“Capital markets are key in mobilizing private capital to finance COVID recovery beyond growth and sustainable economic transformation.” -Gaëlle Arenson, Editor-in-Chief, Jeune Afrique Business+.
The capital market plays a significant role in the global economy. Before the COVID-19 (coronavirus) pandemic in 2020, many African governments explored little of the capital market, mainly focusing on just the equity market (shares or stock market). But the capital market has many other tools that facilitate its significance in an economy, creating a platform to buy and sell long-term debt or equity-backed securities.
At the pandemic’s height, the equity market slowed down due to the global lockdowns. The debt market rose with specifically tailored tools like social bonds, green bonds, and much more.
A total of $10.2 trillion (up 31 percent in 2019) in debt was raised worldwide that year, with Cote d’Ivoire and the Republic of Benin having a share in it. On a more microeconomic level, African SMEs in financial difficulty are also being lured by these markets, offering new products tailored to specific needs.
Cote d’Ivoire’s (B+/Positive) issuance of a 12-year €1 billion Eurobond, on 25 November, was the first by a sub-Saharan African sovereign since the escalation of the pandemic. The Republic of Benin completed a €1 billion bond issuance on the international debt market by January 2021. Therefore, the pandemic succeeded in creating an unusual hunger in investors, drawing them to social bonds. It creates a platform to help mitigate social issues.
Over the years, the capital market has channeled the wealth of savers to those who can put it to long-term productive use, such as companies or governments. Therefore, it offers African’s economy great possibilities in the post-COVID era.
At the recent 2021 Africa Financial Industry Summit, during a panel session tagged Capital markets: Africa’s new goldmine in a post-Covid world it was noted that despite the rough year Africa’s capital markets had in 2020 (due to the large exit of foreign investors) the debt markets proved resilient, reaping the rewards of innovative initiatives put in place by governments and development partners.
In a statement, Gaëlle Arenson, Editor in Chief of Jeune Afrique Business+ and moderator of the panel session said, “capital markets are key in mobilizing private capital to finance COVID recovery beyond growth and sustainable economic transformation.” However, the Central Banks have a responsibility in determining socio-economic trends and engrafting environmental issues into finance.
In the previous decade, green bonds were taking the main stage in the bond market ars they addressed the issue of climate change. But the 2020 pandemic, which rocked the global economy, shifted the spotlight to social-economic problems and the need for social bonds to be created to mitigate social issues.
John Gandolfo mentioned that “Social bonds are now the front and centre of the sustainable bond market. They offer investors the opportunity like green bonds. However, the fund projects provide or increase access to essential services like healthcare, water, finance, etc., for the underserved.” Gandolfo is the Vice President and Treasurer for the International Finance Corporation (IFC).
For the continent to leverage the capital market, its finance sector needs to understand the depth of the fundamentality of the bonds and money market. It has to innovate and reinvent itself enough to think outside the box to develop new financial instruments. It also needs to develop a written investor base as.