KEYNOTE ADDRESS
BY
DR. J D ROGERS
GOVERNOR
BANK OF SIERRA LEONE
AT
THE OPENING CEREMONY
OF
THE NATIONAL COURSE ON
CAPITAL MARKET
DEVELOPMENT AND
OPERATIONS
MAY 10 - 18, 2004
FREETOWN, SIERRA LEONE
1
Deputy Governor, Bank of Sierra Leone,
Chief Executives of Financial Institutions,
Heads of Industries,
Director General, West African Institute for
Financial
and
Economic
Management
(WAIFEM)
Directors of Bank of Sierra Leone,
Permanent Secretaries of Ministries,
Distinguished Guests,
Course Participants and Facilitators,
Ladies and Gentlemen,
On behalf of the President, His Excellency,
Alhaji
Dr.
Ahmed
Tejan
Kabbah,
the
Government and people of the Republic of
Sierra Leone, and the Board of Directors of the
2
Bank of Sierra Leone, I am delighted to
welcome all of you to the opening ceremony of
the
national
course
on
Capital
Development and Operations.
Market
Let me
extend particular welcome to Dr. Chris Itsede,
Director General of WAIFEM and his team who
have remained steadfast as partners in our
determination to strengthen capacity in all
economic
management
institutions.
Mr.
Director General, I know that Freetown is a
familiar terrain for you, but please permit me to
invite you and your team to feel at home and
enjoy the hospitality of the good people of
Sierra Leone.
Ladies and Gentlemen,
I would like to share my thoughts with you on
the challenges ahead of us with regards to the
development of Sierra Leone’s capital market
3
and the role of all stakeholders. The motivation
to organise this second workshop on capital
market
development
sprang
from
the
importance the Bank of Sierra Leone attaches
to
the
establishment
and
rebuilding
of
institutions vital for the reconstruction of a
post-conflict economy. For us in Sierra Leone,
the development of a viable capital market is a
critical complement to the sustained progress
that has been made in economic reforms over
the years.
Sierra Leone, like other low income countries,
came
into
the
new
millennium
facing
fundamental challenges, including achieving
growth
at
rates
required
to
attain
the
millennium development goals (MDG) rank
among the most important. Making an impact
on
poverty
reduction
requires
massive
4
mobilization
of
domestic
and
external
resources. The Economic Commission for Africa
(ECA) has estimated an annual growth rate of
at least seven (7) percent if Africa must halve
its poverty level by 2015. The current levels of
capital formation and growth are obviously
inadequate to deliver the desirable outcome.
An efficient and active capital market is pivotal
in the quest to substantially up domestic and
external levels of resource mobilisation.
Ladies and Gentlemen,
One could be tempted to ask why the interest
in developing a capital market at this point in
time?
The capital market links the funding
needs of firms and households with those of
investors, thereby facilitating a steady flow of
investible funds from surplus units to deficit
units as well as efficient fund allocation in the
5
economy. The use of the term ‘efficient fund
allocation’ does not necessarily connote a
process
of
quantitative
allocation,
but
recognises that there are other factors which
play active role in the allocative process. For
instance, interest rates which are the price of
funds are determined by the forces of demand
and supply in the market.
As the market
expands, it attracts various participants and
prices are determined more efficiently.
This
results in a more efficient allocation of funds.
In the household sector, the accumulation of
financial assets and an aging population are
fast resulting in an increase in assets such as
pension
and
accentuating
insurance
the
supply
funds,
of
thereby
long-term
investments outlet by institutional savers. The
6
capital market acts as a source of various longterm financial assets for institutional investors.
To respond to the ever rapidly changing
industrial structure, firms are making concerted
efforts towards innovating their management
style.
This response is creating additional
challenges in terms of facing increasingly
complicated and diversified risks.
Thus, a
major role of the capital market is the provision
of a variety of risk-hedge techniques against
diversified
risks
such
as,
price
volatility
pertaining to interest rates, foreign exchange
rates, commodity prices, stock prices and
property prices.
Ladies and Gentlemen,
Let me walk you through some salient elements
which
I
consider
important
for
the
7
establishment, operation and growth of a
capital
market.
First
and
foremost,
policymakers should ensure that an enabling
legal and regulatory environment is in place. If
a capital market is to play proper and effective
role in the economy, it is important to have
secure rights for outside investors and efficient
contract
enforcement
mechanisms.
An
essential element in improving the quality and
effectiveness of market discipline for operators
is
ensuring
the
accuracy,
timeliness
and
availability of information on the activities of
market operators.
