Reuters (London) 2008-06-30
According to Martin Dlamini, Swaziland’s Central Bank Governor, Africa should have a regional bond market to encourage international investors, but only those countries with a converging macroeconomic picture will be able to easily cooperate.
"It is essential that African countries should be working towards the creation of a regional bond market", Dlamini told a press conference on Thursday. "We should be thinking on a medium-term basis of drawing up such a market."
International investors have shown an increasing interest in African assets, but analysts believe that illiquid equity and domestic bond markets deter many. "Outside of South Africa, Nigeria, Egypt, Ghana, Uganda, Zambia and Kenya, capital markets are in their infancy", said Brad Koen, head of global markets at Standard Bank.
Koen recommended that African countries develop a bond fund like the Asian bond fund which was set up after the Asian financial crisis in an attempt to encourage investors back into the market. Dlamini, however, said that African countries would need existing close links for it to work.
"Maybe there could be a fund with countries like Namibia, Swaziland and South Africa because there is strong economic integration, convergence in terms of fiscal policy. In creating such funds you need some sort of economic integration", he said.
South Africa already has a domestic bond market with maturities out to 30 years, although other African markets do not issue local bonds with maturities in excess of five years.
Countries in sub-Saharan Africa outside SA have also started accessing the international bond markets. Ghana and Gabon, for example, launched Eurobonds during 2007, and Kenya and Uganda are planning a similar project.
Other African policymakers at the conference were more cautious about the concept of a regional African bond market: "We have less than 10 countries ready for a (regional) bond market", said Mohammed Fofana, Deputy Governor at the Bank of Sierra Leone.
According to Jabu Moleketi, South Africa’s Deputy Finance Minister, there are a number of obstacles to overcome. "There are certain market prerequisites, such as macroeconomic stability, openness of economies, [and] relatively flexible exchange rates", he said. "I am fairly optimistic, [but] there is still some hard work to do."