key activities of the wbg’s - world...
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Key Activities of the WBG’s
Capital Markets and
Corporate Governance Line
Capital Markets Practice, FPD
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Develop Domestic Securities Markets, Mainly Debt
- Provide long term, local currency instruments
- Diversify financial systems
- Reduce financing and investment risks
- Create new investment vehicles
Developing Securities Markets
IFC Product:
Development of non-governm
• Support financing for housing,
infrastructure, and private
sector investment
• Mobilize savings; provide
investments for rapidly growing
institutional investors
(pensions, insurance)
Non-Government
Bond Markets
Government
Bond Markets
2 Main Product Areas
ESMID GEMLOC
• Reduce government financing
risks
• Create pricing benchmarks,
• Finance growth
• Provide risk-free investments
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Comprehensive but Targeted Approach
Regulatory Assistance
Strengthening the
Marketplace
Capacity Building
Transaction
Support
Enabling Environment
Programs draw on full range of WB/IFC tools:
• Global product expertise + in-country knowledge/presence
• Public and private engagements
• Targeted and implementation oriented interventions
Regionalization
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Gemloc Program
• World Bank Group initiative to develop mainly local government
bond markets
• Combines comparative advantages of WBG and private sector
• 3 separate but synergistic pillars with 3 commercial partners:
– Investment management (PIMCO)
– Index/investability indicators (Markit + Crisil)
– Advisory services (World Bank)
• Creates market-based incentives for policy reforms
– Strengthen market operations
– Increase investability score/GEMX weight
– Attract more foreign/domestic investment
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Broad topics Specific agenda
Macro and Micro interactions
and trade-offs
- Capital controls, international excess liquidity and
convertibility
- Financial markets taxation structure
Primary Markets - Debt management strategy and issuance policy
- Placement mechanisms and organization
Money Markets - Repo markets
- Operational liquidity management
Secondary and Derivatives
Markets
- Exchange and OTC markets
- Interactions between markets and development sequence
- Valuation schemes
Participants and Investor Base - Foreign and local investor base
- Strategies for diversification
- Prudential regulations
Custody, Clearance, and
Settlement
- Local and International Central Securities Depositories
(CSD)
- Risk management upgrades
Regulations for Debt Markets - Systemic risk and investor protection
- Enforcement capabilities
Gemloc Advisory Services: Program Scope
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Leveraging country-led market development reforms through:
Country-specific work, Cross-country (peer group) dialogue, and
Applied research
Gemloc Advisory Services
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34 countries currently eligible
Gemloc Eligible Countries: Advisory Services
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Gemloc Phase 1 Gemloc Phase 2 Gemloc eligible Brazil Costa Rica Argentina
Chile Kenya Croatia
China Romania Jordan
Colombia Sri Lanka Kazakhstan
Egypt Uruguay Lebanon
Hungary Pakistan
India Tunisia
Indonesia Ukraine
Malaysia Vietnam
Mexico Venezuela
Morocco
Nigeria
Peru
Philippines
Poland
Russia
South Africa
Thailand
Turkey
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ESMID
ESMID:
Efficient
Securities
Markets
Institutional
Development
Started in 2007 as a partnership between Sida and World
Bank Group
Pilot operations in Africa
Now extended to Latin America
Current Donors: Sida and SECO
Through development of well functioning securities markets, the program aims to:
• Improve financing for priority sectors e.g. infrastructure, housing, microfinance and SMEs
• Enable private sector development - create jobs and improve livelihoods
• Broaden availability of local-currency investment instruments
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ESMID-Africa (Pilot)
• 3 year, $5.5 million comprehensive program funded by SIDA,
with advisory-investment linkages
• Special focus on long-term funding for critical sectors,
including housing and infrastructure
• Transaction support component acts as catalyst and validates
success in enabling environment work
• Sub-regional program for East Africa (Kenya, Rwanda,
Tanzania, Uganda), to foster a regional market that can be
accessed by smaller IDA countries
• And a country program for Nigeria given its size and its
developmental needs
A comprehensive and integrated approach
