AFMI Workshop 2015

1st December 2015


The African Financial Markets Initiative hosted the 4th Annual AFMI Workshop on Local Currency Bond Markets on November 30th-1st December 2015, in Johannesburg, South Africa. The workshop brought together Central Bank and Ministry of Finance Officers from across the continent (32 countries represented) along with stakeholders including regulators, investors, stock exchanges and regional economic bodies.


Hyatt Regency Rosebank
191 Oxford Rd,
South Africa



Session 4

9:00 - 9:30

Opening Remarks

African Development Bank

Presentation of the AfDB/AFMISM) Bloomberg® African Bond Index (ABABI)

Mr. Keith Thompson, Bloomberg

9:30 - 10:30

African Domestic Bond Fund- Investing in our domestic debt markets

Mr. Cedric Mbeng Mezui, Coordinator AFMI, AfDB

Panel discussion to evaluate Africa’s credit and the impact of the depreciating currencies on African debt markets- risk and prospects.

Moderator: Vernon Wessels, Bloomberg

10:30 - 10:50

Coffee Break

Session 5

10:50 - 12:00

Panel Discussion: Developing the investor base- Perspectives from Institutional Investors- Private Sector Moderator

A seminal discussion on the growing the investor base particularly institutional investors, the support required to do so and the impact of these investors have on African domestic debt markets.

Moderator: Godfrey Mutizwa, CNBC Africa

12:00 - 12:30




Day 1

Opening Remarks - African Development Bank

Stefan Nalletamby, Director Financial Sector Development Department, African Development Bank

Meeting the ambitious priorities of the Bank described by new AfDB president Dr. Adesina (to light up and power Africa, to feed Africa, to industrialize Africa, to integrate Africa and to improve the lives of Africans) will require an increase in the mobilization of domestic financial resources. Over the past year we have seen African nations continue to mobilize resources on the international capital markets. In 2015 alone, USD 8.25 billion was mobilized. Recent Eurobonds have been issued at increasingly higher yields: Ghana 10. 75%, Zambia 9.375%, and most recently the Cameroon 9.5% for a 10-year maturity. Developing efficient, liquid and well-regulated local debt markets will benefit the continent by expanding alternative sources of financing, helping reduce the maturity mismatch between Sovereign assets and liabilities and thus contributing to financial stability.

Leon Myburg, Head of Financial Markets Department of the Reserve Bank of South Africa

Financial liberalization, the strengthening of institutional and regulatory capacity and, more recently, the expansion of cross-border banking activities with the development of pan-African banking groups have significantly changed the African banking and financial landscape. Despite proven achievements however, some determinants for sustainable and efficient financial system development seem to be wanting. Among the critical enablers that ought to be present for efficient and effective financial markets, there should be i) a solid regulatory framework for debt markets; ii) a marketing process and market-making capabilities in bonds and equities, together with systems to report on risks; iii) robust technology and systems to support the reduction of operational costs; iv) pre- and post-trade price discovery. Further reform efforts should target priorities in support of financial development and the strengthening of financial markets. In this regard, the AFMI plays its part through the establishment and enhancement of a comprehensive database and benchmark indices, aiming to improve pricing transparency.

Session 1 – Recent Developments on the African Financial Markets Database (AFMD)

Presentation: Improvements on the AFMI website - Ms Ruvimbo Muchenje

The AFMI website was launched in 2013 and now reflects both static and dynamic content. The website is also home to the African Financial Markets Database (AFMD). There has been a steady increase in traffic to the site however most traffic still originates from Europe/US. The main explanation for this would be that this is where most investor interest comes from. This is something that we hope to change to increase investor interest regionally. Key changes to the website include the launch of the French version of the website in April 2015. The revamping of the Data Portal is also underway following feedback from site users. Stakeholders were encouraged to continue working with the AFMI to ensure accurate and up to date content. Currently content on the site is reflecting 2013/2014 information as is available.

