Barriers and Opportunities for Enhancing Capital Flows

In the COMCEC Member Countries

domestic markets in non-tradable sectors such as construction and renewable energy

can be attractive to investors. Capital flows to non-tradable sectors appear to be

somewhat insulated from poor economic conditions and largely immune to political

instability.

Opportunities relating to financial stability and institutional capacity



Policies to promote financial stability and transparency.

Government efforts to

introduce policies that improve financial stability and transparency in the country can

contribute significantly to raising investor confidence. In Nigeria, this has been aided

by the creation of the Excess Crude Account to save oil windfall revenue, and the

enactment of the Fiscal Responsibility Act of 2007, which sets the framework for

prudent fiscal management and discourages extra-budgetary spending.



High domestic borrowing costs enhance the appeal of international capital

markets.

High domestic borrowing costs are leading both government and private

companies in LMICs to raise capital in the international markets. Between January

2011 and August 2013, four Nigerian banks issued Eurobonds totalling US$1.45bn. In

2011 Nigeria issued its first foreign-currency sovereign bond, with the aim of creating

benchmarks for future sovereign borrowing.



Reforms to improve efficiency and depth of the capital market.

LMICs have

opportunities to draft in capital-market-oriented reforms that are practical and have

the potential to boost investor confidence considerably. Nigeria has done this,

extending the number of stock exchange trading days, permitting short selling,

drafting in a system of regulated market makers, and adopting the NASDAQ OMX

trading platform. The result: improved investor perceptions of the country as an

investment destination.

4.6.3.

UPPER-MIDDLE INCOME COUNTRIES

Barriers

The barriers faced by COMCEC Country Members in the upper-middle income group are

diverse and reflect – similarly to the lower-middle income group – the heterogeneous nature of

the states within the group. Despite being in a higher income bracket than the LMICs and the

LICs, numerous countries in this group – such as Algeria, Iran, Iraq, and Libya – have yet to

fulfil their potential, with banking sectors dominated by the state and shallow financial

markets.

Interview with official from the MENA Region Office of the Chief Economist, World Bank, September

6th 2013

Ibid.