From: Berhane Habtemariam (Berhane.Habtemariam@gmx.de)
Date: Wed Aug 31 2011 - 17:17:02 EDT
INSIGHT- For expat Africans, patriotism may pay
Wed Aug 31, 2011 8:48am GMT
By Carolyn Cohn
LONDON Aug 31 (Reuters) - In a five-star hotel overlooking the Thames a
month ago, investment manager Eric Guichard stood up to address a crowded
cocktail party on how African expatriates could invest their savings in
projects back home. The response from the chattering financial professionals
was unusual.
They listened.
"When I see what my family is doing with the money I send them..." Guichard,
who comes from Senegal, told the party, "they are leasing a house to the
U.S. embassy at $5,000 a month, they are buying Persian rugs, they are
importing taxis from Belgium, they are buying and leasing power generation
units..."
Rather than subsidise all this consumption, he argued, Africans sending home
cash could make a more sustainable contribution.
Among the projects Guichard described to his Africa-focused audience were
bonds designed to capture a share of the billions Africans send to their
families at home. Offering a better return than investors can expect in the
developed world, these "diaspora bonds" could enable countries to cash in on
patriotism and fund much-needed development. It's an idea the World Bank and
the African Development Bank are encouraging.
The funds are certainly needed. Africa, the world's poorest continent, is
showing some of its fastest growth, driven by a commodity boom and growing
consumer demand. For that 5-percent plus annual growth to continue, and for
the continent's wealth of raw materials to be converted into refined
projects, it needs to invest in roads, rail, utilities and other
infrastructure -- $93 billion a year by World Bank estimates. It's only
spending half that at the moment.
Remittances from Africans abroad, meanwhile, are booming, growing fourfold
in the past 20 years and shrugging off the global financial crisis, to total
$40 billion a year. "Tapping into this money with so-called diaspora bonds
could help provide Africa with the equipment and services it needs for
long-term growth and poverty reduction," World Bank policymakers Ngozi
Okonjo-Iweala and Dilip Ratha wrote in an op-ed in the New York Times
earlier this year.
But the history of such bonds is patchy at best. Japan and China issued them
in the early 1930s, Israel has raised around $25 billion in diaspora bonds
in the last 30 years, and India has used them to raise billions, generally
in times of crisis, including $11 billion after the United States imposed
sanctions against the government for testing a nuclear bomb in 1998.
"The ones that India have issued, I would almost call them desperation
bonds," said Leon Isaacs, chief executive of remittances and payments
consultancy Developing Markets Associates in London. "It's a bit like going
to mum and dad to borrow money because you cannot go to the bank."
Debt-laden Greece may also make such a move: it filed with U.S. regulators
in March to issue up to $3 billion in bonds to any expatriates keen to lend
a helping hand to their twice bailed-out sovereign. Analysts doubt there
will be many takers.
Could African countries fare any better with the continent's 30 million or
so expatriates?
LOYALTY
Savings by African expatriates from Sub-Saharan African alone total $30
billion annually, according to the World Bank, which reckons African
countries could issue $5-10 billion a year in diaspora bonds.
"Migrants make more stable investors in their home countries than people
without local knowledge. They're less likely to pull out at the first sign
of trouble," wrote Okonjo-Iweala and Ratha.
Following victory for President Goodluck Jonathan in this year's elections,
Nigeria has said it hopes to set up a diaspora fund. Okonjo-Iweala, sworn in
as finance minister two weeks ago, did not respond to requests for comment.
The advantage of diaspora bonds for governments is that they can leverage
loyalty and ties of emotion and family to the home country. If they are
lucky, they would avoid taking their begging bowl to organisations like the
International Monetary Fund, which are likely to impose more stringent
lending conditions.
"Diaspora investing exists in the space that's between investing and
charity," says Liesl Riddle, who runs the Diaspora Capital Investment
Project at George Washington University. She said her researchers have
surveyed many different diaspora communities globally and discovered that
they are typically motivated to invest in their countries of origin "for
emotional or social status reasons, not just to make a profit".
It's an idea that could chime with diaspora professionals the world over,
faced with puny deposit rates in western banks and, at best, an uncertain
performance in major stock markets. To illustrate: five-year Treasury yields
are running below one percent -- a five-year diaspora bond might pay nearer
5 percent.
"A diaspora bond is a new way of investing for a good return," said Mthuli
Ncube, chief economist at the African Development Bank by telephone from
Tunis. "Global interest rates are the benchmark and you add a little
premium. This is how you can assist your country, and the rate will be
better than you can get in the developed world. Rather than put your money
in a savings account, put it in a diaspora bond."
Another advantage, proponents hope, would be that the bonds could serve as
the 'patient capital' that developing countries need. The investment
horizons of migrant workers may be longer than that of the disinterested
investor, Okonjo-Iweala wrote in Foreign Policy magazine in May.
"They're also less likely to worry about the risk of currency devaluation or
being paid in local currency rather than dollars, since they can find ways
to spend local currency if the bonds were repaid in those terms."
WHO'S DOING IT
Several African countries are looking to issue diaspora bonds.
Guichard, who has just launched Homestrings, a website to put potential
diaspora investors in touch with opportunities, says he is talking to two
African central banks and one in the Caribbean about offering diaspora bonds
via the platform -- one African central bank wants to develop a regular,
quarterly issuance programme. He wouldn't name the countries, but likely
contenders besides Nigeria include Kenya and Ghana, and, in the Caribbean,
Jamaica.
Kenya said last month it planned to raise $600 million from bonds targeted
at the diaspora by the end of this year, including a $400 million
infrastructure bond. It has previously issued infrastructure bonds
denominated in Kenyan shillings, but without the small denominations -- as
low as $100 or equivalent -- or specific overseas marketing that typify a
diaspora bond.
In the Foreign Policy article, Okonjo-Iweala included Nigeria in a long list
of countries that would benefit, alongside Ghana, Kenya, Liberia, Senegal,
Uganda and Zambia in sub-Saharan Africa, and Haiti and Jamaica in the
Caribbean.
Uganda held its first diaspora conference in London this month, aimed at the
210,000-plus members of the Ugandan diaspora living in Europe. It offered
them the chance to talk to government ministers and finished up with a
fashion show and concert.
Diaspora professionals are interested. Dipo Salimonu, a Nigerian who runs
oil and gas firm Ateriba in London, is one. "I think it would be
attractive," he said. "It's an investment in one's country, not only an
investment in a financial instrument that generates a return. It makes a
very compelling case."
PROBLEMS
In a continent whose politics can be unstable and where corruption is also
prevalent, though, the scheme would not come without risks. One country
Okonjo-Iweala did not include is Zimbabwe, which has also said it planned a
$50 million diaspora bond. Zimbabwe held a conference in London targeted at
diaspora investors two years ago, but may struggle with antipathy towards
President Robert Mugabe.
Distrust may hinder others. "The diaspora are in some
C Thomson Reuters 2011 All rights reserved
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