Africa: Debt Markets

1
Africa Debt Markets
Jill Mann Debt Capital Markets Africa Tel 27
11 269 9554 Fax [phone] Email jill.man
n_at_rmb.co.za
2
Overview

• Africa in perspective
• Debt Markets
• Development
• Drivers
• Case studies
• South Africa Bond Exchange
• Botswana
• Namibia
• The FirstRand experience
• Conclusion

3
African Economies Size Growth Rate Volatility

GDP Size Growth vs. Country Risk, 2003/4
Angola
Mozambique
Tanzania
Uganda
Real GDP Growth Forecast 2004
Rwanda
Namibia
Mauritius
Zambia
Botswana
Senegal
Kenya
Ghana
Nigeria
Bubble size GDP
Country Risk Rating
Source IMF The Economist Team analysis
4
African Economies Relative to Other Emerging
Markets
GDP Size Growth vs. Country Risk, 2003/4
12
Angola
10
China
Mozambique
8
Russia
Tanzania
GDP Growth Forecast 2004
India
6
Mauritius
Malawi
Rwanda
Namibia
Zambia
4
South Africa
Botswana
Nigeria
Kenya
Brazil
2
0
-5
5
15
25
35
45
55
65
75
85
Country Risk Rating
Source IMF, The Economist Team analysis
5
Africa Political Stability Spreading
Source African Business Research Institute
6
Government Budget Deficits are on the Decline
Source African Business Research Institute
7
Development of African Domestic Debt Markets

• Every country has sovereign debt
• Treasury bills, monetary authority bills, bonds,
  and corporate
  

Every country different All at different stages
of financial market development

Commit to the development of markets Political
will more political buy-in - stability
Transparency Legal framework and policies Good p
rice discovery/liquidity Create yield curve pric
e currency forwards introduction of derivatives/h
edging price corporates and projects
Fund all projects locally Take currency risk aw
ay from deals
Regionalisation economies of scale
Africa doesnt need big bang.manual works
8
Drivers of Domestic Debt Markets

• The beginning of State pension fund
  liberalisation in some countries

Emergence of asset managers as state pension
funds privatise
Private sector pension funds are emerging
Sophistication of the economies has lead to the
demand for retirement annuities unit trusts a
nd
insurance products
Corporates are looking to the debt markets for
funding
State owned enterprises are also borrowing
directly from the debt markets
Case studies.
9
Case Study Development of the SA Bond Market

• Prior to 1989 South African bond market was
  fragmented and illiquid.
  
• 1989-The Financial Markets Control Act was
  promulgated. Bond Market Association was formed
  
• 1992-Inter-dealer brokers (IDBs) were
  introduced providing effective price discovery.
  
• 1994-Electronic settlement and a centralised
  capture system for all trades was introduced.
  
• 1996 The BMA was granted a licence and became
  known as the Bond Exchange of SA. Besa fully
  compliant with G30 recommendations on clearing
  settlement
• 1998-Open-outcry trading floor closed. National
  Treasury appointed 12 Primary Dealers.
  
• 2000- The Bond Automated Trading system (BATS)
  was implemented.
  
• 2004- BATS replaced by BTB in May 2004
• Centralised price discovery (ZAPrices)
  implementing in October 2004

Source BESA
10
Milestones in SA Bond Market
P DS
LICENCED
C D
I D B s
Source BESA
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Case Study Botswana

• Richest country in Africa based on GDP/per capita
  (source World Bank)
  
• Prudent fiscal policies small budget deficit
• Prior to March 2003 Underdeveloped debt capital
  markets
  
• No Government bonds
• Few illiquid corporate bonds
• No inter-bank market
• No Repos or swaps
• No yield curve and therefore no forward market
• No debt instruments for pension funds
• BoBCs used to manage liquidity
• In March 2003 the Government issued its first
  ever bonds BWP2.5bln and
  
• Inter-bank market
• Repos and swap market active
• Yield curve and therefore forward market
  developing
  

12
Botswana BWP vs ZAR GOV Yield Curves
(28-Sept-2004)
13
Case Study Namibia

• More sophisication in banking systems and yet
• Policy linked to RSA - CMA
• Not the same depth of market as RSA and smaller
• Government bonds
• Illiquid market
• Developing inter-bank market
• Some Repos and swaps
• No consistent transparent price discovery
• Restrictions for local pension funds and asset
  managers
  

14
Namibia vs South Africa Yield Curve (24-Sept-2004)
GC24
GC15
GC10
GC07
R186
GC05
R157
R194
R153
R152
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Deals - FirstRand via RMB and FNB in Africa
Uganda Banking Kenya Aircraft Tanzania Gold M
ine Mozambique Aluminium smelter International
Toll Road Water Malawi Agriculture Zambia Cob
alt Leaching Plant Copper Mine Zimbabwe Railway
Infrastructure Gold Mine Swaziland Banking Ag
riculture Lesotho Banking Mauritius Banking A
griculture
Egypt Capital Markets Sudan Railway Infrastruct
ure
Mauritania Mining Senegal Mining Gambia Minin
g Guinea Bissau Mining Guinea Bauxite/Alumina
plant Ghana Gold Mine Water Togo Mining Burk
ina Faso Gold Mine Niger Gold Mine Benin Tele
coms Nigeria Oil Gas Cameroon Mobile Phones
West Africa Oil Gas
Tunisia Development Finance
Dem Rep of Congo Copper/Silver Mine Trade Financ
e Magnesium Mine Republic of Congo Oil Gas P
ort Infrastructure Angola Diamonds Oil Storage
Facility Botswana Telecoms Nickel Copper Mine
Banking Namibia Diamonds Banking
South Africa First Hospital PPP Worlds largest
privately run prison Major Toll Road First indep
endent power plant Water recycling plant Mining
rehabilitation Metropolitan vehicle fleet Bulk w
ater infrastructure
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In Conclusion

• Challenge is to develop domestic markets
• Africa is not for the faint hearted but there are
  great returns to be had
  
• Continuously changing, growing and evolving
• The foundations for development are in place
• No two countries are the same
• Big projects are few far and in-between but there
  are medium sized
  
• Africa is going places.

We are committed to Africa are you?...............
......................
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Glossary

• GDP Gross Domestic Product
• RSA Republic of South Africa
• BMA Bond Market Association
• BESA Bond Exchange South Africa
• PD Primary Dealer
• BOBC Bank of Botswana Certificates
• CMA Common Monetary Area
• RMB Rand Merchant Bank
• FNB First National Bank