A galaxy of African and international financial experts met at the London Stock Exchange to thoroughly discuss the current state of the continent’s debt capital markets and how to strengthen them to secure essential financing for infrastructure. Report by Stephen Williams.
During the 4th African Debt Capital Markets Summit organised by IC Events and held at the London Stock Exchange, a multitude of themes were discussed including benchmarking Africa; the sustainability of debt; deepening Africa’s debt markets; local currency markets, debt pipelines and future issues. In addition, time was given to discuss investors’ perspectives; risks and ratings; a special focus on Nigeria’s debt capital markets; and finance development tools such as PPPs and infrastructure bonds.
This rich and varied debate was led off by the first panel discussion. Sunil Benimadhu, the chief executive of the Stock Exchange of Mauritius, referred to Africa’s growth story, with market capitalisation on the continent amounting to $1 trillion, and how economic growth and market capitalisation can be expected to continue to prosper and increase.
Benimadhu explained how Mauritius is stimulating the ‘four Ps’: products, players, participants and partnerships. He said that Kenya, Nigeria, South Africa and Mauritius were all making the necessary changes to deal with a rapidly evolving financial landscape and the need to move up the value chain. He argued that the focus on equity markets is now being complemented by sovereign (and corporate) debt.
Jaloul Ayed, a former Minister of Finance in post-revolutionary Tunisia, and now bidding for the next presidency of the AfDB, agreed that Africa’s financing requirements are “absolutely enormous”, but also insisted that the development of local currency bonds was extremely important: “The answer to how you finance the infrastructure developments is the bond market.”
Francis Nwokedi, a partner at the international law firm Fasken Martineau, with extensive experience in the financing of mining, energy, telecoms and industrial projects, argued that it was unacceptable that, in Africa, the equity market was double the size of the debt market. “Just look at the US markets, where the reverse is the case,” he urged.
Adil Kurt-Elli of HSBC pointed out: “Investors are going to want to know in a very public way through updates that governments are adhering to the standards they set themselves.” He also argued for stronger regional markets.
Charles Robertson of Renaissance Capital recalled the borrowing spree after the 1970s commodity boom and the debt write-off that resulted less than a decade ago. He posed the question of whether there was a danger of African governments repeating the same mistake, but reassured many by saying: “We may see one or two African countries borrowing too much, but most countries are going to be more sensible.”
The second session focused on local currency markets. Angus Downie, Ecobank head of research, said Africa was making progress, but not fast enough. A handful of African countries are issuing bonds on a regular basis. Missing are the CEMAC countries, who issue limited local currency debt, principally because of their oil export earnings.
Discussing the mechanics of the bond market, Douglas Bennet, the deputy head of GuarantCo (a subsidiary of Frontier Markets), explained that his company was set up to stimulate local currency issuances. It is financed through a number of European donor arms.
“We have supported through the guarantee product, a number of local corporate bonds in Nigeria and Kenya, and a sukuk issuance in Pakistan by a local corporate. By doing actual deals you notice what is missing in the structure and later help rectify that, and also demonstrate it can be done and encourage others.”
James Marshall of JPMorgan told the summit of his surprise, when he switched from covering Asian markets to Africa, at how liberal the continent was in terms of access to the market and a lack of capital controls.
“What we look for are open markets where there is transparency in price discovery, settlements are easy, benchmarks, a secondary market enhancing liquidity and a well-flagged auction timetable,” Marshall explained.
Per van Swaay of TCX, a mutualised risk vehicle set up by the major finance institutions working in Africa such as the AfDB and IFC, said. “We develop long-term pricing, long-term hedging,” he stated. “We do not compete with banks, we complement them.”