Conduits of Capital

Because of the fragmented nature of African financial markets, it remains very difficult to access information
on the state of stock or bond market development in particular countries. Over time, as private investors
demand such information as they do routinely in developed capital markets, the private sector will provide the
information the market needs; but while markets remain underdeveloped, there is limited incentive for the likes
of Bloomberg or Thomson Reuters to fill the gap.
It is also the case that incumbents benefit from opaque markets and so are reluctant to support initiatives that
shine a light into parts of the markets that they would consider to be their own.
Skills development
Many Sub-Saharan African markets are now professionalising in the sense that regulators are demanding
minimum professional standards based on globally recognised professional qualifications. FSDA is supporting
this process by encouraging adoption of the Chartered Institute for Securities & Investment’s certifications,
adapting to local contexts where necessary. This is an important development which will also strengthen
investor confidence.
Skills gaps exist all along the investment finance chain. As has already been mentioned, skills need to be
strengthened in regulatory agencies. A number of the issues papers in this report point to the need to strengthen
skills in private equity and asset management. Market practitioners require training not just in technically
advanced areas such as derivatives but in some quite basic areas such as valuation. Pension fund trustees
also need technical training—for example, not just to understand the benefits of investing in alternative assets
such as private equity, but also fundamentals around the private equity limited partnership model, the J-Curve’s
impact on short-term performance, and the asset class’s liquidity profile.
It is not just financial or technical skills where support is needed, however. There is also a dearth of leadership
and broad management skills in the financial sector in many African countries. One of the papers in this report
also points to the need for financial centres to market themselves effectively to international investors. This is
also a skills issue.
The current culture in financial markets in Africa is such that private entities routinely underinvest in skills
development. Donors can help fill this gap by providing financial support for systemic interventions (such as
the development of certification systems) as well as technical and management training (preferably on a costshare
basis and preferably involving local training institutions such as business schools). The paper by Michael
Fuchs also argues that it may be worthwhile to subsidise private equity funds in order to make the expertise of
fund managers more accessible to SMEs.
Considerable effort needs to be made to work with training delivery techniques that could be more effective
than classroom-based approaches whose track record has been quite disappointing.
Subsidy
There may be circumstances in which it may be justified to use donor funding for financing investments. Donor
agencies will each have their own rules as to when it is appropriate to intervene in markets but, typically,
subsidy can be justified (i) for demonstration purposes—for example, to trial a new product; or (ii), to crowd in
third-party capital—for example, through the use of “first loss” instruments or tiered capital structures.
It is often said that African capital markets are not particularly innovative. Donors could help to catalyse the
development of new investment products by supporting product design processes, and underwriting the public
issuance of new kinds of product.
More controversially, donors could support market intermediaries, the dealmakers who have the skills,
networks and incentives to create investment transactions. African capital markets do not have a culture of
Conduits of Capital – Onshore Financial Centres and Their Relevance to African Private Equity
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