African countries are looking at ways to tap into the huge piles of potential wealth held by their citizens living abroad.
Total remittances to Africa could be as high as $200bn, according to Eric Guichard, CEO of the US-based company Homestrings, who said a quarter of that could be tapped for diaspora bonds to fund development. “Diaspora bonds are a great source of potential development capital and will disrupt the development capital space,” he told GlobalMarkets.
While a few countries, such as India and Israel, have issued diaspora bonds, Nigeria became the first country to launch an SEC-registered diaspora bond earlier this year. However, Guichard said the issue was not as successful as it could have been because it was not marketed properly.
“I don’t think the narrative used by the Nigerian government was attractive for Nigerians or the African diaspora in general that could be interested in investing in Nigeria,” he said.
Kenya and Ethiopia also worked on diaspora bonds, but they were not SEC-registered and did not generate the expected interest for reasons similar to those in Nigeria.
The limited success of these bonds, however, has not dampened enthusiasm. “This is an option for Africa to harness its own wealth,” said Caleb Fundanga, executive director of the Macroeconomic and Financial Management Institute of Eastern and Southern Africa.
Rwanda’s central bank governor, John Rwangombwa, said “we want to tap into this potential. We are looking at options to create channels to bring wealth by the diaspora home. I think it is a potential game-changer for Africa.”
Malawi’s finance and development planning minister Goodall Gondwe agreed. “We have not tapped into these resources, but we need to do it. It would be very helpful,” he said.
However, Guichard warned that countries needed to lay the groundwork for bonds or risk disappointing results. He said regulatory constraints, investment readiness of projects and marketing were key issues that had to be addressed.
He said countries needed to improve investment agencies so they had structures to offer bankable projects funded by the diaspora. Marketing needed to be regional and not only to country-specific diaspora, he added. “I think we could be witnessing a paradigm shift as this matures.”