Factors limiting the integration of capital markets in East African countries
Capital Markets in the East African Community (EAC) are underdeveloped with limited activity. This has constrained their ability to contribute maximally to the mobilization and allocation of long-term financial resources. The EAC has consequently recognized the limitations of a country-focused approach to developing capital markets and has placed substantial emphasis on the pursuit of a regional approach. The expectations are that a regional approach will: i) create the much-needed critical mass of demand and supply larger than can ever be achieved in individual countries; ii) enhance competition in the securities industry and lower transaction costs; iii) provide a framework for sharing information, expertise and experiences; and iv) provide a viable platform for linkages with more developed markets, both within Africa and beyond. This study examined the factors constraining the integration of capital markets in East Africa. Macroeconomic factors, Policy framework, Legal and regulatory and external factors such as Political goodwill and multiplicity of regional blocs were identified as factors limiting integration process. The study concluded that political goodwill is a major factor constraining capital market integration in East Africa. Thus efforts to integrate the three markets must be seen to lobby the political leadership of each country. Also, clear investor protection mechanisms must be seen to be in place so at to win investor’s confidence across borders.