Establishing a fixed income market to support key infrastructure projects.

IN EAST AFRICA, a project to improve efficiency in the debt markets promises to deliver much needed long term local currency funding from the private sector for capital-intensive infrastructure projects. Regionalization of the project will provide private sector investors with access to a much larger market.

Launched in March 2007, the Efficient Securities Markets Institutional Development Program (ESMID) provides investment and advisory services for emerging markets. It is a joint initiative of the Swedish International Development Agency (SIDA), International Finance Corporation (IFC) and the World Bank.

At the request of ESMID, the Advisory team at NASDAQ OMX worked to create a market model for secondary trading, clearing and settlement and a depository infrastructure for fixed income securities in Kenya, Rwanda, Tanzania and Uganda. The team identified the market prerequisites for possible transformation, defined and recommended a new market model, created a detailed action plan on how to set up the model and advised on implementation.

According to Helena Wedin, Senior Advisor at NASDAQ OMX Advisory Services, each of the countries in the ESMID Africa project have small bond markets, with just a few bonds issued in each country. “Initially, we have to look at developing the local markets, ensuring that they each have a functioning financial infrastructure and are as efficient as possible before moving on to regionalizing them,” she notes. “International interest and local prerequisites need to be balanced.”

The legal and regulatory framework in each country is a major obstacle for investors. In Kenya, for instance, the long length of time it takes to issue bonds contributes to higher costs.

ESMID’S GOAL is to improve the regulatory framework and infrastructure for accessing the market and trading bonds. “ESMID Africa countries require that all publicly issued bonds must be listed and traded on an exchange, but internationally, bonds are typically traded OTC,” says Evans Osano, Program Manager at the IFC. We are proposing a more suitable pre- and post-trade structure for bond trading and data dissemination.”

The initiative has been launched in Nigeria in West Africa and will be expanded to other emerging markets in the future. In East Africa, meanwhile, the diagnostic process has been completed and detailed recommendations and roadmaps have been developed. 

“A local presence has been very important to maintaining the momentum of the project,” Osano adds. “The technical know-how of teams from NASDAQ OMX and the global and local knowledge of the IFC/World Bank Securities Markets Group, along with good teamwork, have made the project a success.”

By Heather McKenzie, illustration Valero Doval