Background and Rationale

Financial sector development is paramount to successful and sustainable economic development. Indeed a more effective formal financial system will contribute significantly to a better allocation of resources for investments while an improved access to financial services for the poor and the rural population will help alleviate poverty. As part of the Bank’s strategy to strengthen the financial sector in African economies, the Bank has just launched the “African Financial Market Initiative” (AFMI) which is targeted to further the development of domestic African capital markets.

In the recent past, African financial markets have made considerable progress, however in most African countries the bond markets remain underdeveloped. Among the reasons underpinning the underdevelopment of the bond markets is the lack of institutional and operational infrastructure which in turn leads to low levels of liquidity, a narrow investor base, short maturities on the bonds issued and high borrowing costs. This impacts ultimately the competitiveness and breadth of financial products available to both the corporate and retail sectors of the economy.

The AFMI is an expression of the commitment of AfDB’s to create innovative, tailored solutions for the continent. Developed in Africa for Africa and focused on a cooperative approach with public and private sector partners, the AFMI proposes an integrated programme conceived to tackle some of the most important issues affecting the development of financial markets in the Region. Through this initiative, the AfDB seeks to strengthen African economies by reducing their dependency on foreign currency denominated debt; it also seeks to increase the available financing options to the African corporate sector and to act as a catalyst for regional integration. Specific targets of the AFMI include improving financial governance, encouraging transparency, the harmonization of financial and payment policies and the promotion of regional bond markets.

The AFMI constitutes a truly development-oriented initiative that demands a large amount of financial resources for research, technical assistance and expert advice. In order to provide such funding, a joint effort of the International Donor Community, African Governments, Multilateral Agencies and a number of public and private partners becomes essential and a key factor for success. In order to avoid duplication of efforts devoted to financial market development in general and bond market development in particular, and to identify potential synergies between existing initiatives at a regional and country level, a comprehensive mapping study will be conducted for all 53 African countries as one of the first activities under the scope of the AFMI.