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Representatives from Africa’s financial authorities have welcomed a planned new financial initiative from the African Development Bank (AfDB) which aims to boost inward financial investment in Africa and ease the continent’s infrastructure funding gap.
Plans for the African Domestic Bond Fund (ADBF) were presented at the AfDB’s Annual Meetings in Lisbon on 7 June 2011.
The ADBF is one of the two main pillars of the African Financial Markets Initiative (AFMI). The Bank launched the AFMI in 2008 with the aim of further developing domestic debt markets in Africa by strengthening the domestic bond market infrastructure and investing in local currency denominated debt.
The other pillar is the African Financial Markets Database. Its aim is to create a comprehensive database of updated, reliable and complete information on African domestic bond markets.
At the ADBF presentation, Stefan Nalletamby, Coordinator: African Financial Markets Initiative, opened by remarking that the ADBF was driven by enormous infrastructure development finance needs in Africa. According to a report from management consultants, McKinsey, the infrastructure funding gap is as high as US$49 billion a year, he said.
Michael Abraham, Managing Partner at Concert Financial Solutions, outlined the results so far of the ADBF feasibility study of African bonds and bond markets. The aim of the survey was to find suitable African domestic bonds for inclusion in the ADBF.
“The feasibility study was done from the point of view of a fixed income bond investor”, said Mr Abraham. It set out to discover bond markets in Africa covered by a proper legal and regulatory framework, where trading of the bonds was possible and where reliable and regular pricing was available, as well as other conditions for acceptance.
Overall, the research found 758 local currency bonds with an amount outstanding of US$195 billion.
After these bonds were reviewed according to the acceptance conditions, the feasibility study concluded with 232 bonds in 10 countries with an amount outstanding of US$151 billion.
The ten countries were Botswana, Egypt, Ghana, Kenya, Namibia, Nigeria, Mauritius, Morocco, South Africa and Tunisia,
Mr Abraham commented: “There’s a story to tell and it is attractive to investors”.
At the end of the presentation, Mr Lahbib el Idrissi Lalami, deputy director at Morocco’s Ministry of Finance said: “I am extremely interested in this project. It is interesting and ambitious”.
Gerald Nyaoma, director of the Central Bank of Kenya’s financial markets department, added: “This will increase the transparency of the African bond market, and improve governance”.
The deputy director of South Africa’s National Treasury, Mrs Mmakgoshi Phleta-Lekhethe, stressed the importance of both transparency and investor protection.