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new financing trends for investment and growth in Africa

new financing trends for investment and growth in Africa. World Economic Forum Annual Meeting 2014 •Davos-Klosters • Switzerland • 22-25, January 2014. Prof. Njuguna Ndungu Governor, Central Bank of Kenya. I. How are Financing Trends in SSA Re-Shaping Investment, Growth and Development?.

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new financing trends for investment and growth in Africa

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  1. new financing trends for investment and growth in Africa World Economic Forum Annual Meeting 2014 •Davos-Klosters • Switzerland • 22-25, January 2014 Prof. Njuguna Ndungu Governor, Central Bank of Kenya

  2. I. How are Financing Trends in SSA Re-Shaping Investment, Growth and Development? • Public investments are important in raising capacity for future growth. Their financing is thus an important public policy debate. • What have been the financing trends? • Borrowing from the external markets: Debt accumulation after HIPC – Growing with debt. Countries are now more conscious of debt sustainability issues. • Innovative resource mobilization for public investment: Borrowing from the domestic markets which requires development of a bond market. =>We have seen long-dated papers as well as specific infrastructure targeted bonds. • PPP is shaping up as they create endogeneity in investment decisions and completion of projects and drive investments. => Public investments do not necessarily have to be financed by debt accumulation. • Results: Reshaping domestic capital markets and private sector response. • Financial markets have deepened. • Debt instruments have increased and maturity profiles have been lengthened. • Private sector – and more specifically Pension Schemes have invested in these government securities.

  3. II. But What Projects Impact on Growth? • Infrastructure projects that solve the binding constraints - They reduce transaction costs and enhance private sector investments’ profitability. This allows entrepreneurs to earn and allocate returns from their investments. • Public investments to close infrastructure gaps are complementary to private investments. This raises the capacity for future growth. • Infrastructure projects cover road and railway networks, clean power generation, efficient ports and airports - they are also covering regional infrastructure projects like LAPSSET in Kenya, Ethiopia and South Sudan.

  4. III. Effects on Growth of the Market: Shaping and Developing Markets • Capital markets and financial markets are deepening. • Encouraged capital inflows for investment. • The availability of instruments in the financial markets has supported vibrancy and encouraged regional markets’ growth. • Encouraged private sector to raise long-term finance. • Leveraged international capital participation in domestic financial markets – more integration.

  5. IV. Evidence Lengthened Yield Curve Types of Bonds Issued; -Fixed Rate Bonds -Infrastructure Bonds Amortized Fixed Rate Bonds Benchmark Tenors; 2yr, 5yr, 10yr, 15yr, 20yr Longer Tenors; 25yrs and 30yrs 1.Vibrant Bond Market Diverse Investors in Government Securities Source: Central Bank of Kenya

  6. IV. Evidence… Total Value of Bonds Traded 2007 - 2013 • Average life of bonds has lengthened from 8 months in June 2001 to 7.2 years at present. • Debt profile for Bonds extends 27 years - from 2014 to 2041. Vibrant Bond Market Maturity Profile –Domestic debt Source: Central Bank of Kenya • Vibrant trading observed since 2010 following: • Automated Trading System (ATS) in November 2009. • Issuance of Infrastructure bonds from 2009 – traded at NSE. • Benefits of the benchmark program and lengthening of the maturity profile of securities since 2007. Source: Central Bank of Kenya

  7. IV. Evidence… Capital Flows and Remittances Source: Central Bank of Kenya Source: Central Bank of Kenya Declining current account deficit (estimated at 8.5 percent of GDP in November 2013 compared to 10.45 percent in November 2012), projections for Kenya’s remittances endorses a stable outlook for the exchange rate and increased foreign exchange inflows from international trade.

  8. IV. Evidence… Kenya Financial Market Growth GDP Growth % Gross Domestic Product 2004-2012 Source: Central Bank of Kenya Source: Central Bank of Kenya • Financial sector contributed 10.9 percent of GDP in the 2nd Quarter of 2013. • During the second and third quarters of 2013, Kenya's economy is estimated to have expanded by 4.3 percent and 4.4 percent, respectively. • Economic outlook for Kenya remains strong with capacity for future growth.

  9. Thank you

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