1. Association of African Stock Exchanges Johannesburg September 20, 2006 Alison Harwood International Finance Corporation

2. Agenda  What is ESMID?  ESMID and Regionalization  Partnerships and Alliances  Comments and Reactions

3. ESMID: What Is It?  “Efficient Securities Market Institutional Development”  3 year, $5 million program to strengthen securities markets and products in Africa  Partnership of SIDA, IFC, World Bank, OMX  Promotes long term local currency financing to support mainly housing and infrastructure development  Improves securities markets and facilitates individual transactions The ability to do a transaction is the beacon guiding ESMID’s operations The ability to do a transaction is the beacon guiding ESMID’s operations

4. Need for Securities Markets/Products Rising with Economic Growth  The demand for housing and infrastructure is rising rapidly in EMCs from economic growth  Infrastructure alone requires an estimated 5.5% of EMC annual GDP (over $.5 billion per year).  Public sector financing only covers 2-4% of GDP. Significant additional funding is needed.  Much of this funding in industrialized countries comes from securities markets--bonds, structured finance, equity—which provide long term, local currency funding. Most African’s securities markets/products need to be significantly strengthened to meet these rising demands

5. Domestic Government Securities Short Term Maturities Dominate Note: Data for 2002 except Tanzania, Uganda, South Africa, Swaziland, Botswana 2003, Nigeria 2001

6. Investor Base Banks are the primary holders of GS in the region Note: Kenya includes government stocks (mainly held by “Other”), Swaziland – Other holders are primarily institutional investors

7. Building Markets, Facilitating Transactions What does ESMID Do? Indirect: Build Securities Markets Provide TA to: Create enabling environments Build market Infrastructure Strengthen market participants Markets to be supported: Primary – public, private Secondary + Government Market Infrastructure Market Participants Regulators Rating Agencies Marketplace (trading, clearing, depository) Issuers Investors Securities Firms Direct: Facilitate Transactions Provide $ to create workable, replicable transactions Structuring Documentation Ratings Legal fees Transactions examples: Bonds: straight, covered Securitization/Structured finance Government / non-government

8. How ESMID Operates Project Selection - Country Diagnostics Programs Projects - Outside proposals that fit ESMID’s strategic focus and goals Key Guidelines - Focus on few targets with high potential impact - Create long term, integrated programs of reinforcing activity - Build strong local partnerships and alliances - Complement related efforts of others. No redundancies. The goal: have a small number of high impact projects that demonstrate possibilities and are replicable The goal: have a small number of high impact projects that demonstrate possibilities and are replicable

9. ESMID Operating Structure PROGRAM MANAGER Manages all program operations Country Program/ Project team IFC/ WB specialists IFC/ WB regional staff Partner staff Technical Country Staff Consultants Advisory Group Steering Committee Strategic Focus Governance PEP- Africa Overall supervision Back office Technical Country Staff Support country projects Prepare materials for SC Maintain Consultants Info Coordinate Donor/Info

10. Success Factors: Inputs, Approach, Impact World Class Expertise Industry and Government Practitioners Global Product Specialists Global Emerging Market Experience Global Alliances (Exchanges, etc.) Local Knowledge Presence Local Alliances Integrated, Comprehensive Programs Longterm Commitment Practical Transaction Geared Improved ability to finance Infrastructure and housing + through securities markets and products

11. Regionalization Regionalization and integration are key operating themes for ESMID  Though not exclusively, ESMID will largely work with clusters of countries where changes have the potential to reverberate across several nations, i.e. East Africa, West Africa CFA  Regionalization remains a difficult task but seems more probable today, largely due to changes in technology and attitude  We will seek out the most appropriate form of regionalization for the work underway:  Cross-listings  Linking local brokers electronically to facilitate cross-border trading  Sharing operating platforms and retaining local regulation over areas such as issuing securities and licensing intermediaries  Designing transactions that suit the needs of a sub-region  Etc.

12. Local Alliances One Point: Local alliances and partnerships are critical to ESMID’s success: Industry Associations Development Banks Government Regulators Local alliances and partnerships are critical to ESMID’s success: Industry Associations Development Banks Government Regulators

13. Current Status  Currently setting up core field team  First Steering Committee Meeting tomorrow  Identifying first group of target countries to begin  East Africa?  Nigeria?  Other

14. End We welcome your comments and suggestions. Thank you very much!