Presentation: Improvements to the AFMI Data Portal - Mr Tarak Hosni

The AFMD is an ambitious project started in 2009 as a comprehensive database providing updated information on African sovereign local currency bond markets, with a focus on Treasury bills and Treasury bonds data. Through the AFMD, the African Development Bank is committed to help African financial markets reach the highest international standards in terms of knowledge dissemination and transparency. As of 2014, the database features current and historical data on 41 countries thanks to the active participation of AFMI liaison officers. According to the collected data, more than 4,000 short-term and medium to long term instruments were issued in 2014, compared to an average of 2,500 between 2005 and 2009 and 3,500 between 2010 and 2013. As of mid-November 2015, the AFMD contains about 31,200 bonds and bills of which 3,116 are outstanding (10% of the total). The principle goal of the AFMD is to collect and disseminate data which is complete, reliable and harmonized.

The way forward: In 2016, the database will cover 46 countries and the AFMI Data Portal will be revamped to better showcase the progresses made by African countries in making their financial markets more attractive. The new portal will give access to new quarterly and annual reports featuring interactive summary dashboards. Furthermore, an open data portal is currently being developed by the Bank’s Statistics Department which will allow stakeholders to collect, disseminate and exchange data among themselves so as to alleviate the data reporting burden and give access to timely information across countries/sectors in any format (tables, charts, maps).

Issues Raised:

  1. How does AFMI categorize bonds?
    • - Short term : Treasury Bills < 1 year
    • - Medium to long term : Treasury Bond > 1 year
  2. How to manipulate the dashboards?

These are ready-to-use dashboards updated on a daily basis and featuring all possible data combinations. Participants should make suggestions to AFMI on how to improve the dashboards and seek guidance when needed on how to export data in excel, word or PDF formats if needed.

Session 2 – Presentations on the African Fundamental Bond Index (AFBI) and TA interventions

Presentation: The African Fundamental Bond Index (AFBI) - Mr. Anliou Meite

The infrastructure financing gap in Africa is estimated at USD 93 billion per year. Current sources of financing amount to only USD 45 billion leaving a financing deficit of USD 48 billion. African bond markets do not contribute enough to fund this gap; they are mainly underdeveloped and illiquid. Very few countries have a bond outstanding greater than USD 10 billion. The second pillar of the AFMI, the African Domestic Bond Fund project’s primary mission is to develop domestic bond markets. It is comprised of the African Domestic Bond Index (ADBI) family and a bond fund. The ADBI family includes the African Fundamentals Bond Index (AFBI) and AFMISM Bloomberg® African Bond Index (ABABI).

The AFBI was created on the basis of the G20 Local Currency Bond Market diagnosis framework and reflects the recent developments within local bond markets in Africa. It will provide the basis for designing a strategy for African bond market development. It assesses markets across 6 factors (Macroeconomic conditions; Governance; Bond Market Infrastructure; Issuers, Issuing Strategy and Market Access; Domestic Investor Base; Active participation of Economic Agents) and 23 sub-factors. The 2015 AFBI country rankings show the weak development of African bond markets. South Africa, Egypt and Nigeria are the top three markets in Africa.

The AFBI remains the barometer to identify the priority reform areas and technical assistance projects in each African Local Bond Market segment. Development activities taken based on the AFBI will help countries integrate the ABABI.

Issues raised:

- Details on the Macroeconomic conditions and the Governance factors? Details of the 23 sub-criteria?

Explanations can be found in the 2014 final report featured on the website. The 2015 final report will be sent by the end of the month.

- AFMI/Bloomberg scope and criteria

The index is based on the BVAL methodology. To be featured in the index, a country has to have 3 different sources of prices for each bond issued. For now 6 countries have been added to the index.

It only features Sovereigns, as giving more visibility to States is the primary focus of the AFMI; supranational entities are not included for now.

- Communication around the Index

  • Bloomberg (Ticker is BADB) on fixed income markets
  • AfDB as the 1st source of information on African markets

TA interventions: Pipeline of Technical Assistance Projects for 2016 – Ms Ruvimbo Muchenje

The objective of the call for proposal launched in June 2015 was to identify priority areas for intervention in local currency bond market development. Target beneficiaries of the Technical Assistance interventions are African-based national and regional organizations and associations involved in local currency bond market development, such as government agencies, Regional Economic Communities as well as private sector entities.

