Thematic Workshop: Making Domestic Capital Work

This note captures the key takeaways from the thematic workshop with 24 diverse experts – see the annex for the full list. It is not meant to be a comprehensive record of the conversation, nor does it seek to capture consensus views.

1. Strengthen coordination and the foundations for domestic capital mobilization

• Understand that the competition for capital is global and the question of how to mobilize local capital is relevant for all countries.
• Work on both the demand side (domestic and international demand for assets, e.g. for insurers or pension funds) and supply side (instruments, domestic regulatory structure) of assets.
• Bridge existing task forces and initiatives on domestic private capital mobilization, bringing together governments, regulators, pension funds, insurers, commercial banks, exchanges, investors, and development institutions to identify bottlenecks in capital market development.
• Develop practical country-led and regional partnerships around existing pools of capital, including in countries where funds or capital are already being pooled, with a focus on building trust and transparency among participating actors.
• Learn from and piggyback on the experience of successful countries in Latin America and Asia.

2.Improve the enabling environment for commercial investment

• Strengthen the macroeconomic, institutional, and regulatory foundations needed for domestic capital markets to deepen, including savings, macro-fiscal buffers, Central Bank governance, local-currency stability, and effective regulation.
• Unleash nascent, existing long-term assets of insurers and pension funds through changes in regulations so domestic institutional investors have greater scope to invest in productive domestic and regional assets by reviewing investment ceilings, asset-class restrictions, and other regulatory barriers, and the conduits through which they can make these investments.
• Support the sovereigns to go to the international markets, freeing space in local capital market so private capital can invest.
• Use capital from development finance institutions and multilateral development banks to catalyze rather than substitute for domestic commercial capital. DFIs and MDBs should not compete for commercial deals and should operate toward the higher-risk end of the market and transfer or share risk where commercial investors would not otherwise participate.

3. Develop innovative instruments and regional approaches to crowd in domestic private capital

• Expand the use of instruments that can make productive investment more attractive to domestic investors and help manage risk, including guarantees, first-loss capital, tax incentives, and inflation-linked instruments.
• Scale up equity capital.
• Develop faster and more predictable regulatory pathways for new financing instruments and bond issuance, particularly where special approvals or regulatory requirements currently constrain access to capital markets.
• Invest in regional payments infrastructure.

4. Invest in the long-term, patient work of building the institutional capacity and mindset for domestic capital mobilization

• • Build the consistent, rigorous data and transparency needed for capital market legitimacy.
  • Develop the pipeline of bankable projects and strengthen the capacity to structure and finance viable projects, recognizing that domestic capital requires both investable assets and the capabilities to develop them.
  • Strengthen and establish the core institutions of capital markets, including deep financial institutions, stock exchanges, regulators, and regional bodies. For example, regulators and financial institutions require strengthened capacity to assess new forms of investment.
  • Promote culture and mechanisms for increasing the levels of savings.

Where further attention is needed:

• Domestic institutional investors: What specific regulatory changes would allow pension funds, insurers, and other asset owners to invest more effectively in productive domestic and regional assets?
• Project pipelines: What capabilities and instruments are needed to develop a stronger pipeline of bankable projects and improve domestic financial intermediation?
• Regional solutions: Where can regional financial infrastructure, pooled capital, and greater regulatory integration overcome the limitations of shallow national markets? How to improve currency convertibility and strengthen/ create regional stock exchanges?
• How can aid be used to mitigate risks that deter investment?

List of Participants

1. Aigboje Aig-Imoukhuede
2. Faheen Allibhoy
3. Azucena Arbeleche
4. Kwabena Boamah
5. Ruurd Brouwer
6. Nathalie Delapalme
7. Thierry Déau
8. Anna French
9. Hamdiya Ismaila
10. David Kuijper
11. Joaquim Levy
12. Leslie Maasdorp
13. Elias Masilela
14. Samira Mensah
15. Mark Napier
16. Shem Ouma
17. David Reinstein
18. Jordan Schwartz
19. Admassu Tadesse
20. Hendrik du Toit
21. Jay Truesdale
22. Shriti Vadera
23. Samson Vese
24. Betty Zhang