to developing local bond markets
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ESMID Overview
C O U N T R Y O P E R A T I O N S
East Africa
Kenya
Rwanda
Tanzania
Uganda
Regional Approach
Implementation
Country Approach
Implementation
Latin America
Peru
Colombia
Regional Approach
Implementation
West Africa
Nigeria
• Training materials/toolkits
• Publications • Conferences
• Workshops
K N O W L E D G E M A N A G E M E N T
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ESMID Activities
A comprehensive and integrated approach to developing local bond markets
Advice on Legal and
Regulatory Framework
• Improve approval process
• Reduce costs
• Framework for new
products
Capacity Building
• Certification/Licensing
• Training
• Develop regional provider
Strengthening Market
Infrastructure
• Market Structure
• Clearing & Settlement
• Transparency &
Information Dissemination
Regionalization
• Broadening & deepening
markets
• Minimum common
standards
• Consolidated infrastructure
• Cross border issues
Transactions
Support
• Active support to
issuers and
intermediaries for
replicable
transactions
• Introduce new &
innovative products
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East Africa Milestones
Bond Markets
• New laws and regulations
implemented to make it easier to
issue and trade bonds
• Framework for regional bond
issues
• Framework for new financing
products
Regionalization
• Regionalization strategy & road
map adopted
• Training Institute established –
1,850 trained
• Implementation of regional CSD
infrastructure - underway
Transaction Support
• PPIAF – collaboration
for infrastructure deals
by Kenya Airports
Authority, Kigali City &
Nairobi Water
• Supported first equity
linked bond issue in
Kenya - SME ($22 Mn)
• Supported first
Microfinance issue in
Tanzania (US$10 Mn)
• IFC local currency issue
in Kenya approved
• Shelter Afrique -
cooperation agreement
for regional issue
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0
100
200
300
400
500
600
700
800
900
1,000
2004 2005 2006 2007 2008 2009 2010 2011
Rwanda
Tanzania
Uganda
Kenya
ESMID
Starts
Broad range of sectors have tapped the bond market
Markets have recorded significant increase since 2007 from a very low
base - US$ 950 million raised
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Nigeria Milestones
Primary Markets
• Primary issuance framework reformed - to
make it easier to issue bonds
• Issuance costs reduced – including statutory
costs
• New tax rules for corporate bonds
Pension Funds Investment
Guidelines
• New investment guidelines implemented to
allow pension funds’ diversification (2010)
• Investment in infrastructure and private
equity (support to SME finance) permitted US$ 1.5 billion raised by nongovernment issues
since program launch – from a very low base
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0
200
400
600
800
1000
1200
2005 2006 2007 2008 2009 2010 2011
Nigeria Bond Market: Sub-National Vs Corporate Bonds
US$ Millions
SUB-NATIONAL BONDS CORPORATE BONDS
ESMID
Starts
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– Significant long-term local currency financing needs for priority sectors in Africa – including SMEs, housing and infrastructure.
– Small, albeit growing bond markets in Africa.
– ESMID’s comprehensive but target approach to bond market development – linked to transactions.
– ESMID’s significant success building bond markets in East Africa and Nigeria.
– ESMID’s innovative approach to regionalization.
Africa Expansion – Rationale
Regional and country program swill build
on work in East Africa & Nigeria
EAC (Phase 2)
UEMOA SADC
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Country specific programs with project scope based on
level of market development
Market Development
Less Developed
More Developed
Component Needs
Broader-Based
Targeted
Country Specific Project Scope
Entry Point
Diagnostics
Implementation
Project Scope
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Weak corporate governance frameworks and practices contribute to global
financial crisis, wealth destruction, and job losses
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Source: OECD, IMF, own research
Bank CG and regulatory
weaknesses contribute to 2008
crisis. 33,000 jobs lost & $11 bn
of value destroyed due to
Enron scandal
1997 Chispas scandal in Chile
becomes a landmark case in
minority shareholder rights
2008 and current financial crisis in Europe emanates
from banks’ exposure to toxic assets and is rooted in
poor internal CG structures and weak board oversight
In China, Minsheng
Banking Corp. fabricates
its GMS and financials.
India launches www.
watchoutinvestors.com
listing companies that
abuse SH rights.
