Dakar, 19th May 2022 - In the context of its African Ministers of Finance conference, CoM2022, the United Nations Economic Commission for Africa (ECA) has given the details of a path for African international sovereign debt liquidity and sustainability -- the Liquidity & Sustainability Facility (LSF) it established and with the support of BNY Mellon and Amundi.
Addressing debt sustainability
In an environment characterized by increasing debt burdens, historically high cost of borrowing, difficult post- Covid recovery, climate change related issues and energy and food shortages, there was a consensus among participants at the conference that tackling debt sustainability was a key issue.
Guest speaker Vincent Mortier, CIO of leading asset management firm Amundi highlighted the role instruments such as Sovereign bonds can play in managing debt sustainability provided a liquidity-supportive framework is in place.
The LSF established in 2021 by the ECA replicates the dynamic of a repo market for African sovereign Eurobonds, providing investors with competitive funding through repurchase agreements (“repo“). It aims to support improved ways for African States to raise money from investors in a transparent market driven framework and at competitive rates.
“As a global asset manager, Amundi is proud to support the LSF. This mechanism will foster the emergence and the structuring of the African sovereign debt market, on par with the best international standards,” Vincent Mortier, CIO of Amundi commented. “It represents an important milestone for investors, as the African continent offers promising opportunities in terms of sustainable fixed income investment, in particular green bonds.”
Repo markets as a way of increasing liquidity for African Sovereigns and private investors with a focus on financing sustainable development
Finance and development ministers from throughout the continent, together with the ECA, have been at the forefront of discussions on innovative mechanisms that can be added to the mix of tools used to address their various financial challenges.
While a fledging repo market exists for the bonds of some African nations, a mature repo market, like that which exists in most major economies, has been missing.
Guest speaker Brian Ruane, CEO of Clearance & Collateral Management at BNY Mellon, unveiled the firm’s collaboration with the LSF as its triparty collateral management provider. He said that the facility would address the gap in market infrastructure for financing Africa’s international sovereign debt, helping to promote a more stable repo market on the continent.
“With our wealth of experience in the field, we are well placed to support a financial infrastructure solution for African Sovereign Eurobond debt,” said Ruane, whose business settles and administers approximately $5Tr in financing transactions globally each day. “A more robust and liquid repo market should lead to more demand from buyers, more refinancing and lower costs of servicing that debt.”
Boosting the issuance of sustainability-linked bonds
Private sector demand for investment products that promote sustainable development has been rising steeply in recent years. These “sustainability-themed products” were worth $3.2 trillion in 2020. Despite the vast green resources of Africa and increased investor demand for sustainability-themed products, the continent accounts for less than 1 per cent of global green bond issuances.
The LSF can incentivize green bond issuances by offering preferred repurchase agreement rates to institutional investors that refinance their positions using African green bonds as collateral. As such, the LSF can be used to mobilise capital investment towards key sustainable efforts and a green and sustainable recovery for Africa.
“Today Africa needs more liquidity than ever before to finance its recovery and transform the continued threat of the pandemic into an accelerator of growth and global prosperity,” said Vera Songwe, United Nations Under-Secretary-General and Executive Secretary of the United Nations Economic Commission for Africa (ECA). “In the current environment high inflation impacts on essential commodities such as food, energy and fertilizers and places an additional strain on numerous African households. More than ever before, we need mechanisms such as the LSF to help African governments deal with the situation in a bold way and at affordable conditions. With the CFTA, we already have a blue print for the recovery; now we need the financing to go with it.”
“We are very pleased to establish this new market infrastructure,” said David Escoffier, Board Director and Head of the LSF Secretariat. “This is a great opportunity to upfront finance and mobilise the private sector to change the development trajectory towards a new development model for the African Continent”.
Press Contacts
ECA Communications, Sophia Denekew, denekews.uneca@un.org
LSF Secretariat, David Escoffier, Head, david.escoffier@18eastcapital.com
Amundi, Nathalie Boschat,Head of Press relations, Digital & Corporate communication, nathalie.boschat@amundi.com
BNY Mellon, Nita Truman, Head of Marketing & Communications, GMI, Nina.Truman@bnymellon.com
About the United Nations Economic Commission for Africa
Established by the Economic and Social Council (ECOSOC) of the United Nations (UN) in 1958 as one of the UN’s five regional commissions, the United Nations Economic Commission for Africa’s (ECA’s) mandate is to promote the economic and social development of its Member States, foster intraregional integration and promote international cooperation for Africa’s development. ECA is made up of 54 Member States and plays a dual role as a regional arm of the UN and as a key component of the African institutional landscape.
For more information, visit: www.uneca.org
About the Liquidity and Sustainability Facility
The LSF was established by the United Nations Economic Commission for Africa in November 2021 at the COP26 in Glasgow with the dual objective of supporting the liquidity of African Sovereigns Eurobonds and incentivizing SDG-related investments such as SDG bonds on the African continent. Its aim is to improve African Sovereign debt sustainability by providing African governments and private investors with a liquidity structure on par with international standards. And by improving the terms of new issuances of SDG- or climate-linked bonds of African nations, the LSF seeks to dramatically increase the volume of green and blue bond financing, and at more competitive rates.
About the ECA Conference of African Ministers of Finance, Planning and Economic Development
The Conference is one of the premier forums on the continent for dialogue and exchanges of views between African ministers responsible for finance, planning and economic development and governors of central banks on issues pertinent to the development agenda of Africa.
For more information, please visit the CoM2022 web page