THE DEVELOPMENT OF MICRO-CAP SECURITIES MARKETS IN
SUB-SAHARAN AFRICA: NEW APPROACHES TO FOSTERING ENTERPRISE GROWTH
by Professor Stuart R. COHN
(Article Reference: Document No.18, November 2002)

Introduction
The problems affecting capital market development in sub-Saharan African ("SSA") countries have and continue to be studied, analyzed, and dissected in a variety of offices, forums, and workshops. One of the more promising efforts in recent years is the region's adoption of the principles and goals of NEPAD, the New Partnership for African Development. NEPAD presents a comprehensive program to foster the region's entrepreneurial capacities.

There is much that is commendable in the NEPAD initiative. Foremost, in my judgment, is the recognition of the importance of fostering the growth of small medium-sized enterprises (SME's) at the micro-economic level. It is through the development and growth of the SME's that national economics will improve. SME's offer significant prospects for increased employment, increased utilization of the region's productive and intellectual resources, improved tax base for government revenues, and low-cost accessible investment opportunities for local populations. SME's are Africa's future. Large companies have already done what they could and cannot be expected to grow much larger or provide materially greater economic impacts into local economies. The growth potential of SME's is the principal hope for the future of improved productivity, employment, tax revenues, and infrastructure capacities.

Despite NEPAD's promising goals, Chief Dennis Odife forcefully argues in the accompanying article that the NEPAD initiative is inherently flawed by its fundamental reliance upon non-African financial sources. As he points out, such reliance will lead to continued dependence on and lender controls by non-African institutions. I believe that Chief Odife's analysis is correct, and that NEPAD's promise can only be achieved through internal financing and growth. This paper promotes an alternative approach to NEPAD's exclusive reliance on external funding, one that seeks to foster domestic investment, particularly in small and medium-sized enterprises that dot the African commercial landscape.

Sub-Saharan Africa is rich in resources and entrepreneurial spirit. A principal problem has historically been a lack of domestic capital infusion to initiate business opportunities and to support sustained business growth. This paper proposes that steps be taken to create micro-cap securities markets that will allow SME's to raise capital through local limited securities offerings not currently possible under the statutes and regulation of most sub-Saharan countries. By the term "micro-cap," I refer to those companies that are too small to meet listing requirements on most stock exchanges and that generally are not sufficiently developed to undertake the expense and effort of a registered public offering under current offering requirements.

The proposals require thinking "outside the box" of the traditional and conservative existing company and securities laws. An important starting point is the realization that traditional standards have not worked to promote small business development. That is no surprise, as the standards are by and large based on English models that are both old and limiting. If we do not want to continue to plow the same barren fields, models need to be developed that give promise of a more fruitful harvest. That is the promise that NEPAD offers through its emphasis on promoting the development of local enterprises. If innovative models can succeed where old ways have not, the need to rely on foreign capital could be significantly reduced.

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