AfDB Publication Promotes Structured Finance for Efficient African Markets
A new book launched by the African Development Bank on April 19 explores how structured finance techniques can mobilize African domestic capital to support economic infrastructure projects and economic growth.
The book, Structured Finance: Conditions for Infrastructure Project Bonds in African Markets, was officially launched by AfDB Vice-President, Finance, Charles Boamah on the sidelines of the IMF-World Bank Spring Meetings in Washington, DC.
“Sound domestic capital markets are critical to the development of African countries,” said Boamah. “Accordingly, the African Development Bank (AfDB) has over the last few years pursued and continues to actively pursue a number of initiatives aimed at helping to raise the capacity of local capital markets, thereby enabling African sovereign and corporate issuers to tap long term finance for infrastructure development.
“The report on Structured Finance in Sub-Saharan Africa-Conditions for Infrastructure Project Bonds is the latest addition to the ongoing efforts to harness more domestic resources for development, with particular emphasis on building Africa’s infrastructure.
“This report is very timely, given the urgency to significantly scale up financing to address Africa’s large and growing infrastructure deficit,” said Boamah. African countries have been growing at rates in excess of five per cent. Indeed, seven out of the 10 fastest-growing countries in the last few years are in Africa. This has created a growing middle class and a flourishing financial sector. Savings are accumulating with institutional investors such as pension funds and insurance companies.
An opportunity for further innovation exists and would be welcomed by the market, the book argues. Several African countries today have given priority to the issuance of infrastructure bonds. Many countries have been attracted by the example of Kenya, which has launched infrastructure bonds both from the central government and from state-owned enterprises such as KenGen. The Government of Kenya has led the way by introducing certain tax advantages for investors buying such bonds. This has helped to build interest in the institutional sector.
The report also elaborates on examples from other emerging markets such as Chile, Brazil, Peru and Malaysia using project bonds as a way to catalyze investors’ interest in infrastructure projects. Such examples can serve as a template for African countries on how to develop their own markets.
During the launching ceremony, African Ministers of Finance and Central Bank Governors met to discuss how African markets could mobilize capital for infrastructure projects, especially through African capital markets, and the role of policy-makers and development institutions in the process.