For 13 years, IFC’s Grace Kibuthu Ogola, a financial sector specialist, has helped develop initiatives that promote well-functioning capital markets in the East African Community. One of these initiatives, the Efficient Securities Markets Institutional Development (ESMID), helped Kenya, Uganda, Tanzania, Rwanda, and Nigeria begin to address challenges such as small equity markets, low liquidity, rigid regulatory frameworks, and limited capacity to raise capital. When the decade-long project concluded in 2017, ESMID had directly facilitated $480 million in new bond issues in East Africa and Nigeria by streamlining approval and regulatory processes and advising transaction teams. ESMID, a joint IFC and World Bank program, was implemented in partnership with the Swedish International Development Cooperation Agency, Sida.
Here, Kibuthu Ogola talks about what has surprised her the most about the process of building capital markets, how IFC’s efforts have made a difference, and why returning to work in her home country has special resonance.
You grew up in Kenya—how does
your knowledge and understanding of this region motivate your work on capital
This is the largest growing region in Africa, and so if we do anything to show impact, it will be here. Since this is a region I’m familiar with, I understand what our needs are. When the financial markets are functioning properly, we are able to develop good infrastructure, we are able to improve access and quality of services. The private sector is also able to thrive. So capital markets are really the foundation of a strong market economy—and hopefully a good future for my four-year-old daughter.
What sparked your professional interest in capital markets?
My master’s thesis [at The Fletcher School of Law and Diplomacy, the graduate school of international affairs of Tufts University] was on capital markets in Africa, and my case study was based in Nairobi. When I was trying to decide what to write, I realized that while I was educated and exposed to many different things, I really didn’t understand much about capital markets and I couldn’t find a write-up that was simple and helped me understand what capital markets are and how they work. I suppose I wrote what I needed to read. I have a legal background, so development economics was a new area for me, and I began to enjoy it quite a bit.
What was your assessment of Kenya’s potential for a local capital market when you returned to Kenya in 2007?
The economy was growing and evolving to the extent that the companies serving the key sectors needed a way to access long-term funding. There was a sense of what could evolve. Some of the key sectors are infrastructure and housing. We asked how we can help this economy drive growth by improving infrastructure, housing, and other key sectors and meet the needs of the people by supporting overall economic development. And what we saw is, if this is going to happen, if we are going to help people rise out of poverty and improve livelihoods, we need a way to help access long-term financing in this and other countries.
Did examining other models around the world help you visualize an integrated East African capital market?
Yes, we looked at many different models when we were reviewing the options for integrating capital markets. We looked at the European Union, which has the greatest relevance and usefulness to the East African Community. We also looked at the Nordic model within the EU in relation to stock exchanges and an integrated settlement system. So we pulled information from different countries, asking what the most relevant pieces of information are for the East African context. We tried to make it as contextual as possible.
What has surprised you the most about your work with capital markets?
At the start of our project, we debated whether or not to include Rwanda. The other countries [in the project group] already had markets and they were trying to reform, to expand, to grow. But in Rwanda there was no market. Ultimately, we decided to include Rwanda so [Rwandan participants] could learn from their peers and see if there was something they could get from it—and they did. Rwanda used the team’s recommendations on reforming other countries’ markets as an example to build on. They adapted a single settlement system and a robust legal framework, beginning from an improved place and using proven strategies to shape the structure of their market. It helped that Rwanda’s leadership was forward-looking and fast-acting, and keen and interested to see the market grow. Rwanda also took advantage of regional linkages and used Kenya’s central securities depository at the beginning while setting up its own.
That was also a big lesson for us because capital market development initiatives tend to look at the larger markets, which are more complex. The smaller markets give us an opportunity to help them start well. We can influence how they design and structure their markets. As we expand our work in Rwanda now, we’re not looking at reforms, we’re talking about growth. It’s a big difference. It has a sound regulatory framework already, so we now ask how to improve the secondary market’s liquidity, get more transactions issued regularly, and mobilize long term funds for strategic sectors. There’s a clear sense of progress. Of all the countries [in the East African Community], they’re taking advantage of the regional agenda.
Is there a specific result that has been especially meaningful for you?
When I look at some of the work that has been accomplished on reforming and harmonizing capital market laws in East Africa, I see a lot of our footprint there. I look at the direction the countries are taking on integrating their market infrastructure and the transactions being structured and issued, and I see a lot of our footprint there, too. We are beginning to see outcomes of work that we did way back—at least a decade ago, if not more. It’s very gratifying.
Published in February 2020