The fourth group of Arab equity markets consists of Jordan, Tunisia and other Arab countries. The Tunisian Stock Market however started operating in 1989. Capital market reform there began in earnest in 1994 and continued in 1996 with the promulgation of Law No. 94-117 of Nov. 14, 1994. The Tunisian Capital Market Council, CMF, a supervisory agency, became operational at the beginning of 1996. The Tunis Stock Exchange, Bourse des Valeurs MobiliÎres de Tunis, BVMT, officially began activity in its new form as a private, broker-owned company also in 1996.
Lebanon also belongs to the fourth group. The Beirut Stock Exchange was established by a government decree in July 1920, but was affected severely by the civil war which ravaged the country during the 70s and 80s. It was closed down in 1983 and resumed trading in 1996. As far as Egypt is concerned the Alexandra Stock Exchange together with the Cairo Stock Exchange were initiated in the 1890s. Indeed the Cairo Stock Exchange is preceded only by the London and the Brussels Stock Exchanges. In 1906 it boasted 323 joint stock companies, and prior to the nationalization era under Naser in the 1960s it was the 5th most active exchange worldwide. It was rejuvenated after Capital Market Law No. 95 for 1992.
Morocco is last country in this group. The Casablanca Stock Exchange or BVMT, was established in 1929. It has witnessed three major reforms. In 1948, it acquired legal personality. In 1967, a legal and technical reorganization, including a change in legal status to that of a public establishment, took place. In 1993, supplemented in 1996, the various market players were defined and a number of regulatory and technical rules were introduced.
These capital-deficient Arab countries now boast the most legally regulated Arab capital markets underpinned by relatively stable macroeconomic conditions and openness to foreign investors. These securities markets are also active in facilitating the privatization process.
It is relevant to point out that, from a historical viewpoint, interest in gilt securities markets has preceded Arab interest in domestic equity markets. The reasons for not setting up official equity markets at an earlier historical point can be seen as largely due to the nature of the political systems of the majority of Arab countries which tilted heavily towards authoritarianism and state-run economics. This political culture was averse to capitalism and resulted in stifling any serious prospects for a meaningful development of Arab private sectors. However, reliance on capital markets to fund budgetary deficits varied between Arab countries. Indeed, virtually all deficit-capital Arab countries have had operational gilt securities markets before they turned their full attention to equity trading.
Yet, it must also be pointed out that using debt markets to finance public deficits was until very recently much less common in the capital-surplus GCC Arab countries. But, the spiraling expenditure costs of the Iran-Iraq war and the 1991 Gulf war, coupled with dwindling oil revenues all forced many such countries to offset budget deficits by raising funds through issuing domestic debt securities. Additionally, in light of considerable government subsidies to the public, the decrease in oil revenue (which led to a steep decline in the standards of living) also created extra budgetary pressures. For example, the per capita income in Saudi Arabia which 20 years ago was $15,500, barely reached $5,000 in 1997. Additionally, in December 1998 Brent oil closed at a record low $9.175.
Such pressures were also compounded by expectations that future funding requirements on infrastructure projects would by far exceed oil revenues. It is estimated that from now until 2010, Saudi Arabia alone needs to invest well in excess of $100 billion in power and water. Even as the most conservative of all GCC countries, Saudi Arabia, raised its domestic public debt (in the form of debt securities) in the past four years from 50 per cent of GDP to over 100 per cent. However, in order to highlight the importance of the growth of Saudi gilt markets as an answer to ever-widening public deficit, one adds that by the end of 1999 Saudi domestic debt borrowing was expected to reach a staggering figure of around $145 billion. — ( Jordan Times )
By Lu'ayy Minwer Al Rimawi
The writer is an author and researcher on Arab capital markets regulation at the London School of Economics.
© 2000 Mena Report (www.menareport.com)
