{
  "title": "Capital Flows to the Final Frontier",
  "publication": "IMF Blog, May 24, 2011",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2011/05/24/capital-flows-to-the-final-frontier",
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  "summary": "Author: Antoinette M. Sayeh",
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    {
      "heading": "Overview and context",
      "content": "- Author: Antoinette M. Sayeh\n- Date: May 24, 2011\n- Focus: Evolution of capital flows to sub-Saharan Africa’s “frontier markets” (examples cited: Ghana, Kenya, Mauritius, Zambia) before, during, and after the global financial crisis."
    },
    {
      "heading": "Pre-crisis dynamics",
      "content": "- Frontier markets were a growing destination for capital flows prior to the global financial crisis, driven by improving economic prospects and a global economy \"awash with liquidity.\"\n- Most of the increase in inflows since 2000 came from the private sector: \"Most of the six-fold increase in inflows since 2000 came from the private sector.\"\n- South Africa and Nigeria typically account for \"50–60 percent\" of these flows, but the private-sector surge was \"true for countries other than South Africa and Nigeria.\""
    },
    {
      "heading": "Crisis impact",
      "content": "- The global financial crisis triggered a rapid withdrawal of capital from almost all frontier markets, particularly in the form of portfolio flows.\n- Fixed-income investments (such as treasury securities) and equities were most evidently affected by the sharp withdrawal of capital.\n- Bank credit lines largely recovered after the crisis, \"except for Nigeria, where the vestiges of a domestic banking crisis are still lingering.\""
    },
    {
      "heading": "Post-crisis developments (as of 2011)",
      "content": "- Capital flows were returning \"in dribs and drabs\" rather than in a broad-based surge.\n- Portfolio flows picked up in a few frontier markets: Ghana and Mauritius, and to a lesser degree, Zambia; flows \"remained flat in most of the other countries.\"\n- Declines in yields following monetary policy easing reduced appetite among fixed-income investors in some countries, e.g., Kenya and Uganda.\n- Foreign direct investment and other equity investment were \"not hit too badly during the crisis, and seem to be recovering nicely in most countries.\""
    },
    {
      "heading": "Macroeconomic management challenges",
      "content": "- Relative scale and volatility:\n  - Net private capital inflows to sub-Saharan Africa constitute \"only about one tenth of total net private flows to emerging and developing countries,\" yet are large relative to recipient countries' economic size.\n  - In shallow financial markets, volatility can be acute: \"in proportion to reserve money, nonresident holdings of government securities have swung from almost nothing to more than 40 percent in some countries.\"\n- Policy toolkit and IMF guidance:\n  - The IMF developed a framework to help countries manage large capital inflows.\n  - Core message: \"there is no substitute for implementing appropriate macroeconomic policies,\" but countries may choose from a \"menu of policy options\" in response to inflows.\n  - Examples of policy responses cited: tightening fiscal policy to reduce inflows attracted by high yields from high fiscal deficits; consideration of taxes, certain prudential measures, and capital controls in some cases."
    },
    {
      "heading": "Policy priorities and implications",
      "content": "- Primary policy interest: how to further induce stable and beneficial private flows—which \"now exceed official flows\"—to support investment and growth.\n- Countries should also \"stand ready in case sharply rising inflows give rise to macroeconomic management problems.\"\n- Summary assessment: \"Except for a few countries, the volume of capital inflows in sub-Saharan Africa’s frontier markets has yet to return to the heydays of 2006-08.\"\n\nIMF Blog post: \"Capital Flows to the Final Frontier\" by Antoinette M. Sayeh, May 24, 2011.\n\n---\n\n Content in this bundle\n\n- 021411a - Inflow Episodes: Summary Statistics\n  - 021411a - Inflow Episodes: Summary Statistics (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 021411a - Inflow Episodes: Summary Statistics (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Regional Economic Outlook\n- https://www.imf.org/wp-content/uploads/2011/05/afr-reo-capital-flows1.jpg\n- main message\n\nSource: https://www.imf.org/en/blogs/articles/2011/05/24/capital-flows-to-the-final-frontier"
    }
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    "Authors: Antoinette M Sayeh",
    "Published: May 24, 2011",
    "Author: Antoinette M. Sayeh",
    "Date: May 24, 2011",
    "Focus: Evolution of capital flows to sub-Saharan Africa’s “frontier markets” (examples cited: Ghana, Kenya, Mauritius, Zambia) before, during, and after the global financial crisis.",
    "Frontier markets were a growing destination for capital flows prior to the global financial crisis, driven by improving economic prospects and a global economy \"awash with liquidity.\"",
    "Most of the increase in inflows since 2000 came from the private sector: \"Most of the six-fold increase in inflows since 2000 came from the private sector.\"",
    "South Africa and Nigeria typically account for \"50–60 percent\" of these flows, but the private-sector surge was \"true for countries other than South Africa and Nigeria.\"",
    "The global financial crisis triggered a rapid withdrawal of capital from almost all frontier markets, particularly in the form of portfolio flows.",
    "Fixed-income investments (such as treasury securities) and equities were most evidently affected by the sharp withdrawal of capital.",
    "Bank credit lines largely recovered after the crisis, \"except for Nigeria, where the vestiges of a domestic banking crisis are still lingering.\"",
    "Capital flows were returning \"in dribs and drabs\" rather than in a broad-based surge.",
    "Portfolio flows picked up in a few frontier markets: Ghana and Mauritius, and to a lesser degree, Zambia; flows \"remained flat in most of the other countries.\"",
    "Declines in yields following monetary policy easing reduced appetite among fixed-income investors in some countries, e.g., Kenya and Uganda.",
    "Foreign direct investment and other equity investment were \"not hit too badly during the crisis, and seem to be recovering nicely in most countries.\"",
    "Relative scale and volatility:",
    "Policy toolkit and IMF guidance:",
    "Primary policy interest: how to further induce stable and beneficial private flows—which \"now exceed official flows\"—to support investment and growth.",
    "Countries should also \"stand ready in case sharply rising inflows give rise to macroeconomic management problems.\"",
    "Summary assessment: \"Except for a few countries, the volume of capital inflows in sub-Saharan Africa’s frontier markets has yet to return to the heydays of 2006-08.\"",
    "**021411a - Inflow Episodes: Summary Statistics**",
    "[Regional Economic Outlook](http://www.imf.org/external/pubs/ft/reo/reorepts.aspx?ddlRegions=11&ddlYear=-1)",
    "[https://www.imf.org/wp-content/uploads/2011/05/afr-reo-capital-flows1.jpg](https://www.imf.org/wp-content/uploads/2011/05/afr-reo-capital-flows1.jpg)",
    "[main message](http://www.imf.org/external/pubs/ft/survey/so/2011/NEW040511B.htm)"
  ],
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