Harmonisation in the East African Community (EAC) 14 Apr 2011
This will provide a bigger market for the instrument and investors, as well as creating greater scope for raising funds. And in turn will drive infrastructure development and corporate activities of member countries.
Whilst the bonds market in Kenya has seen significant growth, 2010 seeing a jump of over 330%, primary issues have often been oversubscribed, demonstrating the appetite of investors for the instruments. Although there is still a lack of liquidity in the secondary market.
Financial integration however is hinged to the East African Monetary Union (ESMU). And a target year of 2012 for this is reportedly over ambitious. For a shared currency to take off, financial services and the formulation of economic indicators need to be fully harmonised.
In addition to complexity and reservations surrounding the monetary union, another hurdle for a regional bond market is the lack of integration of the processing systems. With member countries continuing to operate separate Central Depository systems (CDS).
Together with World Bank / IMF, member countries are working on the implementation of five financial pillars. Which in addition to harmonisation of financial laws and integration of market infrastructure, are the strengthening of the market participants, and ‘mutual recognition of supervisors’. The development of a regional bond market is the fifth pillar.
EAC integration stages reportedly achieved so far are the customs union and common market protocols. Whilst a common currency and a political federation remain in development stage.
Althea McCourt ABIS Limited