Increased investment by local pension and other types of funds is gaining momentum in sub-Saharan Africa, backing domestic bond and equities issuance, according to policy makers, bankers and experts gathered in Tokyo.
This can help the region to overcome its huge energy and other infrastructure deficits and cope with deleveraging by traditional commercial bank partners dealing with the fallout from the eurozone debt crisis.
Kenyan and Nigerian infrastructure bonds, and calls on diaspora cash to part-fund Ethiopia’s $4.8 billion Grand Millennium Dam, are examples where domestic instruments are now being used to develop essential infrastructure.
“East Africa is now issuing bonds for infrastructure and other purposes, offering low interest rates [to borrowers] but high returns [to investors],” Kenya Commercial Bank chief executive Martin Oduor-Otieno said. This is encouraging, “but we must ask why we are not seeing more of it?”
The emergence of SSA-based investors will help. Botswana Public Officers Pension Fund chief executive Ephraim Letebele said the fund should be an example of investing in Africa. This will help build up SSA infrastructure and also boost funds like Botswana’s which can benefit from “rates of return that are high against global levels”, said Letebele.
His fund has an asset base of around $4 billion, and invested around 70% abroad. It is now committed to placing the maximum possible into “alternative investments” in Africa led by infrastructure and private equity.
South Africa-based, infrastructure-focused fund manager Harith is raising a second fund, which is expected to close next March or April, and would welcome increased African institutional interest. “There is quite a lot of appetite, but it is mostly from [development finance institutions] DFIs” and other traditional backers, Harith’s chief investment officer Alwyn Wessels said. He was disappointed to have “very little response” to the fund-raising in the US — “where Africa is not recognised as an asset class”.
“Projects like Lom Pangar [a hydropower dam in Cameroon] are transformational... [a reason why] on becoming vice president for Africa one of my priorities was to move aggressively on the energy front,” said World Bank VP Makhtar Diop. This has a crucial development outcome, Diop argued: “How can you develop a business when you depend on a generator in the back yard?”
He noted that even “the current level of savings is not fully used” in Africa. More structures and incentives are needed for institutional investors to channel resources into productive investment. “The next phase [of building these asset classes] will be creating instruments that give comfort to institutional investors and channel domestic savings”.
The IFC and Standard Chartered have launched a Pan-African Medium-Term Note Programme to boost local currency lending, with an initial focus on Botswana, Ghana, Kenya, South Africa, Uganda and Zambia.