by TomJackson
VENTURES AFRICA – The announcement that Morocco is planning to unveil
billions of dollars worth of sovereign bonds is a sign that some
African countries are thinking outside the box when it comes to
closing the continent’s funding gap, which World Bank estimates puts
at $93 billion per year for infrastructure alone.
It is a brave move,
but it remains to be seen whether it will be a successful one and
catch on in other countries.
The Moroccan sovereign bond, expected to be released in October, will
be used for investments in the justice and subsidy systems. With the
country’s economy, like so many in Africa, highly dependent on the
ailing Eurozone, the government is seeking funds from elsewhere to
shore up its economy.
Development such as that desired by Africa is expensive, and bonds are
increasingly being seen as a good alternative option as aid falls and
investment from Europe becomes less reliable. Development finance from
industrial nations is something Africa can no longer rely on. Morocco
is now following the suggestion of Dabiso Moyo, who argued in her book
“Dead Aid” that bonds were a better alternative to relying on
diminishing aid handouts. Common in Europe and Asia, we will now get
the chance to see whether they can catch on in what has been an
initially reluctant Africa.
Morocco’s boldness is in contrast to the inertia over bonds elsewhere
on the continent. At the end of last year, Kenya postponed plans to
issue a debut sovereign bond, just weeks after then Finance Minister
Uhuru Kenyatta had said that the country was “definitely going ahead”
with the plans. Having planned to issue a $500 million international
bond this year to obtain some hard currency reserves in the wake of
the shilling falling against the dollar and a widening current account
deficit, the country was forced to backtrack.
Joseph Kinyua, permanent secretary in the finance ministry, said that
the issuing of the bond had been delayed because the money could take
too long to materialise. Kenya will instead raise $600 million from
international banks as they seek more favourable interest rates. The
ministry is currently in the process of finalising the programme, with
a consortium of foreign banks set to share the loan. “If we’re able to
get money from outside at cheaper rates than we have from local banks,
it will help ease the funding pressure,” Kinyua said. Interest rates
in Kenya jumped in the final quarter of last year by a total of eleven
percentage points to 18 per cent.
Yet some analysts were have not been convinced by Kinyua’s argument.
There is an alternative argument that Kenya was concerned that
investor demand for a sovereign bond might be relatively low with
elections on the horizon. Any demonstration of a weak appetite towards
Kenya’s first Eurobond would damage the country’s image as a solid
investment. The government says plans for a sovereign bond may be
revived next summer, but given the swift change of heart this time
round there is no guarantee.
Though Morocco seems to be targeting investors in the Gulf, they may
be better placed targeting their own diaspora. Diaspora bonds are a
hot topic right now. World Bank and International Monetary Fund
figures put remittances from Africans abroad to the continent at
between $25 billion and $34 billion a year. Unrecorded informal flows
of remittances were most probably at least a third of this amount.
Launching diaspora bonds would allow the continent to leverage this
money more aggressively and innovatively for development. This is a
model that has been employed with some success in Israel and India in
the past, and could yet prove to be the way forward for Africa too.
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