems rather than necessarily implementing a completely uniform, single system throughout all SADC exchanges; maintain slight differences in listing rules to account for national technical development levels and constraints.

### JSE-as-hub scenario: benefits and risks
- Potential short- to medium-term benefits: economies of scale, cost, and efficiency from using the JSE as a single stock market hub because the JSE is by far the region’s largest and most liquid exchange.
- Risks and uncertainties:
  - Possible shifts in capital flows within the SADC subregion toward Johannesburg.
  - Unclear effects of regional integration on the JSE’s liquidity and perceived value of a regional alliance while the JSE is undergoing a period of change.
  - Recent primary listing departures from the JSE to the LSE and other exchanges: total listed companies fell from 620 in 1999 to 403 by end 2004.
- JSE-LSE strategic alliance (since May 2002): access by the JSE to the LSE’s trading system technology (Stock Exchange Electronic Trading System, or SETS), extension of JSE trading hours, and introduction of indexes to encourage foreign investment and trading.
  - Immediate effect: Namibian Stock Exchange (NSX) directly affected due to preexisting technology links and adoption of JSE/LSE technology; other SADC exchanges may benefit but some have postponed decisions due to perceived technological and financial difficulties.

### Intermediate regional cooperation measures
- Crossborder listings (crosslistings) recommended as a key step short of creating actual regional exchanges:
  - Benefits: give issuers access to wider markets, increase investor choices, and may encourage domestic companies to list locally.
- Memoranda of understanding and arrangements for technology and information sharing and training assistance can foster cooperation and market development.
- Strategic alliances with exchanges outside the subregion (including developed-country exchanges) can provide better access to new technologies and innovative financial instruments needed to attract investors and deepen markets.

### Sectoral segmentation and specialized tiers
- Proposal: establish stock market segments across the region specializing in industry sectors or types of share issue to improve efficiency.
  - Examples: segments for high-growth stocks or to attract small- to medium-sized companies.
- Recent practice: some national exchanges have begun setting up specialized tiers for well-managed, high-growth potential SMEs; potential to link these tiers at subregional level to improve liquidity, efficiency, and reduce costs.

### Comparison with existing literature and alternative recommendations
- Okeahalam (2001): strong economic case for establishing a regional securities exchange; proposes merger of the JSE with much smaller SADC national exchanges, setting up the JSE as a hub for the subregion.
- Mwenda (1999): recommends a regional exchange coexisting with national exchanges to promote multiple crossborder listings and crossborder investment, target larger companies for the regional exchange while national exchanges accommodate issuers unable to afford regional listing; emphasizes improved information technology across members.
- World Bank (2002) EAC assessment:
  - Recommends EAC member exchanges forge closer links with more developed markets (mentions JSE and possibly Mauritius Stock Exchange).
  - Advises balance between regional integration and domestic market development; cautions against integrating too rapidly.
  - Recommends “urgent attention” to bond market development and consideration of a joint debt issuing facility for member governments.
  - Endorses use of capital markets for privatizations and development of collective investment vehicles.

### Key statistics and market indicators (preserved exactly as in source)
- Listing dynamics:
  - Number of listed companies on the JSE: 620 in 1999 and 403 by end 2004.
- Table 1. Turnover Ratios for Selected Emerging Market Country Stock Exchanges (As of December 2004)
  - Pakistan 40
  - Turkey 16.5
  - South Korea 13.4
  - India 10.3
  - Thailand 6.9
  - Brazil 3.5
  - South Africa 3.5
  - Mexico 2.4
  - Mauritius 0.4
  - Zimbabwe 0.4
- Table 2. Market Statistics of SADC Stock Exchanges (As of December 2004 /1)
  - Botswana — Company listings 18; Market capitalization US$2.55 bn; Market cap. as % of GDP 28; Turnover ratio (%) 0.2
  - Malawi — Company listings 9; Market capitalization 5.8 bn; Market cap. as % of GDP 386; Turnover ratio (%) 0.3
  - Mauritius — Company listings 41; Market capitalization US$2.38 bn; Market cap. as % of GDP 38; Turnover ratio (%) 0.4
  - Namibia — Company listings 13; Market capitalization 442.3 mn; Market cap. as % of GDP 8; Turnover ratio (%) 0.4
  - South Africa — Company listings 403; Market capitalization 455.5 bn; Market cap. as % of GDP 214; Turnover ratio (%) 3.5
  - Swaziland — Company listings 6; Market capitalization 183.6 mn; Market cap. as % of GDP 8.7; Turnover ratio (%) 0.01
  - Tanzania — Company listings 7; Market capitalization 730 mn; Market cap. as % of GDP 7.6; Turnover ratio (%) 0.5
  - Zambia — Company listings 12; Market capitalization 1.65 bn; Market cap. as % of GDP 38; Turnover ratio (%) 0.4
  - Zimbabwe — Company listings 79; Market capitalization 1.94 bn; Market cap. as % of GDP 43; Turnover ratio (%) 0.4
- Notes from source:
  - /1 Statistics for all operating SADC member exchanges with the exception of the Mozambique Stock Exchange, on which trading activity has been negligible. Data are for December 2004 unless otherwise noted. Data for Tanzania are for February 2005. Data for Malawi and Swaziland are for July 2004. Note that market capitalization for the Malawi Stock Exchange falls to US$119 mn if the foreign company listing OML is excluded.

### Highlights from national exchange overviews (selected exact figures and features)
- Botswana Stock Exchange (BSE):
  - Trading: open outcry; settlement manual T+5.
  - As of December 2004: 18 companies listed; Total market capitalization US$2.55 billion; Turnover ratio 0.2 percent.
  - Foreign ownership limits: maximum 55 percent of share capital; limits on individual foreign investors 10 percent.
- Dar es Salaam Stock Exchange (DSE):
  - Trading: open outcry; settlement electronic T+5 for equities and T+3 for bonds.
  - As of February 2005: total market capitalization just under US$730 million; Turnover ratio 0.5 percent; seven equity listings.
  - Foreign investor ceilings: maximum 60 percent of total number of issued securities of any single issuer (slated to rise to 70 percent later); individual foreign investor limit 1 percent; foreign institutional investors 5 percent.
- Johannesburg Stock Exchange (JSE):
  - Established 1887; “big bang” mid 1990s; renamed JSE Securities Exchange.
  - Since May 2002 trading executed via JSE SETS (a version of LSE’s SETS).
  - Settlement: T+3 via STRATE; electronic central securities depository (CDS) since 1998.
  - As of December 2004: 403 companies listed; Total market capitalization US$455.5 billion; Turnover ratio around 3.5 percent.
  - Delistings: a total of 359 companies delisted over the five-year period through end-2003 versus 116 new listings.
  - AltX launched December 2003 as a specialized tier for high-growth potential SMEs.
- Lusaka Stock Exchange (LuSE):
  - Trades executed via order matching; cleared on T+1 and settled on T+3.
  - Year-end 2004 market capitalization US$1.65 billion; Turnover ratio 0.4 percent.
- Malawi Stock Exchange (MSE):
  - Trading open outcry; settlement T+7.
  - As of mid 2004: total market capitalization US$5.8 billion; nine companies listed.
  - Foreign investment limits: 10 percent for any individual investor and 49 percent aggregate.
- Stock Exchange of Mauritius (SEM):
  - Incorporated 1989; fully automated trading, clearing and settlement.
  - As of December 2004: 41 companies listed; Total market capitalization US$2.38 billion; Turnover ratio 0.4 percent.
  - CDS provides delivery versus payment on a T+3 basis.
- Mozambique Stock Exchange:
  - Launched 1999; as of December 2004 trading activity remained negligible and no further equity listings beyond initial activity.
- Nairobi Stock Exchange (NSE):
  - As of December 2004: 47 companies listed; Total market capitalization US$3.89 billion; Turnover ratio 0.5 percent.
  - Current trading: floor-based open-outcry; settlement T+5. Automation and CDS planned; planned linking with Tanzania and Uganda exchanges via Central Depository and Settlement Corporation (CDSC).
  - Foreign investor aggregate limit: maximum 75 percent (increased from 40% in July 2002) of shares issued by any one Kenyan company.
- Namibian Stock Exchange (NSX):
  - As of December 2004: 13 companies listed; Total market capitalization US$442.3 million.
  - NSX adopted JSE’s JET system in November 1998 and JSE SETS in May 2002; more than 70 percent of NSX equities have primary listings on the JSE.
  - No special restrictions on foreign investment.
- Swaziland Stock Exchange (SSX):
  - Trading manual call-over; settlement T+5.
  - As of mid 2004: six equity issues; total market capitalization US$183.6 million.
  - No special restrictions on nonresident investments.
- Uganda Securities Exchange (USE):
  - As of December 2004: total market capitalization US$1.06 billion; seven equity issues listed.
  - Trading open outcry; settlement T+5. Listings include 2-, 3-, 5-, and 10-year government bonds as of early 2004.

