Foreign investment in African economies is hampered by a mismatch between what the asset managers that control the largest pools of capital want, and what investments are on offer. Most emerging market investors prefer listed equities and corporate bonds.
Capital markets have taken off in low- and middle-income countries (LMICs) over the last few decades, as recent research by the IFC revealed. But sub-Saharan Africa (SSA) has been left behind, where access to international bond markets has been limited to a handful of companies in a narrow set of industries: mining, oil and gas, financial services and telecoms.
This report focuses on SSA’s international corporate bond market, and its role in the region’s development. It argues that development finance institutions (DFIs) should back international corporate bond issuances that can demonstrate African businesses can be good credits and help build an inventory of African corporate bonds large enough to attract the attention of global emerging market bond fund managers.
The main messages are:
- Large companies are important for economic development. In most African economies, the limited capacity of local banks and capital markets can constrain companies from growing beyond a certain size. There is a ‘missing top’.
- International capital markets are deep pools of capital that can supply long-term finance at relatively low cost. However, very few African corporations make it onto international investors’ radars. Outside the extractive industries and telecoms, SSA barely features in emerging market (EM) bond indices.
- A critical mass of information is needed to engage global investors. Lack of African representation in bond indices makes it harder to price African corporate debt and is itself a barrier to African bond issuances. There needs to be a learning cycle, as has happened in other EM regions.
- DFIs have a major role to play in helping African corporations issue international bonds, including several preliminary steps before their first international issuance.
- Capital markets development should be seen as a mobilisation machine. There is roughly $800 billion of capital tracking EM debt indices. Increasing African representation in these indices would mobilise global capital at scale into the continent.
There are four ways DFIs can help get the ball rolling for African issuers:
- Anchor international bond issuances by financial institutions and real sector firms, to give companies and investors greater confidence that issuances will succeed. For example, we anchored the $600 million bond issued by Axian Telecom alongside the EAAIF, the IFC, DEG and Proparco.
- Help companies issue local bonds, which is often the first step on a journey towards issuing international bonds. With the IFC, we anchored a TZS 400 billion sustainability bond issued by NMB Bank in Tanzania (the NMB Jamii Bond) backed by over 5,600 local investors.
- Help arrange private placements of hard currency bonds, with a structure and disclosure requirements that mirror those of international bonds. For example, alongside the IFC and EBRD, we subscribed to a $500 million private placement by the Arab African International Bank (AAIB).
- Support the creation of pooled bonds that combine issuances by several companies otherwise deemed too small to satisfy the requirements of international bond investors. We backed the Symbiotics Green Basket Bond, which aggregates and finances green lending by financial institutions across Africa and Asia.
Increasing efforts in these four areas helps lay the groundwork and build the critical mass of precedents needed for the international corporate bond market to take off. For BII and other DFIs, this is not just about enabling individual issuers; it’s also about unlocking scalable, long-term finance for African businesses and driving economic growth. By supporting more diverse issuers to reach global capital markets, we can boost private sector development and poverty reduction across the continent.
