Download Graphics Induction Presentation

African Financial Markets Initiative (AFMI)
Thierry de Longuemar
Vice President Finance
African Capital Markets Seminar
10 May 2009
0
Outline of the Presentation
1. Expected impact of the financial crisis and state of African debt
markets
2. Presentation of the African Financial Market Initiative (AFMI)
a. African Financial Markets Database (AFMD)
b. The African Domestic Bond Fund (ADBF)
3. AFMI’s proposal for enhanced cooperation
4. Next steps
1
The propagation channels of the financial crisis
Foreign investment
Remittances
Exchange rates
Trade and exports
Macroeconomic imbalances
2
Resulting in a declining growth momentum and worsening fiscal
space
Terms of Trade
Real GDP Growth
15.0%
7.0%
5.0%
5.7%
10.0%
5.2%
4.2%
4.1%
5.0%
Fiscal Balance as a % of GDP
2007
2006
2005
2004
2001
2009(p)
2008(e)
2007
2006
2005
2004
2003
2002
2001
-1.1%
-3.3%
2003
-5.0%
2.0%
-0.3%
2002
0.0%
3.6%
2.8%
Inflation
14.0%
5.0%
3.2%
2.4%
3.0%
1.0%
-1.0%
5.7%
2.1%
4.0%
3.0%
7.8%
7.1%
4.6%
2009(p)
5.4%
2008(e)
6.0%
6.0%
13.2%
6.1%
1.9%
2.8%
9.6%
8.8%
8.0%
-1.9%
-2.5%
11.6%
10.9%
10.0%
0.1%
-3.0%
12.0%
8.8%
6.0%
-2.6%
8.1%
7.5%
8.3%
6.4%
4.0%
-5.0%
-5.4%
2009(p)
2008(e)
2007
2006
2005
2004
2003
2001
2008(e)
2007
2006
2005
2004
2003
2002
2001
2009(p)
3
2002
2.0%
-7.0%
Source: African Economic Outlook 2008
Increasing the need to find long-term alternative sources of funding
…however the African debt markets are at varied levels of development,
marked by:
Low levels of liquidity
Narrow investor base
Short maturities
Loss of competitiveness
&
breadth of financial products available
Highly developed
Medium to high
Low to medium
Low
Source: AFMI Database and Mapping Study
4
The AfDB’s medium to long-term intervention…
The African Financial Markets Initiative (AFMI)

One main goal: “Contribute to the development of Domestic
Debt Markets in Africa”

A Cooperative Approach: African Regional Associations,
Development Partners, Central Banks, Governments & Public
/ Private direct involvement

Two separate but complementary components:
1. African Financial Markets Database (AFMD)
2. African Domestic Bond Fund (ADBF)
5
The African Financial Markets Database (AFMD)
 Three Specific Objectives
 Improve availability and transparency of African Fixed Income Markets related data
 Reconcile data produced by several institutions using different concepts and
methodologies
 Ensure quality of financial statistics in Africa
 Two Defined Stages
STAGE 1
STAGE 2
Enhancement of Data
Collection and
Management Capabilities
African Domestic Debt
Markets Web Portal
Access to accurate data
Development of local
technical capabilities
Data harmonization &
consistency
Web portal to provide updated,
reliable and complete information
6
AFRICAN FINANCIAL MARKETS DATABASE
CB Liaison Officers
African Development Bank
Web portal
BCEAO
BEAC
data
Banque
Al-Maghrib
data
CB of
Malawi
data
…etc
Data
Platform
Central
database
Data collection
& treatment
Data harmonisation
&
Capacity building
African Domestic Bond
Index Calculation
Stage 1: Data Collection System
Stage 2: Data platform and dissemination
7
What have we done so far…
Low Income Countries
Stage 1: Data Collection
100%
80%
 46 countries have nominated liaison
officers
60%
40%
 Response rate of 40% to the data
collection
< 1 year
 Greater support and recognition of the
initiative from countries
Rwanda
Malawi
1 - 5 years
Madagascar
6 - 10 years
Guinea
Successes of the project
0%
Burundi
11 -15 years
Cabo Verde
20%
Middle Income Countries
100%
Challenges experienced
80%
60%
 Getting countries to respond using the
structure of the questionnaire
40%
> 30 years
< 1 year
8
Tunisia
1 - 5 years
Swaziland
 Data available at a cost
0%
Mauritius
6 - 10 years
Morocco
11 -15 years
Algeria
 Irregular submission of data
20%
South
Africa
16 - 20 years
Source: AFMI Database
Evidence that countries have room to borrow in the domestic
markets
50%
Domestic debt to GDP
42.9%
40%
33.9%
30%
20.9%
20%
10%
17.3%
11.1%
8.4%
5.7%
7.2%
4.7% 5.6%
0%
Cape Verde
Malawi
Algeria
2007
Morocco
Tunisia
2008
9
Source: AFMI Database
The African Domestic Bond Fund (ADBF)
 Four Specific Objectives
 Reduce African countries dependency on foreign currency denominated debt
 Encourage the deepening of domestic bond markets through investments in longer
dated assets
 Contribute to enlarge investor base in African domestic bond markets
 Create a permanent forum for discussion and provision of technical assistance on
domestic bond market issues
 Two Defined Stages
STAGE 1
STAGE 2
Enhancement of Domestic
Bond Markets Infrastructure
Creation of an African
Domestic Bond Fund
Expansion of primary markets
& creation secondary markets
Broadening of the investor base
Enhancing payments systems
Strengthening regulatory &
supervisory framework
Invest in local-currencydenominated government bonds
Funded by AfDB & Central Banks
Passively managed/ Return closely
correlated with an underlying index
10
AFRICAN DOMESTIC BOND FUND
Mapping Study of ongoing initiatives – the results highlight the factors underpinning the
development of bond markets




