Emerging capital markets play an increasingly vital role in the global economy by opening up international supply and lower costs of capital, affirms ACCA (the Association of Chartered Certified Accountants) today in two reports.
The Rise of Capital Markets in Emerging and Frontier Economies and Making Capital Markets Work in Emerging and Frontier Economies are both launched during ACCA’s Council visit to East Africa.
The first report reviews the academic literature on the development of capital markets, while the other is a collection of first-hand accounts and case studies from senior managers and professionals spearheading market development.
Speaking at a press conference in Uganda, where the reports were launched, Dean Westcott, ACCA’s President said: 'Capital markets play an important role in promoting robust economic activity. Emerging capital markets are clearly an increasingly important source of finance to business. Broadening participation in company ownership, especially where the needs of minority shareholders are concerned, requires clear corporate governance, a responsiveness to the many needs of investors, consideration of independent representation on the company board and transparency of decision-making in the interests of all investors and wider stakeholders.'
Dean Westcott added: 'Developing capital markets need increasingly transparent corporate governance and ethical business approaches to encourage investor confidence. And in the future, we are sure that environmental, social and governance reporting are likely to become part of a broadening landscape of corporate disclosure and reporting.'
ACCA says that this complexity in market structures leads to a need for increasingly sophisticated financial management, which means that finance functions have to rise to the challenge and play a more central role in governance, risk and compliance, alongside financial reporting and management accounting.
Dean Westcott continued: 'Such complexity requires an organisation that is externally-focused, with its aims focused on building investor confidence and capable of delivering performance targets which bring shareholder value – and being able to measure and provide assurance on what shareholders value.'
ACCA believes that capacity building around financial systems is essential. This allows capital markets to enable the most promising firms – both large and small – to source funds more cheaply and reliably than would otherwise be possible. But in order to do this, these firms need access to reliable financial information, which in turn depends on the skills and competences of professional accountants.
Dean Westcott said: 'It is pleasing to see fledgling capital markets succeed, but as an accountancy body, it is important for us to understand how the profession can help support these developments further and promote financial knowledge and understanding.
'Investors cannot be expected to assume the risk that comes with investing in what is often a novel and illiquid asset class without the best quality information possible; and they cannot be expected to participate in markets where crucial information remains private. This is why policymakers and the accountancy profession around the world have long championed the value of disclosure and assurance and must continue to do so.'
Mr Westcott concluded: 'Our reports show that the perceived strength of accounting and auditing standards is a leading indicator of the health of capital markets and a strong predictor of their ability to drive economic growth. While the financial crisis of 2008–9 dented confidence in disclosures in developed markets, emerging markets have seen perceptions slowly recover and, perhaps as importantly, converge.
'The less developed frontier markets, on the other hand, are not keeping up, meaning that some of the most promising economies in the world may soon not have the capital markets to match their dynamism. This is a risk that we can’t afford to take.'
- Both reports are available from the 'Related Links' section, to the left of this article.
- The case studies included in 'Making Capital Markets Work in Emerging and Frontier Economies' show how the path to capital market development can sometimes be rocky, but confirms that policymakers and the accountancy profession can help build capacity and stability.
- While focused primarily on Africa, the reports also includes stories of how capital markets have been built and sustained in the Caribbean and Cambodia.
Financial Literacy and Capacity Building
- One of the case studies in the 'Making Capital Markets Work' report is of a project by the Ugandan Capital Markets Authority, which has been working with ACCA to develop and deliver a training scheme for journalists reporting on the financial markets.
- The scheme, now replicated in neighbouring Kenya, enables journalists to communicate clearly what can be a highly technical subject, giving retail investors a sounder basis on which to make decisions. Confident retail investors in turn lead to more liquid and efficient capital markets.
- Capacity building around financial system is essential. ACCA estimates that nearly half (48%) of its membership in non-OECD countries work in financial centres; to improve their work prospects in the long run, ACCA works with governments and regulators around the world to promote market growth and develop capacity.
- ACCA has been supporting the work of the United Nations Conference on Trade and Development (UNCTAD) about capacity building in emerging economies, stating that high quality accounting, financial reporting and auditing can play a crucial role in improving economic performance around the world.
- 'The Rise of Capital Markets in Emerging and Frontier Economies' reviews a compelling body of evidence to argue that improved disclosure is one of the few sustainable means of attracting liquidity to capital markets without sacrificing stability and sustainability.
- Both papers conclude that in emerging and frontier economies, there is no room for relaxing disclosure and assurance requirements.