CG leads to small equity
markets in Latin America
Launch of Novo Mercado in
Brazil allows companies with
good governance to
differentiate themselves and
leads to explosion of new
listings.
CG weaknesses in banks and SOEs thought to lie at heart
of why many investors shy away from investing in AFR
Failure of single SOE in
Senegal results in loss of 2
percent of GDP
Accounting fraud at
Satyam overstates the
company's revenues and
profits, and reported a
cash holding of ~$1.04
billion that did not exist,
shattering confidence in
India’s capital markets
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Corporate governance reforms benefit multiple stakeholders
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Who benefits How? The results
Investors
Companies
Regulators &
supervisors
Markets
Economies
• Protection from abuse
• Increased shareholder value
• improved access to finance (both equity and debt)
• Higher valuations
• Better decision-making
• A first line of prudential defense
• Increased financial stability
• Higher market
capitalization and liquidity
Good corporate governance systems encourage global and
local equity (and debt) investors. Increasing portfolio
investment in emerging economies and driving change.
Investors more likely to provide capital at a lower rate
Sustainable wealth creation within the private sector can only
be brought about through good management,
entrepreneurship, innovation, and better allocation of
resources.
Better corporate governance adds value by improving the
performance of companies through more efficient
management, better asset allocation, and improvements in
productivity.
Investors less likely to flee well-governed countries / companies
in times of crisis.
Companies with good corporate governance practices will have
better risk-management systems than those without.
Corporate governance is a key component of the governance
and anti-corruption agenda
Markets can grow by improving their corporate governance
standards and enforcement mechanisms.
More “champion” companies that can compete and grow internationally
Higher economic growth
• More sustained economic
growth
• Increased financial stability
• Increased competitiveness
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Provide advisory support to help countries and companies
- Improve legal and regulatory frameworks
- Raise performance & access to external financing
- Lower cost of capital
- Advance financial stability
Enhancing Corporate Governance
Financial Sector Listed Sector
3 Main Product Areas
BGR ROSC
• Update the legal framework to
international standards
• Build legal protections for
investors
• Build capacity for companies
and regulator
• Enhance corporate
transparency
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State Owned Sector
SOE REVIEW
• Update the legal framework to
international standards
• Refocus supervisory processes
• Enhance safety and soundness
of the financial sector
• Support risk management
improvements
• Increase performance of
SOEs
• Strengthen delivery of services
in infrastructure & banking
• Reduce fiscal burden/risk
• Improve the prospects for
privatization
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Advisory Work
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CG ROSC SOE Governance Reviews
Counterparts • SECs
• Stock Exchanges
• Institute of Directors
• Auditing & Brokerage
industry
• Banking Regulators
• Banking associations
• Auditing industry
• BIS
• FSB
• Ministries of Finance
• SOE ownership entities
• Individual SOEs
Outputs • 80 carried out or
underway since 2000 in
62 countries
• 10 + reviews completed • Work completed or
underway in about 20
countries
Results • Country action plans on
legal / regulatory reform
• CG Codes drafting /
updates
• Creation of new
Institutes of Directors
• CG Country Codes, law
and regulation revisions
• Bank supervision
strengthening
• Strengthening of
individual banks’
awareness and processes
• New/Revised ownership
policies drafted
• Improved board
appointment and
performance monitoring
• New dialogues on CG
Current
Engagements
• Brazil, Russia, Colombia,
El Salvador, Malaysia,
Thailand, Kuwait
• Brazil, Peru, Kosovo,
Angola
• Serbia, Turkey, Romania,
Vietnam, Kirgizstan,
Mozambique
ROSC BGR SOE REVIEW
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New Products And KM
• New Toolkits underway:
– SOE Corporate Governance Toolkit
– Corporate Governance Assessment Tools for MFIs
– Regulatory Governance Toolkit
• KM:
– Bank Governance and the Financial Crisis Working Paper
– FSB Third Thematic Review on Risk Governance
– Lessons Learned from the CG ROSCs
– CG Cross-Comparison Index Note
– CG for Islamic Finance
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Partnership Programs
For Capital Markets and Corporate Governance
Thank you very much!
Tel: +1 202-473-0006
Email: [email protected]
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