Africa's bond markets need gov't support: experts

Robert Kiyosaki said, “Financial freedom is available to those who learn about it and work for it.” Of course this statement rings true when we consider financial giants in the world today.

No economy is able to survive without some level of financial freedom, not even a continent as big and resilient as Africa.

In view of this, when the African Development Bank (AfDB) launched the African Financial Markets Initiative (AFMI) as part of its strategy to develop the financial markets sector in Africa in 2008, it was one of the best things that could happen for Africa.

Ten years down the line and the dividends of that launch begin to surface. Reviewing the progress, the AfDB, to further develop and strengthen the domestic bond market hosted a successful workshop in Zambia last week designed to help delegates and attendees understand how far the AFMI has come, the road ahead, and what still needs to be done.

Effectiveness and Achievements of AFMI

With a five-pronged objective, the AFMI certainly had its work cut out for it.

Speaking on the workshop, updates on the African Domestic Bond Fund, and the effectiveness and the AFMI, Stefan Nalletamby, Director, Financial Sector Development, AfDB, said;

‘‘It’s been relatively effective, and I would have liked it to be more effective,’‘ Nalletamby said.

‘‘I would have liked to have already seen several domestic bond markets much more developed and relevant to the local economies, but one has to be content with what one can achieve over a ten year period. And knowing that we are starting from a very low base in the sense that at the time, we had maybe three or four markets that were relatively sophisticated.’‘

‘‘Of course South Africa stood out like a sore thumb, whereas the others were far behind. Since then, we have achieved a lot.”

His position is shared more enthusiastically by the Chief Bond Markets Expert and AFMI Coordinator , Cedric Mbeng.

‘‘Currently, we have in place the first platform for providing reliable data for Africa. The major issue for investors overseas, even in Africa is to access credible data, and AFMI has provided data for 43 countries on the continent.’‘

“Another achievement is training and capacity building. We have been able to train more than 1000 professionals relating to bond markets in Africa.”

He shared that recently, AFMI has made a lot of progress in terms of designing investment product.

“We established a partnership with Bloomberg where we designed an index bond that provides the bench mark for the performance of African bond market.”

The Zambian finance minister, Margaret Mwanakatwe, speaking on the AFMI shared that “I think it was imperative that we go that way, in fact, a trifle late; we should have done it sooner. I take my hat off for the AfDB for creating this particular environment, a space for African countries to be able to access more liquidity and long term financing, and hopefully cheaper financing as well.”

This is what Abhimanyu Yadav, Head of Fixed Income & Currencies at Mauritius Commercial Bank had to say.

‘‘Before AFMI worked with Bloomberg to create the index, there really was no metric to figure out how the bond market had done in Africa. This initiative has been able to help us quantify performance, be able to measure performance and basically bring the African local currency market to be at par with others that have an index, so that it is comparable, quantifiable, understandable and transparent, which is very important for investors.”

Mary Manneko Monyau, Country Manager, AfDB Zambia said the country has done well, considering the aspirations of AFMI.

‘‘The addition of Zambia to the list of the 8 most liquid bond markets in Africa represented in the AfDB Bloomberg Band Index in 2017 signifies the far reaching initiatives of the financial sector regulators in Zambia especially as the selection of the constituents of this index is managed by an independent internationally reputably source, Bloomberg.’‘

Importance of the workshop

Nalletamby also spoke on the workshop, “It is crucial because it brings all the relevance and credibility to the exercise. Of course, it increases the transparency, and it helps the information exchange and the understanding of our local bond markets. That is actually one of the most important parts of the AFMI.”

He went on to use the opportunity to thank the Central Banks’ liaison offices for their support, which he said made the event a reality.

Hon. Denny Kalyalya – Governor of Bank of Zambia on his part said, “The theme for this year’s workshop, enhancing transparency in African Bond Market is particularly important given the role the bond markets continue to play in domestic resource mobilisation for African economies. Transparency is important as it facilitates the availability of necessary market information needed by investors to make better informed decisions.

I am excited that the AfDB approached us at the Bank of Zambia to co-host this edition of the AFMI. We acknowledge and commend AfDB for including Zambia in the listing that was done in the index.

For Abhimanyu Yadav, he explained that the workshop had the desired effect as not only did it get the conversation going, it helped many African countries realise what was at stake and brought out ideas on making Africa as a whole more financially attractive.

Mary Manneko Monyau, Country Manager, AfDB Zambia opined, “This workshop is in line with our mandate to support the social economic advancement of our member countries, and more especially through the AFMI to contribute to financial sector, enhance domestic resource mobilisation and bond market development on the continent.

‘‘I must say since its inception in 2008, the AFMI has indeed contributed to the improvement of Africa’s bond markets. It has instituted programmes and initiatives, which have enhanced the availability and transparency of African Fixed Income data, expanded the funding options available to corporates and governments and attracted capital from domestic and international sources into African bond markets.’‘

‘‘The discussions and takeaways from this particular workshop, will contribute to the build up of strategic interventions to encourage financing of local currency markets in Africa, an agenda very well supported by the AfDB.”

Individual Country Growths

Also speaking at the event, Thapelo Tsheole ,Chairman of the commitee of SADC Stock Exchanges CoSSE, shared that “it is very important to have one market for most of the countries with small economies because you are able to get efficiencies in terms of trading and liquidity, because liquidity is very important for the government of the market, and those who aim to attract a lot of international investors.’‘

‘‘When a market is liquid, it helps also the local investors exit the market anytime they want to. But when we have two markets, they become very fragmented and information becomes very opaque.”

Director regional integration of AfDB, Mrs. Moono Mupotola also said, “There is also a large chunk that we can use for financial integration by tapping into our domestic markets.”

Hopes For The Future

Nalletamby shared: “What has come out from the conference is that clearly there is a need for strong political will. Clearly, governments need to realise that part of their funding the economy should be through domestic resource mobilisation, of which the bond markets can be a very strong play.’‘

‘‘It is a very strong weapon, it’s proof of trust between the government and the citizens, and we believe it is one of the ways of our different countries can affirm their independence of financial management.’‘

‘‘Of course, they need to be supported in the way they do their financial management. All these will help develop the bond markets in such a way that it would be relevant to investors as well as government and the corporate world.’‘

“We are trying to create new funding options for innovation on the continent, which is crucial.”

Also speaking at the event, Thapelo Tsheole, opined that “I think the ultimate goal is to get a much more developed market in Botswana and in certain countries, because there is a huge potential that these markets can actually achieve when they develop for their economies and their population, but also for the general financial inclusion in Africa which is a huge problem.”

Hon. Mwanakatwe, further buttressing Thapelo Tsheole’s point expressed her hopes, while stressing that she would like a situation where “more and more liquidity is provided into the market, not just large investors or external issuances, but also more participation from the locals of African countries.

‘‘I see that, 10 years from now, becoming the natural thing to do, where you can invest in the bond market, not just in your country, but the ability to do it internationally as a retailer.”

For Mrs. Moono Mupotola, she shared that the AfDB is “looking at what sort of instrument we should be considering in trying to raise money for infrastructure.

‘‘An example, we needed the estimate of about 65 billion in infrastructure for next five years to finance infrastructure in this sub region, but if you look at the asset held by pension, insurance, it comes to about an estimate of about 600 billion.’‘

‘‘The question is if we only use 10 % of that, there will be no need for us to get loans but yet when we do the analysis, we find out that most of our finance is coming from loans.’‘

‘‘There is a potential that we need to develop so that we can ensure that we tap into our resource mobilisation to Finance infrastructure. The same thing for trade and investment.”

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