Here are a few overview statistics on African local currency bond markets taken from the African Financial Markets Initiative (AFMI) annual report 2017:
Total outstanding amount of African bonds and bills rose to $413bn in 2017 (up 13% on a year earlier), and bonds made up 70%. More than 80% of the total comes from 5 countries: South Africa, Egypt, Morocco, Nigeria and Kenya (descending order of market capitalization). However, many markets are small with only 8 above $10bn in market capitalization and 19 markets below $1bn.
A total of $245bn of treasury bonds and bills were issued in 2017, up 12% compared to 2016. Of this, a total of $196bn (80%) was in instruments with term to maturity of less than 1 year. On the bond markets, $19bn of instruments with terms of 1-5 years was issued, $12bn of bonds with term 5-10 years and $18bn of bonds longer than 10 years.
The AfDB/AFMISM Bloomberg African Bond Index (ABABI) includes 75% of the most liquid local currency sovereign bonds in Africa and it covers South Africa, Egypt, Nigeria, Kenya, Botswana, Namibia, Zambia and Ghana. According to AFMI “This will enable governments to improve the terms at which they borrow in domestic financial markets, thus reducing their dependence on foreign currency denominated debt.” The bond index family also includes African Domestic Bond Index (ABMDI) plus 2 sub-indices BADBC, which is a capped index giving a maximum 25% exposure per country and reducing the influence of South African bonds, and BADBX, which excludes South Africa. BADBC index returned 20.26% in USD in 2017, driven by high-yielding local-currency markets and stable exchange rates. The index offers diversification for global fixed income investors.
AFMI has organized an African Financial Markets Database which is a single portal as a web platform (www.africanbondmarkets.org) covering monetary policy, public debt management, auction results and guide to buying debt, and an African bond data portal, as a channel to disseminate domestic bond market data, standardizing data collected from different institutions. By December 2017 it covered 43 countries. The portal collects data from official websites of Ministries of Finance, central banks, debt management offices and stock exchanges and is updated quarterly. A data query section and automated data collection are being built.
In September the African Domestic Bond Fund was listed on the Stock Exchange of Mauritius as the first exchange traded fund (ETF) giving a basket exposure to several African fixed income markets. For coverage see earlier article. It will boost development of markets by providing a source of funding for local borrowers while creating a new asset class of African fixed-income securities.
AFMI has also created an African Bond Markets Development Index, which charts the state of development of the bond markets. In 2017 some markets gained strength in terms of liquidity and maturity profile based on indicators such as macroeconomic variables, market structure and market liquidity. In the top 10, Botswana, Namibia, Mauritius, Kenya and Seychelles all improved their rankings, while Nigeria and Morocco both declined, Nigeria from #2 to #6.