Panel, Conference Presentation
Developing Capital Markets: Financing the Future in Frontier and Emerging Markets
Milken InstituteJohn Schellhase, Hedi Ben Mlouka, Afsaneh Beschloss, Claver Gatete, Megan McDonald, Stephanie von Friedeburg, Eden Mabilana, Leah Kusensela, Zane
- The Milken Institute and IFC plan to conduct year-round roundtables, original research, and human capacity building programs, including the expansion of the Milken Fellows network, while the IFC intends to double private sector infrastructure investment pending local currency financing and re-establish the JCAP advisory initiative in West Africa, Morocco, and Bangladesh.
- Rwanda targets middle-income status by 2020 via its Vision 2020 strategy, aiming to transition to a private-sector-driven model by creating a modern capital market, a regional financial center modeled on Singapore or Jersey, and a monetary union, alongside a long-term savings scheme and an investment trust for the informal sector.
- African local currency markets are expected to continue being dominated by South Africa, Nigeria, Kenya, and Ghana, with a projected growth in corporate access to international capital markets over the next 12 months, while Saudi Arabia anticipates an 18% GDP revenue shift ($165 billion to $560 billion) by 2020 and potential MSCI index inclusion bringing $35–$45 billion in inflows.
- Structural economic transformations, including liberalization and privatization, are forecast for Vietnam and Saudi Arabia over the next 10 to 15 years, with frontier markets anticipated to see significant expansion in healthcare, retail, and insurance, driven by an expected shift toward cleaner energy sources like natural gas, solar, and wind in emerging markets over the next 20 years.
- Key risks for frontier markets include persistent liquidity challenges, under-researched status compared to developed markets, and currency volatility, with consistent regulation, the development of broker-dealers, repatriation laws, and corporate balance sheet contributions to market making identified as necessary mitigations.
- The IFC intends to allocate approximately $3 billion of its $10–$12 billion annual book to local currency bonds to create benchmarks, while doubling its structured transactions book from $3 billion to $6 billion in green and inclusion bonds, and mobilizing private capital to meet multi-trillion dollar infrastructure needs.
- Regional integration efforts aim to interlink capital markets, clearing systems, and payment systems within the East African Community and create a common trading platform with liberalized capital accounts, potentially starting with willing partners rather than waiting for all stakeholders.
- Impact investing is projected to be the primary opportunity over the next 10 years, with Rwanda and other regions seeking to leverage private sector guarantees such as Power Purchase Agreements to fund projects in methane gas, micro-hydro, and solar, while health care spending is expected to grow as sectors transition from low to high penetration.