Presentation at the 11th ASEA Conference, Accra

Ada OsakweAda OsakweAfrican Development BankAfrican Development Bank

3131stst October 2007 October 2007

African Debt Markets Development :African Debt Markets Development :

The African Development Bank ExperienceThe African Development Bank Experience

“AFRICAN CAPITAL MARKETS: THE NEXT INVESTMENT FRONTIER”

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Recent Trends in African Debt Capital Recent Trends in African Debt Capital MarketsMarkets

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Continued positive economic trends have been conducive to the Continued positive economic trends have been conducive to the development of local capital marketsdevelopment of local capital markets

5.4 5.2 5.5 5.910.6

7.9 8.4 9.5

54

46.9

37

28.1

0

10

20

30

40

50

60

2004 2005 2006 2007*

%

GDP Growth CPI External Debt/GDPSource: IMF, WEO April 2007 *2007 data are estimates

Drivers

Macroeconomic stability – Debt relief - Implementation of reforms - Continued global expansion

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The development of African debt markets is gathering momentumThe development of African debt markets is gathering momentum

• Over USD 10 bn is estimated to have been invested in Sub Saharan African

(SSA) capital markets in 2006

• Nearly 50% of African countries now issue Government bonds

• Extension of government yield curves

• Secondary market trading developments

• 18 African countries now have a sovereign issuer rating from at least 1

International Credit Ratings Agency

• 7 additional countries achieved denomination status with Euroclear, and 2 have

settlement status

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BW

P

UGX

KES

GHS

TZS

ZAR

NGN

Size of the

economy

GOVERNMENT YIELD CURVE

1 – 5 - year > 5 - year

Shallow / ST Shallow / LT

Deep / ST Deep / LTMARKET DEPTH

• Debt Volume

• Breadth of Investor Base

• Secondary market trading

• Range of Instruments

Lo

w

MUR

H

igh

MZM

African debt markets are at varied stages of developmentAfrican debt markets are at varied stages of development

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Snap-shot of selected government debt marketsSnap-shot of selected government debt markets

GhanaGhana NigeriaNigeria UgandaUganda KenyaKenya SouthSouth AfricaAfrica

GDP (US$ bn) 12 116 9 23 255

Debt Market Cap / GDP 24% 17% 14% 20% 44%

Sovereign Debt Cap /

GDP22% 12% 13% 19.5% 29%

Longest Bond Tenor 5 10 10 15 30

Secondary Trading Yes Yes Yes Yes YesSource: AfDB, AEO 2007, IMF

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Non-government domestic debt has also increasedNon-government domestic debt has also increased

3491

51 67

801

445.5

341

0

100

200

300

400

500

600

700

800

900

1996 to 2000 2001 2002 2003 2004 2005 2006

USD mln

* Graph reflects US$ equivalent debt issuances in the domestic markets of Botswana, Ghana, Kenya, Nigeria, Tanzania, Uganda and Zambia

Evidence from 7 SSA economies shows a marked increase in Evidence from 7 SSA economies shows a marked increase in

volumes of non government debt volumes of non government debt

Source: AfDB, Standard Chartered Bank

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The AfDB and African Capital MarketsThe AfDB and African Capital Markets

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Supranationals have an important role to play in developing debt Supranationals have an important role to play in developing debt capital marketscapital markets

•Enhance international image and attraction of market

•Transfer of international financial know-how

•Assist with establishing sustainable regulatory framework and infrastructure

•Provide credit enhancement

•Help benchmark yield curve establishment and extension

•Contribute to emergence of a credit market and culture

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AfDBs Local Currency project has three main objectivesAfDBs Local Currency project has three main objectives

1. Develop and bring visibility to African currencies and bond markets

2. Address need for long term local currency loans that eliminate currency

risk for borrowers

3. Promote international best practices and knowledge transfer

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The AfDB has for the past two years expanded its African debt The AfDB has for the past two years expanded its African debt capital market activitiescapital market activities