The 2014 AFBI report identified several priority areas where the majority of countries scored poorly. They include Bond Market Infrastructure; Issuers, Issuing Strategy and Market Access; Domestic Investor Base and Active participation of economic agents. To answer these challenges, AFMI is targeting 4 primary fields of intervention: i) Money Markets; ii) Regulation; iii) Broadening Investor Base and iv) Developing Secondary Debt Markets.

The AFMI received a total of 22 proposals with financing requirements ranging from USD 50,000 to USD 2,000,000. Markets covered include Pan-African, SADC, UEMOA, CEMAC, WAMZ, Kenya, Zambia, Uganda, South Africa and Ghana. In January 2016, the AfDB review committee will go through all projects and shortlist for implementation in 2016. Short-listed proposals will be refined to align them with available financing and priority activities within the Bank’s Financial Markets Division and Financial Sector Development Department. AFMI and the beneficiary will then agree on project implementation and establish the project management team. Missions to the field will be organized as needed.

Issues raised:

- Priority beneficiaries of the TA?

All AFBI countries can have access to the targeted technical assistance programs set up by the AFMI. They should help them integrated the AFMI/Bloomberg index.

- Are these technical assistance activities not going against ongoing programmes with other institutions i.e. Afritac?

No this is not the case. There is tremendous need. We must simply ensure that we are taking a targeted and coordinated approach to tacking these needs.

- Given that the deadline for proposal submission has elapsed and needs arise on a continuous basis what can RMCs do?

Initial point of call for RMCs remains the Bank though AFMI is specializing in TA for LCBM. We will help you assess other channels to best meet the needs at the time. This can be addressed at Division level.

Session 3

Data Validation Session – Mr Tarak Hosni

In the data validation session, there were liaison officers representing Burundi, CEMAC, D.R. Congo, Egypt, Ghana, Kenya, Lesotho, Madagascar, Malawi, Namibia, Nigeria, Seychelles, Swaziland, Tunisia, Uganda, WAEMU, Zambia and Zimbabwe. Discussions focused on the validation of the AFMD data and the validation of the Yield Curve Guidebook questionnaire.

The liaison officers received historical data prior to the Workshop that they were asked to validate. CEMAC, Egypt, Lesotho, Namibia, Swaziland, Tunisia and Uganda corrected, completed and validated the data.

Nigeria confirmed that OMO auctions must be removed from the database and only the PMA should be kept. Also the Nigerian LO, once back to Nigeria, would send the historical bond data to the Financial Markets Department of the CBN, for validation. Seychelles validated the T-Bill Data and data on 4government bonds issued for monetary purposes will be provided. Zimbabwe will provide historical data starting from 2005. The bond market in RDC is being setup. The other LOs will send correct and recent data to the AfDB.

The LOs gave a brief presentation of their countries’ bond markets (auction system, settlement system, listing of the bonds, Primary Dealers, etc). The discussions helped share experiences, update and deepen the knowledge of the bond markets in Africa.

Regarding the Survey on the yield curves, all the LOs reviewed the parts concerning their markets in the Yield curve guidebook. All of them provided written comments after discussions. AFMI will make the necessary changes to the Guide book, taking into account their comments. AFMI will send the amended Guidebook, for final validation, before posting it on the website.

Session 4

Presentation: The African Development Bank (AfDB/AFMISM) Bloomberg® African Bond Index (ABABI) – Mr Keith Thompson, Bloomberg

Mr. Thompson gave a presentation on the African Development Bank (AfDB/AFMISM) Bloomberg® African Bond Index (ABABI). He began by underlining the importance of indices quoting David Tamburelli, Head of Emerging Markets Product, Bloomberg L.P, “There is a clear need for a transparent and objective benchmark for sovereign debt in Africa. Well-crafted indices are essential in the assessment of value in markets while contributing to liquidity by giving investors a benchmark to evaluate their performance”.

All well-crafted indices share common qualities: transparency, replicability – the prices need to be actionable in the market-, good governance, and predictability. They also need to be relevant to the market, which means methodology and inclusion criteria should change as and when necessary. To the extent possible, indices need to be adapted to unique investment constraints.

