Frequently Asked Questions


  1. What is the connection between the development of securities markets and infrastructure funding?

    Well developed securities markets have the ability to mobilize private funds from national savings and channel them to the most productive sectors of the economy in need of local currency financing. Addressing the factors that hinder development of securities markets in Africa can help local and regional governments and private infrastructure companies to obtain much-needed long term financing through issuing bonds.
  2. What is the estimated investment required to finance Africa’s unmet infrastructure needs?

    Africa’s infrastructure needs are enormous, characterized by growing demand for housing, roads, power and other infrastructure. The unmet infrastructure funding gap is estimated at $250 billion over the next 10 years. Governments and public institutions across the continent are increasingly looking to the private sector to help finance infrastructure projects. The ability to draw on private capital is required to meet the growing volume of financing needed to support these areas which cannot be adequately funded indefinitely through national budgets.
  3. What are the potential benefits of a bond market?

    Bond markets provide:
    • Access to longer term and cheaper financing
    • Matching of assets and liabilities
    • Increased investment capacity
    • Increased liquidity in the market through increased frequency of transactions
  4. What are some of the existing challenges to the development of a bond market in Africa?

    The challenges can be broadly categorized as regulatory, innappropriate market structure and low secondary market liquidity, capacity and skills of market participants - issuers, investors and intermediaries, small size of the markets and project preparation gaps. The greatest challenge is the regulatory environment, where a number of issues need to be addressed. For instance:
    • Equity-type requirements are applied to bond issues
    • Long approval process – It takes up to nine months and is some cases more than a year
    • Hybrid of merit and disclosure based approval regime is applied, which implies that regulators often act as "quasi-rating" agencies
    • High costs of issuance
    • Lack of or in some cases, inadequate asset backed securities regulations, to facilitate securitization. This would enable institutions with weak balance sheets but with viable projects or streams of cash flows to raise funding from the market.
    The above regulatory challenges have mainly impacted on the speed and cost of raising funds through the bond markets, with the result that the bond market has failed to provide effective competition to the bank market.

    Furthermore, the secondary bond market has remained illiquid because bonds are traded off the exchange as opposed to over the counter (OTC) markets. Information asymmetry is significant as there are inadequate means of channeling accurate, timely and relevant market information to different market participants and stakeholders. In addition, there are settlement risks to be grappled with in an environment that does not support electronic trading platforms for bonds and delivery versus payment mechanisms.
  5. How does ESMID contribute to addressing these challenges?

    Through four-related projects, ESMID Africa is closely working with stakeholders in Africa to address most of the challenges to the development of a vibrant bond market in region.

    a) Legal and Regulatory Assistance
    ESMID Africa is presently working with regulators in East Africa to identify and address the main obstacles to bond issuance in the laws and regulations, address issues of market structure and rationalize the high issuance costs. The project will also assist in the establishment of a framework to support the issuance of new products such as asset-backed securities. This work is being undertaken as a regional project, with the objective of creating a harmonized issuance and trading environment in East Africa that can facilitate cross-boarder issuance of securities.

    b) Training and Certification
    Under the training and certification project, ESMID has has two components aimed at improving the skills and level of professionalism among market participants in the region. The first component is to introduce formal certification procedures for market players. The second component aims at providing specific and directed training on bonds to issuers, investors and intermediaries. This shall be anchored in an appropriate institutional framework that shall ensure sustainability of the initiative.

    c) Strengthening the Secondary Markets
    This project aims at assisting the market participants to introduce measures to strengthen liquidity in the secondary markets in an appropriate market structure.

    d) Regionalization
    This project aims at assisting the stakeholders to develop an appropriate road-map for the implementation of a regional capital market. This will serve to broaden and deepen the market for the benefit of issuers, investors and intermediaries.
  6. Does ESMID provide financial support to bond market issuers or other players in the sector?

    The overarching objective of ESMID is to facilitate securities markets transactions. In particular, ESMID works with issuers and market players to support the issuance of innovative bonds that have demonstration effect. In this regard, ESMID may cover part of "first-costs" associated with structuring, legal or documentation costs for a few innovative transactions with strong demonstration effect.