African Financial Markets Initiative

Transcription

1 African Financial Markets Initiative African Domestic Bond Fund Feasibility Study Frankfurt, November 2011

2 This presentation is organised into four sections I. Introduction to the African Financial Markets Initiative (AFMI) II. Components of the African Domestic Bond Fund (ADBF) project III. ADBF Feasibility Study IV. Next steps 2

3 Several critical factors are underpinning the development of debt markets in Africa Lack of institutional and operational infrastructure Low levels of liquidity Narrow investor base Short maturities High borrowing costs Loss of competitiveness and breadth of financial products available Source: AFMI Database and Mapping Study 3

4 AfDB wants to contribute to the development of African domestic bond markets through an effective tool The African Financial Markets Initiative Objective Contribute to the development and deepening of domestic bond markets in Africa A cooperative approach Central Banks, Government Agencies, Donors, Public/ Private Sector Partners Through two complementary pillars 1. African Financial Markets Database (AFMD) 2. African Domestic Bond Fund (ADBF) 4

5 African Financial Markets Database (AFMD) Three Specific Objectives Improve availability and transparency of African fixed income data Reconcile data produced by several institutions using different concepts and methodologies Enhancing the quality of financial statistics on bond markets in Africa Two Defined Stages STAGE 1 Enhancement of data collection and management capabilities STAGE 2 Data dissemination and AFMD Web Portal Gain access to accurate data Ensure data harmonization and consistency Assist countries in developing their technological capabilities Provide a comprehensive database and web portal with up-to-date, reliable and complete information about African Fixed Income Markets

6 African Domestic Bond Fund Four Specific Objectives Reduce African countries dependency on foreign currency denominated debt Encourage the deepening of domestic bond markets through investments in longer dated assets Contribute to enlarge investor base in African domestic bond markets Create a permanent forum for discussion and provision of technical assistance on domestic bond market issues Two Defined Stages STAGE 1 Feasibility Study and Ranking of African domestic debt markets STAGE 2 Enhance domestic bond markets infrastructure, construction of ADBI and creation of ADBF Provide accurate and quantifiable information on African domestic debt markets Identify impediments to debt market development Develop a proposal for the potential structure and size of the ADBF Creation of multi-disciplinary WGs Develop ADBI benchmark index and listing Fund investment in local currency denominated government bonds issued in African markets

7 Components of the ADBF project AFMI database 3 rd party Data providers Stage 2: enhancement of domestic bond markets infrastructure, construction of ADBI and creation of ADBF 1. Feasibility Study Deeper & efficient domestic bond markets Quantifiable information on domestic debt markets Identify impediments to debt market development Propose structure and size of the ADBF 2. African Domestic Bond Index 3. Regional multi-disciplinary WGs 4. African Domestic Bond Fund Benchmark for African domestic bond markets, listing and visibility Policy dialogue, capacity building, knowledge sharing & advisory Investing in local currency denominated debt 7

8 Data for the Feasibility Report was sourced from a range of institutions and then evaluated, all African countries were scored and ranked Source 1 Source 2 Source 3 Source 4 other sources Multiple sub-scores are aggregated and result in country rankings Data quality control Evaluation process Data Universe Data Analysis Detailed country analysis is undertaken and focuses on: 1. Macroeconomic environment 2. Legal, tax & regulatory infrastructure 3. Bond market infrastructure 4. Issuers, issuance strategy, market access 5. Investor base 6. Participation of economic agents 8

9 Six broad categories are evaluated A. General environment Macroeconomic Environment : factor weight of 10% attractiveness of a countries debt for 1 bond investors. Sub-factors include: GDP per Capita Inflation Debt outstanding and debt to GDP Exchange rates Legal, Tax and Regulatory Environment: factor weight of 20% perception of how safe an investment in 2 the respective country is. Sub-factors include: Political stability Government effectiveness Regulatory quality Rule of law Tax environment Restrictions on capital flows and foreign exchange 9

10 Six broad categories are evaluated B. Bond market and Issuers Bond Market Infrastructure and risks: factor weight of 25% 3 sub-factors include: Efficiency of clearing and settlement systems Safety and soundness of the safeguard arrangements Efficiency of asset servicing Availability and quality of bond data and prices Issuers and Market Access: factor weight of 25% Investor guidance, issuer reliability. Sub-factors 4 include: Country risk assessment Bonds in the market Issuing strategy and maturity structure 10

11 Six broad categories are evaluated C. The potential and size of the domestic investor base and catalysts for developing the LCBM Domestic investor base: factor weight of 10% evaluate the potential for the uptake of debt by the domestic investor base. 5 sub-factors include: The absolute value of the combined assets The value of combined assets to GDP The value of combined assets per capita Economic agents: factor weight of 10% Evaluates the promotion and support of the bond market and/or fixed income investments 6 by economic agents, to improve and develop the overall market sub-factors include: Institutions relevant to financial markets (Central Bank, Ministry of Finance and/or Debt Management Office, Regulators, Stock exchanges and other economic agents) Diversity of financial institutions (Commercial banks, other depositing taking institutions, Investment Banks, Non-bank financial institutions, Insurance companies etc.) 8 th pillar: financial market sophistication Control of corruption 11

12 The countries are scored, ranked and classified according to their level of development Macroeconomic Legal and tax Bond market infrastructure Issuers and issuing strategy Investor base Economic agents Countries (ranked by level of bond market development) 1. Highly developed with global significance above 80 points 2. >50 but <80 advanced 3. >40 but <50 developing 4. <40 nascent 12

13 Ranking of the top 10 countries from highly developed, to advanced and developing 80,0 Highly developed Feasibility Report Summary 70,0 South Africa 60,0 Feasibility Report Scores Advanced Namibia Egypt Mauritius Botsw ana 50,0 Morocco Developing Nigeria Tunisia 40,0 Country Ranking Ghana Kenya 13

14 For the rest of the countries, the markets are either nascent or non-existent 40,0 30,0 20,0 10,0 Cape Verde Zambia Uganda Tanzania Burkina Faso Algeria Senegal Seychelles Benin Cote d'ivoire Togo Lesotho Feasibility Report Scores Feasibility Report Summary Swaziland Mali Gabon Rwanda Libya Niger Cameroon Mozambique Sierra Leone Malawi Djibouti Burundi Angola Congo, Rep. Equatorial Guinea Madagascar Gambia, The Guinea-Bissau Liberia Ethiopia Sudan Mauritania Zimbabwe Sao Tome and Principe Eritrea Comoros Chad Central African Republic Guinea Congo, Dem. Rep Country Ranking Somalia 0,0 14

15 Countries eligible for inclusion in the ADBI South Africa Kenya Egypt Mauritius Namibia ADBI / ADBF Botswana Morocco Ghana Nigeria Tunisia Zambia Cape Verde Uganda Tanzania Senegal 15

16 Next steps. Feasibility study Internal and external peer review of the study Stakeholder consultations North Africa, Southern Africa and West Africa Update the study to take into account peer review comments Index and market data Identify banks and services providers for bond prices Test delivered data Commence regular data delivery and update index to current date Index and data dissemination Commence daily index production Creation of multi-disciplinary working groups Approval of concept at high level Engagement with stakeholders and identification of challenges to bond market development Set up of work program for each working group ADBF Approval of concept by the Board Identification of seed investors and development of prospectus Marketing and fund raising 16

17 Thank you For further information, please contact the AFMI Support Team at: African Financial Markets Initiative Tel: