Conference Presentation, Panel
Widening Access to Capital in Developing Markets
Milken InstituteStaci Warden, Afsaneh Beschloss, Ermias Eshetu, Claver Gatete, Hua Jingdong, Jingdong Hua, Ruben Brigadier, Miguel, Matthew Reese
- Jingdong Hua anticipates the international community recognizes the unsustainability of excessive sovereign debt, necessitating trillions in development financing led by the private sector, while predicting that emerging market borrowers now regret dollar-denominated debt due to currency depreciation and aim to shift toward local currency borrowing once efficient markets are established.
- Plans include replicating Rwanda's regulatory framework success across multiple countries, specifically targeting the creation of yield curves and offshore issuance like masala bonds in India to connect international savings to domestic infrastructure and climate change financing.
- Forecasts indicate a significant potential economic unlock if the corporate bond market in sub-Saharan Africa increases from 1% to 10% of GDP, while cautioning that failing to utilize capital markets will result in economic activity staying at a lower level compared to potential.
- Jingdong Hua expects the transition from a monetary aggregate model to inflation targeting as banking systems become more inclusive with IT-enabled free money movement, citing Rwanda's 24% capital adequacy ratio and 6% non-performing loans as proof of macroeconomic stability supporting capital liberalization.
- A distinction is made between domestic and regional governance, with the view that domestic sovereigns can move faster than regional bodies like ECOWAS or CFA, leading to pessimism regarding a single Pan-African currency market due to delays in decision-making and loss of sovereign speed.
- Asana Beschloss estimates emerging stocks comprise 10% of total equity markets and emerging bonds make up 18% of the $40 trillion global bond market, predicting Africa will remain a promising investment destination over the next decade despite current immaturities.
- Operational risks are highlighted regarding the failure of custody, trading, and back-office functions, which could cause the entire capital market to crash, emphasizing that capital market development is a prerequisite for tapping available funds.
- Jingdong Hua notes China's private sector represents 60% of GDP and employs 80% of the workforce after 30 years of transition, attributing the country's $10,000 per capita GDP to the positive role of capital markets in this shift.
- Jingdong Hua plans for the IFC to continue supporting 18 different emerging market currencies and encourages local investors who provide constant, long-term capital compared to less sophisticated foreign money.
- Asana Beschloss warns that without a proper legal regulatory framework, peer-to-peer lending and other fintech innovations cannot scale, despite mobile banking already leapfrogging traditional systems in many emerging markets.
- Huge assets from social impact investors like Fidelity and Vanguard are available but currently lack connectivity to local projects, requiring the development of investment vehicles to direct funds toward climate change and infrastructure.
- Asana Beschloss expects the Agachilo Development Fund in Rwanda to mobilize savings immediately upon presidential appeal, though warns that without a well-established capital market, pension and savings resources could become a problem rather than an asset.
- Ermias Eshtu expects the Gross Transformation Plan 2 (GTP2) to run for another five years, continuing the mobilization of savings rates that rose from under 5% to over 20% through mobile and banking systems.
- The Ethiopian Commodity Exchange plans to introduce futures and forward markets and list bank stocks, leveraging an electronic platform with a transaction capacity of nearly 5,000 times to handle new commodities.
- Challenges identified include the cumbersome transition from open cry to electronic trading due to mindset resistance, power constraints, and human resource shortages, requiring resoundingly supportive policymakers.
- Ermias Eshtu expects the Renaissance Dam to be a nearly $5 billion investment that is completely locally funded, contrasting with the need for prudence regarding debt, security issues, and FX balance challenges from daily imports.
- Demographic pressure in Ethiopia, with 60% of the population under age 25, necessitates keeping the workforce busy through economic expansion, while regional integration is viewed as key but secondary to solving domestic issues like linguistic diversity.
- Asana Beschloss anticipates the Paris global borrowers session will focus on channeling capital market resources into climate change financing, while also expecting the pension industries in countries like Chile and Mexico to expand from local bonds to equities and other asset classes.
- Local money is identified as critical for emerging markets to provide constant, long-term support to counter the volatility of external capital, particularly as pension funds in South Africa and Korea exceed $100 billion and $400 billion respectively.
- The transition from warehousing receipts allowing farmers to get money without collateral to broader capital market development is expected to have an incredible impact on millions of farmers' lives.
- Asana Beschloss expects universities and multilaterals like the IFC to help create the necessary infrastructure for fintech to transform the collection and disbursement of funds in smaller countries with less infrastructure.