Capital Markets in the East African Community: Developing the Buy Side
Deep, liquid capital markets are fundamental to economic growth because they help channel the domestic savings of a nation to their most productive uses, and in so doing enable the private sector to invest, produce, and create jobs. But while much work has been done on improving the investment climate in developing countries for institutional investors, less work has focused on the institutional investors themselves. However, a crucial step in developing capital markets is to develop the domestic “buy side”—that is, to encourage greater participation of local and regional institutional investors such as pension funds and insurance firms in domestic capital markets. Most fundamentally, these large pools of savings can evolve into important sources of long-term finance for economic growth—for infrastructure, for example. In addition, a well-functioning buy side reduces an economy’s reliance on foreign portfolio investors, increasing macroeconomic resilience to shocks caused by sudden capital inflows and outflows.