Capital markets play a critical role in economic development by pooling domestic savings and mobilizing foreign capital for productive long-term investment. However, in emerging economies – which already represent half of global GDP – capital markets remain largely underdeveloped, or are altogether non-existent. This has been especially problematic in the post-financial crisis world, as regulatory change and the investment environment have limited the ability of the banking sector to fulfill the role it has traditionally assumed.
With strong economic growth expected over the next decades, developing deep and liquid capital markets in emerging economies has become more important than ever. However, the consensus view is that establishing local capital markets is a long, drawn-out process as it requires a step-by-step establishment of financial instruments, regulatory and legal frameworks, and market infrastructure in addition to a critical mass of market participants. The Forum's initiative on “Accelerating Capital Markets Development in Emerging Economies” asks the question if and how this process can be accelerated, paying special attention to the development of market infrastructure, the role of market enablers and intermediaries, and the impact of policy reform and legislative action.
The project aims to reframe the debate on capital markets in emerging countries through a series of workshops, discussions and interviews.
In Phase 1 (2014-2015), the initiative explored how the process for developing and deepening corporate bond markets can be made more effective and efficient, culminating in a report published in April 2015. In Phase 2 (2015-2016), the Forum launched country-specific pilot initiatives in Colombia and Indonesia to promote concrete initiatives to catalyse the development and growth of the local market.
In Phase 3 (2016-2017), this initiative will expand its scope and explore the steps that policymakers in emerging markets can take to attract global investors as a means for accelerating local capital markets growth. As with the first two phases of the initiative, the goal will be not only to create stronger networks between local players, foreign investors and relevant governments, but also to build a global repository for best practices and policy actions that can serve as a guide for policymakers looking to accelerate capital markets development in emerging economies.