Thematic Focus for BoN
Annual Symposium 2004

The challenges for the development of Namibian bonds market:
Lessons from other smaller economies.

A well-developed bonds market is important for various reasons. It increases the competitiveness and efficiency of the financial system. The level of development of bonds market is an important determinant of the flexibility and pace with which the money and capital market and the entire financial system can adjust to internal and external changes and absorb shocks. Developing a viable bonds market also enhances the stability of the financial system by creating alternatives to banks, thus reducing their relative power and the related moral hazard. Lastly it serves as a means of two-way communication between policy makers and financial market and through them with the public at large. Namibia has a relatively less developed bonds market. As a result, a strategic policy geared towards the further development of money and capital markets in general, and bonds market in particular must be vigorously pursued in Namibia. Hence, this topic is relevant for discussion at the annual symposium, to enable the Bank of Namibia to come up with a policy geared towards the further deepening of the money and capital market, through an efficient and liquid bonds market in Namibia.

Symposium Papers

Overview of the bonds market in Namibia

This paper will serve as background paper, reviews Namibia's bonds market development since independence. It will also review the structure of the bonds market, key participants in both primary and secondary markets. A review of specific initiatives aimed at developing market will be also undertaken. Specific issues that will be dealt with in this section include factors hindering the participants to buy and/or sell bonds at the stock exchange, instruments available in the market and their maturing date, the existing infrastructures and issuance strategy and market access. Last but not least the paper will shed a light on the challenges faced by the policy makers to develop the market.

By: Mr. Phillip Shiimi, Senior Manager, Financial Markets, Bank of Namibia

Developing a broad based and well functioning primary bonds market in Namibia

The primary market in terms of issuance of bonds is dominated primarily by Government bonds and is complemented by few public institutions. Such a problem poses a serious challenge to the development of primary bonds market. The market is further characterized by fewer issuances of bonds. This is due to the fact that the government has limited the supply of bonds because it has to finance the budget deficit.

This paper would therefore attempt to the following questions. What is the appropriate strategy that would boost the issuing debt securities of different maturities? Which strategies would assist the country to develop the yield curve? The paper would identify impediments to the expansion of the primary bonds market in Namibia, these include existing laws such as tax, institutional structures, lack of incentives, pricing, sovereign credit rating, barriers to entry and appropriate benchmarks. Finally it would suggest policy measures that would address the shortfall in the primary bond market.

By: Mr. Michael Sandler, FullValue, Republic of South Africa

Developing an efficient secondary markets in Namibia

One of the major challenges facing the secondary market is liquidity. This mainly due to the fact that the participants have appetite for short term instruments. The government also issue short term instrument frequently than long term instruments as the government has to finance its activities. The paper will highlight the components of trading systems, including trading procedures, market-making intermediaries, trading and information systems, and their links with clearance and settlement systems and linkages between different secondary markets.

The paper would identify impediments to a liquid secondary bond market in Namibia. Furthermore it would attempt to answer the following questions: Does the size of the local market and available skills justify or can accommodate market making? What are the factors responsible for buy and hold strategies and what measures can be introduced to put halt to such a practice? Are the needs of the traders satisfied and how can they be satisfied? Lastly the paper would suggest measures that would improve transparency and pricing in the secondary bond market.

By: Mr. Tom Lawless, CEO, Bond Exchange, Republic of South Africa

General policy environment for the development of bonds market: Lessons from other developing countries

The motivations for developing bonds market are related to satisfying particular borrowing needs efficiently and making financial markets function more effectively. The prime reason for developing a bond market in most countries is to finance fiscal deficits. A second prime reason for developing a local bond market was the need to sterilise large capital inflows. Well developed bond markets makes financial markets more complete by generating market interest rates that reflect the opportunity cost of funds at each maturity. This is essential for efficient investment and financing decisions.

A developed bonds market also assists to avoid concentrating intermediation uniquely on banks. Since, banks are highly leveraged this may make the economy more vulnerable to crises. The damage caused by such a crises to the real economy is generally higher, and the restructuring process more difficult in the absence of a well functioning bonds market. Therefore, this paper will discuss the manner in which the development of this market reduces economic vulnerability and how it catalyzes broader market development. This include a review of the current policy environment in Namibia, making inferences on the impact of this environment on the local bond market development and highlighting negative aspects of the current legislation. It will further draw lessons from other developing countries from Sub-Saharan Africa markets and beyond. Lastly it would suggest laws and policies to be altered and/or introduced.

By: Prof. Nicholas Biekpe, University of Stellenbosch, RSA