BOTSWANA: BWP 300 million Eurobond

TANZANIA: US$ 10 million linked to TZS

US$ 15 million linked to TZS due May 09

GHANA: US$ 45 million linked to GHC due Oct 08

US$ 40 million linked to GHS due May 09

NIGERIA: US$ 100 million linked to NGN due Jan 08

US$ 100 million linked to NGN due May 10

KES: US$ 10 million linked to KES due May 08

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These offshore transactions are a big step towards achieving our These offshore transactions are a big step towards achieving our objective of promoting African currencies and markets…objective of promoting African currencies and markets…

Increased Increased

VisibilityVisibility

• Bring significant visibility to the countries and their markets

• Enhance the international image of these markets

• Provide an attractive investment opportunity to investors in African

securities

• Attract institutional investors from Continental Europe, the United

Kingdom and the United States

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• Provide the ‘ice-breaker effect’ for foreign investor exposure to the local

markets, and ultimately, direct participation in these markets

• Give added momentum to ongoing bond market developments in the

countries

……and of promoting international best practices and knowledge and of promoting international best practices and knowledge transfertransfer

Ice- BreakerIce- Breaker

EffectEffect

• Novelty has ensured innovation in structuring and execution

• Transfer of technical know-how and skills to local institutions

• First Bank of Nigeria (FBN) was the first Nigerian Bank to lead manage

a bond issue launched by a supranational institution, and to provide the

first currency and interest rate swap in Naira

Technical Technical

SkillsSkills

TransferTransfer

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This participation has brought increased investor attention to the regionThis participation has brought increased investor attention to the region

“This deal cements the view that

investors are increasingly willing to

participate

in African currencies

“DEAL OF THE YEAR”

AfDB GHC Transaction

- The Banker Magazine 2006 Awards

“DEAL OF THE YEAR”

AfDB GHC Transaction

- The Banker Magazine 2006 Awards

Euroweek, on AfDB’s first Ghanaian Cedi Deal

IFR, on AfDB’s first Nigerian Naira Deal African Fixed Income Guidebook

MAY 2007

Supranationals have shown

increasing interest in issuing in

African currencies, and the AfDB’s

triple-A rating encouraged a

number of investors not

previously involved

in the Nigerian market to take part

“

”

”

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Challenges still remainChallenges still remain

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• Macro-economic instability

• Lack of a diversified issuer base

• Limited investor base

• Inadequate market infrastructure

• Unfriendly legal and regulatory framework

• Complex disclosure requirements

• Illiquid secondary markets

• Limited number of intermediaries

• Imperfect market knowledge and information dissemination

• Lack of credit ratings culture

Significant drawbacks exist in African debt markets that preventSignificant drawbacks exist in African debt markets that preventfaster growthfaster growth

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AfDB seeks to enhance partnerships with African governments to AfDB seeks to enhance partnerships with African governments to ensure further progress is madeensure further progress is made

Sensitise governments on the benefits of developing efficient

financial sectors, of which local bond markets are a key

component

Encourage the regional capital market approach where applicable

Support debt market development through technical assistance

and capacity building initiatives

StrategyStrategy

and and

Policy Policy

ConsiderationsConsiderations

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AfDB seeks to enhance partnerships with African governments to AfDB seeks to enhance partnerships with African governments to ensure further progress is madeensure further progress is made

Operational Operational

ConsiderationsConsiderations

Develop primary and secondary markets

Upgrade legal, regulatory & institutional framework and modernise

market infrastructure

Develop benchmark yield curve & lengthen maturities

Deepen the issuer and investor base

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•African debt markets have begun to display signs of developments

•The AfDB has issued 8 bonds denominated in African local currencies in

the past 2 years

•Significant challenges exist that can impede faster progress in bond

markets

•The AfDB has and will continue to play a role in encouraging the

developments in African Debt Capital Markets

To summarise…To summarise…

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THANK YOU