*Source: _wp05122 (selected sections and tables) — content as provided in the supplied PDF excerpt.*

### Section IV).

### _wp05122 - Section IV)

### Uganda: market structure and recent developments
- Foreign investors in shares traded on the Uganda exchange are not subject to special restrictions.
- The Uganda Securities Exchange has signed a Memorandum of Understanding with the East African Development Bank under which the two institutions aim to set up a US$50 million venture capital fund to help smaller companies that meet certain corporate governance criteria raise funds outside the traditional exchange.
- Mutual funds/collective investment vehicles have recently begun operating in Uganda, following passage of the Collective Investment Schemes Act 2003.

### Zimbabwe Stock Exchange (ZSE): history, performance, and constraints
- Historical origins and structure:
  - Present ZSE opened in 1946 in Bulawayo; a second trading floor began operating in 1951 in Harare (now the headquarters).
  - An earlier exchange operated in Bulawayo from 1896-1902.
- Performance and volatility:
  - The ZSE was ranked the best performing emerging market stock exchange for three consecutive years in 1999-01 and the second best performing emerging market exchange in 2002.
  - The ZSE registered an increase of more than 100 percent on the S&P global index for 2002, despite extremely poor macroeconomic fundamentals.
  - The 2002 increase was largely attributed to the lack of alternative investment opportunities—particularly the relative unattractiveness of the money market in Zimbabwe’s high inflation environment—and the use of the official exchange rate (instead of parallel market rates) in calculating market performance.
  - Volatility became apparent with steep declines in early 2004, following a sharp hike in nominal interest rates from around 100 percent in November 2003 to 700 percent by the start of 2004.
  - The resultant banking crisis rapidly pushed down the values of all financial services-related stocks.
- Market size and participation (exact figures):
  - As of December 2004, 79 companies were listed on the ZSE, down from 81 a year earlier.
  - Market capitalization was US$1.94 billion in December 2004, down dramatically from US$4.98 billion in December 2003 and US$20.4 billion in early 2003.
  - The ZSE’s turnover ratio was 0.4 percent in December 2004, down from 1.2 percent a year earlier.
- Drivers of reduced foreign participation:
  - Foreign investor participation in shares traded on the ZSE has declined over the last five years, in response to eroding property rights, difficulty repatriating earnings because of foreign currency shortages, and a general increase in political and economic uncertainty.
- Trading system and modernization plans:
  - Equities and government securities trade on the ZSE.
  - Trading is paper based and executed on an open outcry basis.
  - The ZSE intends to move to automated trading and to adopt a central depository system in future.
- Foreign investment limits and controls (exact limits):
  - Foreign investment in securities traded on the exchange is subject to a 10 percent limit for any individual investor and a 40 percent aggregate limit.
  - A maximum of 15% of an individual investor’s hard currency imported to Zimbabwe may be invested in primary share and bond issues.

*Source: _wp05122 - Section IV).*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05122.pdf_