Let me assure you that
appropriate standards shall be established and
effective mechanisms put in place for their
monitoring and enforcement.
There is need to establish robust legal, tax and
accounting systems and standards, at the
8
outset,
and
have
them
environment changes.
updated
as
the
Experience has shown
that systems which are aimed at protecting
investors by depending heavily on ex-ante
restrictions could have the unintended effect of
suppressing the most important function of
capital markets, which is to enable investors
diversify
their
risks
and
facilitate
the
customisation of risk management devices. It
is therefore, important to constantly review the
financial structure, technology, products and
services offered in the market in line with
changing financial and economic imperatives.
Ladies and Gentlemen,
The thinness of the debt market in our
economy is indicative of the absence of an
entrenched credit culture.
Indeed, this has
been the bane of the development of viable
9
financial markets in many developing countries.
Be that as it may, we should not discount the
fact that a
credit culture
thrives in an
environment defined by confidence, based on
trust
and
environment
contract
would
enforcement.
enable
Such
investors
to
accurately evaluate risks and returns, and then
pursue
investment
and
financing
derived from such evaluation.
options
The Bank of
Sierra Leone and other stakeholders would
sustain their on-going sensitisation programmes
to encourage the cultivation of banking habits
and the creation of greater public awareness
about the benefits of the capital market in the
rural and urban areas.
Governments have a strategic role to play in
this regard.
10
Most governments take more than a passing
interest in the establishment, growth and
smooth functioning of the capital market due to
its central role in mobilising resources for
economic
activities.
Regardless
of
the
government’s interest in the evolution of the
capital market, its involvement would revolve
around three core roles:
(i)
ensuring that investors’ protection is
guaranteed and transparency is ensured;
(ii)
putting in place, appropriate mechanisms
to avert systemic dislocation;
(iii)
minimisation
of
distortions
maximisation
of
performance
encouraging
fair
play
and
by
through
competition.
For the government, therefore, the policy
challenges
include
relaxing
regulations,
11
reducing restriction on capital mobility and
establishing
framework
development
an
to
appropriate
ensure
of
the
the
institutional
growth
equity
and
market.
Consideration should also be given to fiscal
incentives in the form of differential tax
treatment of equities on the one hand, and
bank deposits and other debt instruments on
the other. Indeed, it is particularly important
that equity investment be placed at par with
other types of debt instruments. The salutary
experience of some North African countries
(Morocco and Tunisia) in this particular area is
instructive. Another component of the current
economic
reform
package
which
the
government can effectively use to aid capital
market development is privatisation of state
owned enterprises (SOEs).
Sale of shares of
12
SOEs through capital market institutions could
substantially boost the volume and variety of
securities in an emerging market. This strategy
was
effective
in
jump-starting
emerging
markets in some Latin American countries,
notably Argentina and Chile.
Coming closer
home, sale of shares of privatised SOEs has
also stimulated the volume of transactions in
the Nigerian Stock Exchange. For Sierra Leone,
the on-going privatisation programme could
find a good anchor to the capital market as it
evolves.
Ladies and Gentlemen,
In exercising the powers conferred on it under
the Other Financial Services Act of 2001, the
Bank of Sierra Leone will be guided by the
imperative of investors’ protection by ensuring
order, fair and equitable dealings in securities.
13
In consultation with the industry’s stakeholders,
the Bank will advocate a set of appropriate
rules and regulations to ensure a level playing
turf and transparency in the market. Guidelines
for the operation of the market will be issued
by the relevant authorities at the appropriate
time.
Ladies and Gentlemen,
At this juncture, let me commend WAIFEM for
the quality of the course content and the
calibre
of
experienced
resource
persons
assembled to facilitate the course. The Capital
Market Development Committee is determined
to ensure that only the best is good enough for
Sierra Leone’s emerging market. I am informed
that arrangements are underway to expose the
prospective nucleus staff of the capital market
institutions to hands-on experiences through
14
attachment to relevant institutions in Nigeria
and Ghana in due course.
Committee
members for
I commend the
their
vision and
dynamism. It is gratifying to hear the Director
General of WAIFEM say in his welcome remarks
that there would be an examination at the end
of the course.
This would no doubt help to
identify individuals’ areas of strengths and
weaknesses. I enjoin you all to brace up for
the tight, but no doubt, illuminating schedule of
the next few days and make the best of a very
worthwhile initiatives.
Once again, I welcome the WAIFEM team to
Freetown and on this note, it is my honour and
privilege to declare open the national course on
Capital
Market
Development
and
Operations.
15
Thank you for your kind attention and I wish
you fruitful deliberations.
16