The AFMI Bloomberg African Bond Index is a rules-based market value weighted composite index of the Bloomberg South Africa (BSAFR), Bloomberg Egypt (BEGYP), Bloomberg Nigeria (BNGRI), Bloomberg Kenya (BKEN), Bloomberg Namibia (BNAMI) and Bloomberg Botswana (BBOTS) Local Sovereign Indices. Botswana and Namibia were the latest additions, as of October 2015. Securities included in the index are local currency sovereign bonds with at least 1 year remaining to maturity and with reliable price sourcing. The Index is comprised of three sub-indices: the 1 to 3 year maturity, the 1 to 10 year maturity and the 10+ years maturity.

The Index was launched in February 2015 and is rebalanced monthly. It is composed of 129 bonds. Total market capitalization at October 20th was USD 177.07 billion with an average maturity of 9.53 years.

Issues raised:

- Country credit quality is not included in the selection criteria of the Index.

- The Index is focused on Sovereigns. No supranational entity is included.

- The Liaison Officers play a key role in publicizing the role, objectives and selection criteria of the Index in their country. The technical assistance programs should help countries integrate the Index.

- The methodology used for the index is the Bloomberg BVAL.

Presentation: The African Domestic Bond Fund: Investing in our domestic debt markets - Mr Cedric Mbeng Mezui, Coordinator, AFMI

Currently, there is little foreign investment in African local currency bonds outside of South Africa. Infrastructure projects, hard-currency sovereign debt and listed as well as unlisted equities attract some attention, but local currency fixed income in particular remains the domain of local institutional investors (mainly pension funds). While strong demand for Eurobonds demonstrates appetite for African sovereign risk, this does not generally translate into appetite for local currency bonds. Even if local currency yields are higher and often adequately compensate for FX risk, African local currency bonds are generally not considered by global investors.

The raison d’etre of the ADBF is to establish a new financial product on the African continent which will create more liquidity in the local currency markets invested by the Fund. The ADBF will contribute in lifting the technical barriers to investment in local currency by international institutional investors by improving operational components of African bond markets (e.g. settlement systems, data collection and dissemination etc.) and encouraging the creation and adoption of African bond indices as no adequate benchmark for investors exists at the moment- to this end the AfDB launched the ABABI in 2015. The Fund should also help increase the pool of sophisticated African fund managers and contribute to skills transfer into Africa.

The designing and the structuring of the Fund will take into account the key challenges modeling the current African macroeconomic environment. This includes the impact of the downturn in the Chinese economy on African economies, the expected rise in US interest rates linked to changes in the Federal Reserve interest rate policy, the commodities shock affecting most African markets and all the other factors leading to the depreciation of African currencies. These different risk factors explain why the African Development Bank is taking on a lead role in creating this Fund to reduce African markets dependence on foreign borrowing. The Fund is designed with the objective to address investors’ concerns regarding access, illiquidity, transactions costs, risk/return, and regulation on African markets. It will be a semi-actively managed Government bond fund in which investors will be required to meet KYC requirements. Target investors are Banks, Institutional Investors; Funds; Sovereign Wealth Funds; Development Banks; etc. The Fund will be set up outside the AfDB and the Bank will provide seed capital of up to $ 25 million. Target size is $ 100 to 250 million at first closing.

In 2016, the AfDB will recruit an external Fund Manager and finalize the structuring of the ADBF for an expected launch in Q3 2016.

Presentation: The South African Yield Curve – Mr David Milne, Asset and Liability Management Division, National Treasury, Republic of South Africa

Background of the South African bond market

In the 1970s, the South African domestic bond market resembled most of today’s African bond markets, with no active secondary market, new government bonds sold on demand (tap basis) and a new bond issued for every funding requirement. In the 1980s, after the Government faced refinancing problems due to debt standstill, an initial debt consolidation program was implemented in 1989 with smaller bonds consolidated to create benchmarks bonds (5, 10, 15 and 20 year maturities). The prescribed Asset Requirement was abolished in 1989. In 1996 the Bond Exchange (BESA) of South Africa was established. It created a clearing house, the Universal Exchange Corporation (UNEXCOR). A regulatory framework in listed financial instruments was established and Primary Dealers in government bonds appointed.

