Financial sector development - Sida

Such markets also offer domestic possibilities to raise capital also for projects initiated by
foreign investors.
6.5 Portfolio investors in developed countries
Portfolio investors in developed countries are increasingly attracted to capital markets in
developing countries. As shown in section 7.5 the net portfolio equity flows to developing
countries have increased from almost nil in the 1980s to around USD 35 billion annually
in the last three years. Portfolio managers have realised that investing in "emerging
markets" offer prospects for increased capital gains at reduced risks. African stocks have
also attracted foreign portfolio investors. In 1994 more than USD 450 million (half of this
in South Africa) were invested in the African stock markets.
The trend towards increased diversification of investor portfolios is likely to continue. The
share of developing countries securities in investor portfolios of developed countries can
be expected to at least double in the next ten years from the present level of about 1 per
cent. According to one estimate, 40-45 per cent of the world stock market capitalisation in
2010 will be domiciled in developing countries (compared to about 15 per cent in 1994).
In the same period, the share of African stocks in the emerging market portfolios is
expected to increase from 1.9 per cent to 3.2 per cent (Barings Securities 1994). See
also box 7 regarding growth of private pension funds in OECD countries.
6.6 Capital requirements for infrastructure projects
The last few years have seen an unprecedented world-wide increase in private
participation in infrastructure financing. Provision of efficient infrastructure services,
encompassing not only telecommunications and energy but also services related to
transports are now widely recognised as indispensable to economic progress. The
upsurge of interest in private financing of infrastructure has come from several sources.
In many countries, governments and consumers have become disenchanted with the
poor performance of publicly-owned infrastructure enterprises which provide infrastructure
services. Constraints on traditional sources of finance for publicly-owned
infrastructure enterprises have encouraged some governments to turn to private
financing. Technological changes have also been important: telecommunications, power
and transport systems are being "unbundled", generating competition in service provision
which has reduced unit costs and facilitated private entry.
Developments in financial markets, and innovations in financial products such as Build
Operate and Transfer, have enabled sponsors of private infrastructure projects to draw
on a wider pool of financiers and financing techniques. According to estimates by the
International Finance Corporation (IFC) the annual capital requirements for investments
in infrastructure facilities in developing countries may exceed USD 200 billion per year in
the coming ten years.
6.7 Need to restructure social security systems
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