Africa: How Bonds Aimed At the Diaspora Can Raise Crucial Funds for Africa
If structured the right way and linked to clear goals, diaspora bonds have huge potential to raise much-needed development finance.
Nigeria’s first diaspora bond, issued in 2017, was a resounding success. It raised $300 million for investment in infrastructure from Nigerians overseas and was oversubscribed by 130%. The government is now reportedly planning a second similar offering.
As many African countries attempt to raise development finance, diaspora bonds – which resemble other kinds of bonds but are targeted at citizens abroad – are highly appealing. The African diaspora is massive and has significant accumulated wealth. Moreover, diaspora investors are typically motivated by more than simply maximising returns. They often also want to help improve the socio-economic conditions in their home countries, making them willing to accept below market returns, a phenomenon known as the “patriotic discount”.
It is for some of these reasons that the likes of India and Israel have used diaspora bonds to raise money in the past. However, their use in Africa, including in fragile and conflict-affected states, is more recent and less proven. The experience of Ethiopia is a case in point. Ethiopia’s first diaspora bond was issued in 2008, but salesfell well short of expectations. A second in 2011 also appears to be struggling, raising only a small portion of the investment required to fund the Grand Renaissance Dam project.
So what’s behind the contrasting outcomes between the likes of Nigeria and Ethiopia? And what can they tell us about diaspora bonds’ potential ability to raise capital for development across Africa?
What makes a diaspora bond successful?
There are a wide variety of factors that determine the success of a diaspora bond, but as a report by OEF Research points out, these features largely fall into two categories.
The first is the offering’s structure. Diaspora bonds need to be structured in a way that makes them appealing and accessible to a wide range of diaspora members. For example, a range of investment options – particularly in ensuring low minimum-purchase requirements – can help attract individual, small-scale investors. Meanwhile, ensuring bond denomination in stable and convertible currencies such as Euros, British pounds, and US dollars can overcome investors’ concerns over currency stability... Read more on All Africa
Source: All Africa