Composition and trends in the market

Currently, the South African bond market is dominated by Government bonds (63% of issues), Financial Institutions (17%) and SOCs (13%). Fixed rate bonds contribute the largest share of listed instruments on the JSE (68%), but inflation-linked bonds, which have been in existence for 12 years also contribute a significant portion. Floating rate notes are issued largely by corporates, including banks.

The movement on the fixed-rate bond yield curve from 1 April 2015 to 20 November 2015 translates into the increase in government borrowing costs by an average of 67 basis points. This is mainly due to anticipated US monetary tightening and EM as well as commodity economy decline. Inflation linked bonds yields increased by 7 basis points in the long-dated bonds.

The domestic bond issuance strategy is in line with the country’s risk guidelines. Fixed-rate bond auction levels were maintained in 2015/16 while inflation-linked bond auctions levels were decreased. To broaden the funding options available, new bonds were introduced. Non- competitive tenders on new bonds [for smaller investors] were increased from 50% to 100% until the outstanding amount reached R10 billion. The Government is pursuing a strategy of issuing long-term bonds in order to minimize refinancing risk, and is implementing risk guidelines to ensure debt sustainability. A bond switch program has been used to exchange short-dated bonds for longer-dated bonds.

A sizeable amount of sovereign bonds are held by foreign investors. Non-residents increased total holdings of local currency government bonds to R459.1 billion in October 2015. They hold about 41 per cent of fixed-rate bonds with a fair spread across maturities. Official Pensions funds hold 50 per cent of government inflation-linked bonds.

Panel Discussion: Developing the investor base: Perspectives from Institutional Investors

Moderator: Godfrey Mutizwa, CNBC Africa

Participants: Mrs. Grace Usoro, Manager, Public Sector Pension Department, Pencom Nigeria ; Mr Stefan Nalletamby, Director Financial Sector Development Department, African Development Bank; Mr David Ashiagbor, Coordinator, Making Finance Work for Africa; Ms Prasheen Singh, Director, Riscura; Ms. Wanjiru Kirima, VP Stakeholder Engagement, Alternative Prosperity.

Main takeways: 

  • African markets are small but growing. Key factors of development are i) awareness and capacity of institutional investors; ii) sound financial infrastructure. In several African countries regulators are currently working to bring the Financial Sector up to speed with the development of the market. This includes creating an enabling environment for the development of the Pensions Funds, as pensions can be major supporters of capital markets development and serve as complementary sources of funding to banks, thereby stimulating economic growth. Forward-looking reforms also look to introduce new and well-structured products for institutional investors and diversify the investor base towards retail investors.
  • The biggest challenges for regulators remain the low penetration rates of the pensions and insurance sector, the technical and regulatory barriers to entry of foreign investors in African capital markets, such as the lack of investment protection, and the lack of investment and management capacity of domestic Pensions funds.
  • One of the key factors of success for regulators and policy makers is striking a balance between building the value proposition of “localization” by lowering the hurdles associated with investment in African local markets, all the while expanding the investment frontiers across domestic borders. Getting pensions to invest in other countries in Africa or in the rest of the world can bring real returns to higher levels and diversify their portfolio.
  • Two countries exemplify the efforts made by public authority to deepen the Financial Sector. Nigeria has long been at the forefront of Pensions reforms: the Pensions Industry has known a remarkable increase in volume this past decade, with total Pensions assets amounting to USD 25.5 billion in 2015, from only 7 billion in 2008. Currently, 69% of Pensions funds are invested in bonds (and 66% in sovereign bonds). Nigeria have recently introduced Private Equity as one of the asset classes for Pension funds. The country has also taken measures to increase the proportion of retail investors by allowing them to access capital markets directly instead of going through brokers and giving them access to secondary markets.
  • Kenya is also a good example of innovative Financial Sector policies. It is looking to increase savings for Pensions, SACCOs and retail investors, who can now buy Treasury Bills in small amounts. With the banking system slowed down by structural issues, Pensions funds have played an important role in funding infrastructure and, most importantly, the development of real estate.
  • Creating collaboration and information-sharing structures for African pensions will be key to build the investment capacity of the industry and disseminate best practices across the continent.
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