Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
70
volatility inherent in these countries’ capital accounts itself represents a further
challenge to them.
 Political instability and impact on investor confidence. A number of countries
within this group – mainly in the MENA region – are either facing political upheaval
and subsequent transition, or are dealing with spillover effects from such countries.
Domestic political transitions have been long, complex and contested; these domestic
and regional tensions pose medium-term challenges to countries such as Morocco, as
they implement planned social and economic reforms.
 Economic nationalism. Populist policies to boost domestic jobs and investment –
often aimed at winning elections – risk driving foreign capital away. Restrictions on
foreign mining companies in Indonesia are one example. A number of sectors in
Indonesia are also becoming subject to laws placing heavy restrictions on foreign
ownership of local businesses. 70
Barriers relating to financial stability and institutional capacity
 Underdeveloped capital markets. Despite rising portfolio inflows in many LMICs,
most countries’ stock markets are modest in size. The 191 companies listed on the
Nigerian Stock Exchange have a total market capitalisation of US$95.3bn, compared
with the US$903bn market capitalisation of the 800 or so stocks listed on the
Johannesburg Stock Exchange in South Africa. The number and type of bonds available
in local capital markets are still very limited, dampening the growth of foreign
portfolio inflows.
 Reticence among companies to use the stock market. Relatively few business
owners in LMICs are prepared to list their companies on the stock exchange, fearing
loss of control and exposure to public scrutiny. The number of listed stocks in Nigeria,
for example, has not grown for a decade or more. This culture is shared by many of the
countries within this group, which represents a sizable barrier to deepening their
capital markets.
 Restrictions on the use of capital abroad. In 2012 the Nigerian authorities put
regulation in place to prevent the country’s banks from recapitalising their foreign
subsidiaries. Yet Nigeria’s ambitions to establish Lagos as a regional financial hub may
be at risk if the financial authorities continue to constrain the capacity of banks to use
their capital to operate abroad.
Opportunities
General opportunities
 Demographic dividend is a major asset in developing markets. In countries such as
Indonesia and Nigeria, which possess large, young, fast-growing populations, the
70 The Economist, August 24th 2013