Fragmentation of the market (SADC, COMESA, ECOWAS)
Predominance of government bonds and limited corporate bonds (ECOWAS, SADC, COMESA,
AMU, CEMAC)
Dissatisfaction with the primary dealer system (SADC, COMESA, ECOWAS)
Pre-dominant “buy and hold” strategy by investors (SADC, COMESA , WAEMU)
Key outcome of the studies

Various initiatives across the continent but limited effectiveness due to limited coordination
between actors, limited implementation and financial capacity
Key recommendation:

Effective partnership of all stakeholders including the private sector and government is KEY to
advancing Africa Bond markets
11
AFRICAN DOMESTIC BOND FUND
Outcomes of the Donor workshop on Bond Market Development in Africa (30 – 31 March
2009):
General recommendations
1. Collaboration and sharing of information should be encouraged
2. Creation of a quantitative classification method for bond markets by level of development
Initiatives dedicated to bond issuance
3. Comparative studies should be conducted on primary dealership systems
4. Development of local and international credit ratings should be encouraged and supported
Broadening and diversifying the investor base
5. Increase the engagement of Commercial Banks and Central Banks in developing collective
investment schemes
Settlements (payment) systems infrastructure
6. Stock taking study on the current state of payments and settlements systems in Africa
Creating an effective regulatory and supervisory framework for bond market development
7. Capacity building for regulators taking into account the outcomes of the April 2009 G20 Meeting
Promoting Regional Initiatives
8. Encourage regional initiatives dedicated to bond market development
12
AFMI’s proposal is multi-disciplinary working groups
African Domestic Bond Fund
African Financial Markets Database
AfDB and other development partners
Central Banks/
Governments
Central Banks/
Governments
Central Banks/
Governments
Central Banks/
Governments
Regional
Associations
Regional
Associations
Regional
Associations
Regional
Associations
Public/ Private
Partners
Public/ Private
Partners
Public/ Private
Partners
Public/ Private
Partners
REGIONAL
MULTI-DISCIPLINARY
WORKING GROUPS
REGIONAL
MULTI-DISCIPLINARY
WORKING GROUPS
REGIONAL
MULTI-DISCIPLINARY
WORKING GROUPS
ANNUAL PAN-AFRICAN CONFERENCE
13
REGIONAL
MULTI-DISCIPLINARY
WORKING GROUPS
Next steps…

Encourage country ownership and getting support from policy makers
 C10 Ministers of Finance and Central Bank Governors
 Presentations to Regional Economic Communities
 Association of African Central Bankers





Facilitating cooperation with partners through multi-disciplinary working groups, working in
collaboration with the Partnership for Making Finance Work for Africa
Launch the web portal in Q4 2009
Pan-African Capital Markets Conference – early 2010
Quantitative classification of countries by level of bond market development
Launch of the African Domestic Bond Fund – May 2010
14
THANK YOU
15