" (Kahn, 2005) In addition bond markets assist in the provision of interest rates across the maturity spectrum and more efficient pricing of risk. By providing an alternative source of financing they reduce concentration of intermediation in banks. Because lending can be hedged in the bond market, banks have the ability to lend longer." (Kahn, 2005) Kahn notes that PECC (2004) states general requirements for bond market development which include: (1) the simultaneous development of market width, market depth and market infrastructure; (2) effective coordination among government agencies; (3) close public-private sector partnership; and (4) regulation focusing on maintaining and enhancing transparency and the treatment of taxation. (Kahn, 2005) Kahn concludes by stating that if bond markets are to be development in SSA or in other emerging markets, the role of the state becomes critical, as a range of policies would be required." (Khan, 2005)
The report of Jimnah Mbaru, Chairman of Dyer and Blair Investment Bank Ltd. entitled: "Mobilizing Resources Through the Bond Market" states that the population of Botswana in 2003 was 1.7 million and life expectancy in the country was 38 years of age. The overall GDP was stated to be at U.S.$7.4 billion and the GDP per Cap was stated at U.S.$4,352.94 and inflation at 9.20. Foreign reserves for Botswana was stated at 5.25 billion and the growth rate at 3.5%. (Mbaru, 2005) Economic reforms reported include those of: (1) relaxation of exchange controls; (2) liberalization of interest rates (financial reforms); (3) trade liberalization; (4) privatizations; (5) pensions; (6) regional economic integration; (7) National Social Security industry; and (8) Land reforms. All of these have as their goals the engineering of faster economic development. (Mbaru, 2005) Stated as reasons that African capital markets are weak are those of: (1) lack of over-the-counter market (OTC); (2) unstable macro-economic environment; (3) bond market under-development; (4) absence of competitive financial markets; (5) non-existent or small government bond market; (6) absence of bid indigenous business group; (7) commercial banks dominate financial system; and (8) proliferation of family owned companies. (Mbaru, 2005)
The potential role of bond markets in Africa are stated to include: (1) mobilization of long-term funds for infrastructure and housing development; (2) the provision of competition to commercial banks; (3) tapping of international capital markets; and (4) facilitation of monetary policy management. (Mbaru, 2005) Mbaru states that the reasons that the bond markets in African are underdeveloped are the: (1) under-development of the government bond market; (2) the role of the IMF in funding African balance of payment deficits and fiscal budget deficits; (3) the role of donor/aid agencies; and (4) the lack of big business groups. (2005) Stated as prerequisites for bond market development are factors of: (1) credible and stable government; (2) sound, stable and predictable fiscal and monetary policies; (4) effective legal, tax and regulatory infrastructure; (4) smooth and secure settlement mechanisms; (4) efficient and competitive financial system; (5) efficient and competitive financial system; (6) aggressive merchant and/or investment bank -- intermediaries; and (7) a vibrant government securities market. (Mbaru, 2005)
Mbaru states that the special role of a government bond market program includes the following: (1) starting point in capital market development; (2) provide a realistic yield curve in an economy; (3) benchmark for pricing corporate bonds; (4) facilitate integration of regional cap8ital markets: (a) through cross-border listing; (b) risk-less assets; (c) but foreign exchange risks exist. (Mbaru, 2005) The role of the African Development Bank in bond market development includes aspects of: (1) issuing bonds in domestic currencies to lend to domestic corporations; (2) to provide genuine competition to oligopolistic banking system; (3) invigoration of domestic capital and bond markets; (4) injection of more discipline in international banks; (5) eventual securitization of current loans required; and (6) facilitation of the emergence of a 'continental yield curve'. (Mbaru, 2005)
The work of Adelegan and Radzewicz-Bak (2009) entitled: "What Determines Bond Market Development in Sub-Saharan Africa?" reports an empirically study that analyzes the "determinants of bond market development in a cross section of 23 sub-Saharan African (SSA) countries between 1990 and 2008" and reports that "the savings constraint is a key impediment to bond market development as well as financial market deepening, as it results in a low level of financial intermediation by the banks." Included as well in factors that are important for the development of domestic bond markets in SSA are: (1) the structure of the economy; (2) investment profile; (3) law and order; (4) size of the banking sector; (5) the level of economic development; and (5) various macroeconomic factors. (Adelegan and Radzewicz-Bak. 2009)
The work of Madisha (2009) entitled: "Recent Issuances in Bond Market and Likely Impact" states that developed capital markets "...can offer substantial benefits to their governments, like the ability to borrow in their own currency at the lowest possible rate. In Botswana, however, capital market development has not been a great imperative because the government has consistently run budget surpluses." Madisha additionally reports that...
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