African Financial Markets Initiative AFMI Thierry de Longuemar

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 Real GDP Growth Terms of Trade Fiscal Balance as a % of GDP Inflation 3 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 Af. DB’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 § 46 countries have nominated liaison officers § Response rate of 40% to the data collection §Successes of the project § Greater support and recognition of the initiative from countries Middle Income Countries §Challenges experienced § Getting countries to respond using the structure of the questionnaire § Irregular submission of data § Data available at a cost 8 Source: AFMI Database

Evidence that countries have room to borrow in the domestic markets 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 Af. DB & 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 G 20 Meeting Promoting Regional Initiatives 8. Encourage regional initiatives dedicated to bond market development 12

AFMI’s proposal is multi-disciplinary working groups 13

Next steps… § Encourage country ownership and getting support from policy makers § C 10 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 Q 4 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