The African Development Bank (AfDB) on Friday launched its 'Structured Finance – Conditions for infrastructure project bonds in African markets' report at the International Monetary Fund–World Bank Spring Meetings in the US.
The report explored how structured finance techniques could mobilise African domestic capital to support economic infrastructure projects and economic growth. It also highlighted the opportunity for project bonds, while outlining the conditions for efficient capital markets.
The AfDB added that the report explains the crucial role of constructive government policies and draws lessons from other markets that might be useful for Africa.
“The release of this new report comes at a very opportune time. African countries have been growing at rates in excess of 5%. Indeed, seven out of the ten fastest-growing countries in the last few years are in Africa. This has created a growing middle class and a flourishing financial sector. Savings are accumulating with institutional investors such as pension funds and insurance companies,” the AfDB said in a statement.
This afforded Africa the financial resources to play a significant role in building the continent’s infrastructure, especially since domestic capital markets were growing in several countries. Domestic government bond markets were also well established and becoming increasingly sophisticated, with nongovernment issuers actively raising funds in many markets.
The AfDB further stated that an opportunity existed for further innovation and that this would be welcomed by the market.
“Several African countries today have given priority to the issuance of ‘infrastructure bonds’. Many countries have been attracted by the example of Kenya, which has launched infrastructure bonds, both from the central government and from State-owned enterprises such as KenGen. The government of Kenya has led the way by introducing certain tax advantages for investors buying such bonds. This has helped to build interest in the institutional sector,” the AfDB said.
Further, the report also elaborates on examples from other emerging markets such as Chile, Brazil, Peru and Malaysia using project bonds as a way to catalyse investors’ interest in infrastructure projects. This can serve as a template for African countries on how to develop their own markets.