Reform urged to aid African debt markets
DEVELOPING Africa’s financial infrastructure was as important as advancing its physical infrastructure, and while African countries have raised their profile in world capital markets significantly over the past five years, participants at last week’s World Economic Forum on Africa called for greater reforms and more investment to create better markets for African debt.
Countries such as Côte d’Ivoire, Zambia, Kenya and Ghana collectively raised more than $7bn on international debt markets last year, at yields on a par with those of developed countries, and this is expected to accelerate over the next 10 years, Barclays Africa CEO Maria Ramos told the forum.
Africa’s inclusion in the global emerging markets debt index has jumped from five countries with $5.6bn in issue in 2008 to 15 countries with $36bn in issue.
Raymond McGuire, Citi head of global banking, said the increase in issuance by African sovereigns and financial sector players reflected confidence from primarily European investors.
“The view is that we have confidence in Africa as a vital growth geography, and the infra- structure is developing so we can facilitate capital flows , outside just the fixed income market,” McGuire said.
Ms Ramos said a lot more reform to domestic pension fund and mutual fund sectors was needed, with tax incentives to saving, as well as more investment in technology and trading systems and improved governance to equalise the playing field and reduce the cost of issuance. Harmonising the rules across countries would help reduce the cost of issuance, as would creating more liquidity in markets.
Investec Asset Management CEO Hendrik du Toit urged issuing governments to build proper yield curves in the debt market, instead of issuing debt for whatever maturity was cheapest. Proper yield curves would enable the development of corporate bond markets and of local currency domestic debt markets. He cited the importance of developing domestic capital markets across Africa, or countries would always be dependent on foreign finance. SA was a cornerstone investor in many debt issues by other African countries, Mr du Toit said, and the dispensation which allowed an additional 5% of SA’s savings pool was an important change which would support this.