Strengthening and deepening African bond markets, vital for economies
"Deepening African bond markets" was the theme specialists in the field discussed during a panel discussion at the Annual Meetings of the African Development Bank (AfDB) Group, held from May 25-29 in Abidjan.
Organized by the AfDB, the meeting was a platform for the exchange of experiences by African and global specialists on the vital role of bonds in African economies.
A decade of strong improvement in Public Financial Management across the continent now calls for leveraging new ways of raising resources within the domestic financial system.
This, therefore, entails strengthening the role of domestic bond markets. With this in mind, AfDB has launched innovative, tailored solutions such as the African Domestic Bond Fund (ADBF) and the African Fundamental Bond Index (AFBI), which enables long-term investors to diversify their investment portfolios.
In collaboration with Bloomberg, AfDB has launched the African Bond Index (ABABI) which is a rules-based market value weighted composite index calculated by Bloomberg.
During the panel discussion Thiam Hee Ng, Senior Economist at the Asian Development Bank (ADB), focused on the history of the bond in Asia. "Because of the financial crisis that shook our country, we have developed this alternative to bonds with shorter maturities, unlike conventional banks," he said. Thiam Hee Ng told the meeting that this system had been established by 11 Central Banks in Asia. He added that it was a way of diversifying funding but, most of all, was a way of developing a common market.
The fund, he continued, has made it possible to bring a large number of participants to the bond market and small investors could be attracted. "It was an affordable, attractive option." The idea of its promoters, according to Thiam Hee Ng, was to increase liquidity by creating this fund. He concluded that great efforts had been made in Asia to encourage the bond market with the participation of the private sector.
William Mast of Bloomberg looked back on the 35 years of his company's existence, emphasizing transparency in actions to be undertaken with the public. According to him, the entire process had to be perfect in a bond, as there were requirements. He also added that, "it is essential to have local knowledge."
Paul-Harry Aithnard, Director of Research at Ecobank Group, stressed the usefulness of Bloomberg's actions. He went on to say that in Ecobank, "we are trying to introduce a bond index."
Concerning savings, Paul-Harry Aithnard explained the need to stimulate savings to boost the development of the continent. He gave the example of Ecobank, which has 10 million savers. "The diaspora could make a great contribution if it were made aware of this goal," he said.
For Arunma Oteh, Director General of the Securities and Exchange Commission in Nigeria, "AfDB's and Bloomberg's achievements should push us to make a success of bond markets." She said that there were many innovations to offer investors. "We need reliable instruments to attract investors," she added.
In the course of the discussion, many questions were related to obstacles, to progress made and to challenges associated with the development of the African market. Questioning also focused on the sharing of information and on raising the awareness of the public in order to reassure it about its funds entrusted to the state and to the private sector.
This meeting enabled all those present to increase their awareness of the role of bond markets in local currencies, and to better understand the key role that indices can play in the establishment of transparency in local currency bond markets in Africa. Making young people aware of savings was also recommended.
Closing the panel, Stella Kilonzo, Division Manager at the Financial Sector Department of the AfDB, thanked participants for their enriching contributions. "The challenges are there, but solutions exist and a great leap has been made," she said.