Diaspora bonds A new funding vehicle for Lebanon

Diaspora bonds A new funding vehicle for Lebanon December, 2011 Georges Sassine

Diaspora bonds … One way to tap Lebanon’s diaspora • Lebanese diaspora funds are a massive untapped potential … Lebanon could raise on average more than $1 billion a year. • Diaspora bonds have been successfully used by other countries. A strategy for Lebanon can be developed by drawing on others’ experiences. • Many countries are exploring the possibility of issuing diaspora bonds including: Morocco, Greece, Ghana, Liberia, and the Philippines. 2 Georges Sassine

Different diaspora bond structures and performances Diaspora bond background and structure: Israel vs. India vs. Ethiopia Success Israel Objective Timing Structure Target investors Incentives Performance Economic development Annual Issuance Since 1951 Success India Support balance of payments Failure Ethiopia Electricity development Opportunistic Issuance In times of crisis 2008 1991; 1998; 2000 Fixed, floating rate bonds and notes Fixed rate bonds 1 to 20 yr maturity + bullet repayment 5 yr bullet maturity $2, 000 minimum 5, 7, and 10 yr maturity $500 minimum NOT limited to diaspora Limited to diaspora Patriotism; Slightly high interest rates Patriotism; high interest rates High interest rates Raised $31 Billion Raised $11. 3 Billion Raised $200, 000 3 Georges Sassine

Drivers of success for raising diaspora bonds Diaspora context varies by country Israel Diaspora networks • • Diasporagovt relationship • Diaspora patriotism • • • 7. 5 M Jewish diaspora – 6 M reside in the US. Unified American Jewish community but recently segregated and slightly weakened organization India • • • Right of Israeli • citizenship to any Jew. Israel proved its commitment to defend the Jewish Diaspora • (rescuing Jews from countries of distress and re-settlements). Jewish diaspora unique in several ways. Strong attachment to Israel driven by religious, political and emotional motivations. 20 M Indian diaspora. • Majority in Southeast • Asia, but wealthiest in US and EU. Strong networks: • large political, professional, and religious/cultural organizations Ethiopia Lebanon 2 M Ethiopian diaspora. • 40% in North America, 30% in Asia, and 22% in ME & EU. • Median household income in US is $43, 460. Low diaspora trust in govt: perceived red tape and high corruption Democratic state of govt provides sense of stability and security Significant share of current diaspora left Ethiopia in opposition of the political system • Deep sense of patriotism part of the collective norms of Indian society. Divided and fragmented diaspora. • • • 4 M-15 M Lebanese diaspora. Strong networks: large political, professional, and religious organizations High perceived corruption Trust in few institutions including Central Bank Divided and fragmented diaspora. Weak national identity. 4 Georges Sassine

Summary of drivers of success for raising diaspora bonds Diaspora context varies by country Legend: Israel India Ethiopia High Med Low Lebanon Diaspora networks Diaspora-govt relationship Diaspora patriotism 5 Georges Sassine

Context drives diaspora bond strategy Diaspora bond strategy by country Israel Diaspora engagement strategy India Created institutions to strengthen its connection to the Diaspora Created govt body focusing on liaison with the Diaspora Marketing Strategy • Used informal Indian diaspora networks and organizations Financial Incentives Changed its policy of selling discounted bonds and increased interest rates slightly above US T-bills Other Incentives • Established a selling agency within US and other countries. Used religious appeal to boost sales of bonds (influence of rabbis among Jewish community) Attractive financial incentives: • Interest rates 2% higher than US T-bills • Exemption from Indian income and wealth taxes Adopted market reforms to encourage Diaspora investments (improved bureaucracy and corruption) 6 Georges Sassine

Diaspora bond strategy for Lebanon Issued for infrastructure project investments or in times of crisis Objective Economic development Or Support balance of payments Timing Investments Financing should benefit the whole society without preference to specific regions or religious groups. Example: National infrastructure projects – operated by trustworthy institutions: • South-North Railway project • Oil & Gas pipeline • Refinery plants Opportunistic Issuance Project specific or in times of crisis Target Limited to diaspora investors Incentives • Patriotism • • • Deposit guarantee High interest rates Tax exemptions (Lebanon and host countries) • Establish institution that focuses on Diaspora strengthening Diaspora connection engagement • Introduce reforms oriented towards strategy engaging Diaspora (i. e. voting rights) Marketing Strategy • Structure Fixed rate bonds 5 -10 yr maturity $1, 000 minimum • Tap into existing Diaspora networks: Political organizations; professional organizations (Lebanese-US Chamber of Commerce); academic organizations (AUB Alumni Chapters); religious organizations Establish selling agencies in key geographies 7 Georges Sassine

Actions required to successfully raise diaspora bonds Tailor strategy to the Lebanese context • Data gathering & analysis Need to better understand the norms that shape the Lebanese Govt-Diaspora relationship. Need better statistics on the volume, wealth and location of the Diaspora. • Engage Diaspora A state can successfully and sustainably extract obligations from its Diaspora only if it extends rights to that Diaspora. • Strengthen diaspora links Need to establish institutions focused on Govt-Diaspora liaison; build allies with existing informal diaspora networks; establish selling agency in key geographies. • Identify projects to invest in Identify projects that would benefit the whole society without preference to specific regions or religious groups; governing institutions should be perceived as trustworthy and noncorrupt. 8 Georges Sassine

References • Leveraging Migration For Africa Remittances, Skills, and Investments, World Bank 2011 • Dilip Ratha, Sonia Plaza, Harnessing Diasporas, Finance and Development, September 2011 • Ayah Mahgoub, Amr Abdelrazik, Sinafikeh Gemessa, Avnish Gungadurdoss, Diaspora Bonds: The Next Development Miracle, or a Tool with Context-Specific Potential? Harvard Kennedy School - Institutions and Development Course, December 15, 2010 • Suhas Ketkar, Dilip Ratha, Diaspora Bonds As a New Funding Vehicle for Developing Countries, Privatization of Development Finance Conference at NYU, December, 2009 • Suhas L. Ketkar, Dilip Ratha, Development Finance via Diaspora Bonds Track Record and Potential, Migration and Development Conference at the World Bank, May 23, 2007 9 Georges Sassine

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