Legal Aspects of Promoting Investor and Issuer Participation in Sub-Saharan Africa Equity Markets—The Case for a Functional Bond Market

Abstract

This study examines the Zambian regulatory and institutional framework which governs the public distribution of securities so as to establish whether or not the said framework provides adequate incentives for the growth of bond issues and the bond market in Zambia. The study employs the doctrinal and the non-doctrinal approaches to evaluating the effectiveness of regulatory rules and institutions. The results of the study are: (i) the Zambian bond market is in the nascent stage of development like the bond markets of most Sub-Saharan jurisdictions (ii) the corresponding equity markets in Sub-Saharan jurisdictions are also under-developed in comparison to their South American, Asian and European counter-parts (iii) there are quantitative restrictions on the investment of surplus pension monies in securities, and (iv) there is limited pension fund participation in domestic Sub-Saharan securities markets. This study argues that the efforts to enhance the investor base for Sub-Saharan equity markets could be augmented by a functional bond market which could serve as a source of investors for bond-like equities, convertible bonds and equity-linked bonds. The study argues further that by promoting the issue of convertible and other equity-linked Green and Sustainability Bonds, a functional bond market could serve as a source of investors for the equity markets as investors convert the bonds to equities or, exchange the bonds with equities or indeed subscribe for new issues of equity securities. A corollary argument is that a vibrant and successful secondary bond market is likely to incentivize new issues of equity securities and enhance the supply of equity securities to the market so as to match up the escalating demand—a condition which is necessary for price stability. The other argument is that the replacement of the quantitative restrictions with the prudent-person rule for the investment pf surplus pension fund monies is likely to promote the participation of pensions funds in bond markets and ensure the success of Sub-Saharan Africa securities markets.