Evidence of the role of securities markets (like that of other segments of financial systems) in development are widely recorded in economic development literature. Beck and Levine (2001) in their empirical research points out that “for low income countries, having a more active stock market is associated with substantial high rates of growth. An increase of one standard deviation in stock market activity in low income countries is associated with a 2.5 percentage point increase in growth rates. It is clear that an active stock market is crucial in reallocating capital to high value uses in developing countries. Without such a market, growth in low income countries is substantially lower than it could be were such an active stock exchange to be present”. The development of securities markets among LDCs (Least Developed Countries) has a risen out of the concerns of The World Bank, and especially its financing arm IFC – International Finance Corporation-(which has a department that overseas the development of securities markets) with regard to the inadequate support available to LDCs to spur the development of their private sector (the so called alternative financing paradigm). This sector has for some time now been financed using external sources of finance in particular long-term soft loans extended by International Development Agency (IDA) and through project financing by IFC. This approach of financing projects has not lived up to the expectations for it is not sustainable and has thus been criticized by both economists and policy makers of recipient countries due to its failure to induce growth and thus development despite the substantial amount of resources involved. This is due to among others many conditionalities, heavy reliance on foreign experts on project planning and implementation where as monitoring is done by local officials who are either not motivated to do so, or do not have the capacity to monitor complex development projects or both. Critics also maintain that, this type of financing involves double monitoring albeit with different standards. On one hand, the local development banks which are the traditional intermediaries for such financing did the monitoring on behalf of the recipient countries and on the other, The World Bank, IDA or IFC monitor the development banks. This then not only raises the cost of using such type of financing to the recipient countries, but also compromised the flexibility with which this very financing is used by the recipient countries. This then led to policy makers in LDCs to look for alternative form of financing (from securities markets) which was even more apparent given the range of uncertainties facing LDCs with regard, not only to foreign sources of funding, but also to their domestic sources of finance which remain largely untapped due to lack of efficient long-term mobilization agents/intermediaries/instruments which made the case for the development of securities markets among the LDCs not only important, but urgent. This is consistent with research earlier done by Wai and Patrick (1973:253) who maintained that, “… for sometime now, LDCs have depended on foreign aid for their development, but this has turned to be an illusion and the new emphasis is to raise the rate of private voluntary savings and to allocate such savings more efficiently through the development of, and effective use of capital markets.” Moreover, foreign sources of funding have of late declined (will be worse during the current recession) both in amount and frequency and as such can not be relied upon to finance sustained growth and development of LDCs. As pointed out earlier, this form of financing contains unrealistic conditionalities; economic, social as well as political most of which ignore the realities and structures of economies of LDCs, let alone the diversity of their social-cultural divide. As such, foreign funding especially in form aid and grants (which has only enriched African political elite) has had little if any impact on the development of LDCs, except for consumption smoothing. Commenting on alternative financing paradigm for LDCs; Sideri (1994) and Murinde and Hamaza (1994) argue that, the development of any country can not be achieved through external financing alone, later on; aid. This can only compliment, but cannot under any circumstance be its substitute. They then contend that, development (starting and revitalizing) of securities markets provides one viable alternative approach for a more efficient financing of productive sectors in the LDCs. Whereas securities markets are seen as alternative financing mechanism for LDCs, the current global financial crisis and recession subsequent, has exposed the week structures of emerging securities among LDCs and LESSONS have to be learnt by these same countries with regard to the options of alternative financing mechanism. Not doing so is no longer an option, for financial history indicates that, these crisis are cyclic and are bound to recur in the future as they have done in the past. This as pointed out earlier means that, LDCs will have no choice but to reform their financial systems and turn inward in order to meet their development agenda. The problem however is that, turning in ward will also pose challenges as financial markets among LDCs have been repressed by the state, so much so that, it is hardly developed to cater for the massive financing needs of the state and that of their nascent private sector. The state has more often than not out competed the private sector by offering high interest rates for the meager domestic savings in such economies. The result has been crowding out of credit markets by the state, which has in turn retarded the development of private sector. These states will have to allow private sector to compete fairly for these resources, while at the same time enabling (through policy framework) the same private sector to undertake mobilization of private savings, but regulate the operations of the same sector to avoid mis-allocation of such savings in discounted risk ventures. The current financial crisis has exposed what has been in the know of most financial experts and economist with regard to the inadequacy of financial systems of LDCs to stand external shocks. A number of securities markets in LDCs and especially in Africa, has seen their indexes fall to as much as 60% which means that, share prices of companies quoted on these securities have lost as much, and by extension the balance sheets of these very companies. The most interesting phenomena of such drastic fall in share prices and thus indexes is that, foreign investors (major investors in such markets) who of late had bought securities on these markets sold them financial crisis psychological effect) in such quantities that the supply of these securities exceeded their remotest demand sending their prices crashing. This meant capital flight from emerging securities markets across Africa as investors tried to minimize their losses in such investments. Nairobi Stock Exchange (NSE), Johannesburg Stock Exchange (JSE) as well as Lagos Stock Exchange (LSE) recorded huge capital flights through massive sell of shares by foreign investors. This has meant that, FDI (Foreign Direct Investments) that were channeled through these financial markets reversed, and this denied financial institutions of liquidity. Also given the massive loss of indexes in western securities markets which were compounded by recession and companies set to report a wave of losses world wide as they reveal their quarterly and annual financial results in the near future means that these indexes will lose more substantially. A number of companies quoted on securities markets among LDCs are subsidiaries of the same multinationals that are due to report heavy losses, their shares are bound to fall too. Massive fall in share prices has a number of repercussions to the underlying economies and especially in LDCs. A part from a decline in FDI, most consumers speculate on share prices and do spend more when there is anticipated capital gains whether directly or as a collateral for credit. This then reduces their consumption spending across board which feeds back into the economy reducing firm output accordingly. Most consumers’ spending in such time is limited to essential goods and services, and leisure goods and services (eg tourism) are no longer on their shopping list. Such contraction in spending has a negative multiplier effect on other forms of spending in the economies affected, and thus investments; which negates growth of economies. Ends
