Two new countries – Mauritius and Morocco have been added by the African Development Bank (AfDB) to its Bloomberg African Bond Indices (ABABI), the Bank announced on Monday.
This marked a steady progress in the Bank’s efforts to deepen the continent’s local currency bond market.
The African Development Bank administers the ABABI, a family of African bond indices launched in February 2015 and calculated by the independent, global index provider, Bloomberg.
At the launch, the indices included Egypt, Kenya, Nigeria, and South Africa. Botswana and Namibia joined in October 2015, and Ghana and Zambia in April 2017.
This notice means that effective January 1, 2021, Mauritius and Morocco have become members of the ABABI.
“This is a positive development as the inclusion of Mauritius and Morocco, two of Africa’s better-rated issuers will improve the overall credit quality of the ABABI, which now captures close to 90% of the outstanding amount of African sovereign local currency bonds” .
Stefan Nalletamby, Director of the Bank’s Financial Sector Development Department.
Mr. Nalletamby noted that in the current environment, the ABABI indices are a reliable tool for international investors to measure and track African sovereign bond markets.
“This will be even more relevant following the COVID-19 crisis as sovereign debt managers, who will need to further diversify their local currency funding instruments, will also need to adjust their strategies, enhance transparency, and widen their fixed income investor base, given the increased financing needs of the economies” .
Stefan Nalletamby.
The African Development Bank works to deepen the continent’s local currency bond markets and create an environment where African countries can access long-term financing. By providing transparent and credible benchmark indices, the Bank and Bloomberg provide investors with a tool to better measure and track the performance of Africa’s bond markets.
The Bank has also structured and invested in an exchange-traded fund, the African Domestic Bond Fund (ADBF), replicating the index and providing investors with an innovative tool to gain exposure to African local currency fixed income. ADBF is listed in US dollars on the Stock Exchange of Mauritius and managed by Mauritius Commercial Bank Investment Management.
Despite the improving macroeconomic, political and regulatory environment in Africa, institutional investment in African local currency debt remains under-represented in most asset management portfolios.
This is partly due to the asymmetry of information and perception of risks in Africa and the real difficulties surrounding market access. The ADBF attempts to address both issues by providing exposure through a transparent, low cost and liquid vehicle listed on the Stock Exchange of Mauritius.
The African Domestic Bond Fund invests in debt obligations issued or guaranteed by African governments and their agencies and by African government-sponsored entities and quasi-government entities, denominated in local currency.
The fund aims to provide gross investment returns (before fees and expenses) that track the total return of the AfDB/AFMISM Bloomberg African Bond Index 25% Capped.
ADBF benefits from the support of strong institutions such as the African Development Bank, a cornerstone investor in and sponsor of the fund.
As the continent’s premier development bank, the AfDB is ideally positioned to lead, coordinate and drive the initiatives needed to ensure the success of this fund.
The primary goals of the AfDB and other Development Financial Institutions supporting the ADBF are to reduce the dependency of African countries on foreign currency-denominated debt; encourage the deepening of domestic bond markets through investments in longer-dated debt; and broaden the investor base in African domestic bond markets.
