On 26 May 2022, the Economic Commission of Africa (ECA) and the World Bank held a virtual workshop to explore Green, Social, and Sustainable (GSS) bond market development in West Africa. The workshop was the first in a series of workshops to build awareness across Africa about the GSS bond market and initiate a program to aid countries interested in the issuance of bonds.
GSS bonds are a largely untapped market on the African continent. According to Jean-Paul Adam, Director of the Technology, Climate Change, and Natural Resources Management at the ECA: "While Africa has 23% of official climate finance; it has less than 1% of global green bond issuance" [1]. Vice President and Treasurer of the World Bank, Jorge Familiar Calderon, noted that “sustainable finance presents a critical opportunity for Africa to recover from the Covid-19 crisis and protect itself from further global conditions that could impede development.” He indicated that investor demand was high, and global sustainable debt issuance reached $1.6 trillion in 2021.
Dr. Hanan Morsy, Deputy Executive Secretary and Chief Economist of the ECA, also emphasized Africa's enormous financing needs to recover from the Covid-19 pandemic and respond to the climate crisis. These needs included $3 trillion to implement Nationally Determined Contributions by 2030, $425 billion to respond to the COVID-19 pandemic, and $130-170 billion to finance infrastructure development. Additionally, “GSS bonds could be used to transform climate change challenges into development and investment opportunities for the continent.”
Looking specifically at West Africa, Simeon Ehui, the World Bank's Regional Director for Sustainable Development for Africa, gave workshop participants a summary of the environmental challenges and potential opportunities for the region. These challenges included West Africa's heavy reliance on natural resources, environmental deterioration, lack of clean water, air pollution, and climate change. The potential opportunities for the region included green and blue bonds “which could finance a portfolio of environmentally friendly investments, increased private sector involvement and the diversification of the economy and fund climate change initiatives.”
Discussions at the workshop were lively. James Seward, Senior Financial Officer in the Capital Markets and Investments team of the World Bank Treasury, provided an overview of the global and regional GSS bond issuances. Of note, African entities have issued $3.2 billion in GSS bonds since 2014, but most have been corporates. However, at the sovereign level, the most recent notable issuances were Egypt’s first green bond in November 2020 for $750 million and Benin as the first African country to issue a Sustainable Development Goals bond for €500 million (equivalent to approximately 520 million USD).
Participants heard from representatives of the debt offices of Benin, Egypt, Cabo Verde, and Colombia, countries with direct experience with GSS bond issuance. Other topics included new market trends, the requirements for GSS bond programs, the benefits and costs related to issuing different types of GSS bonds, and prospective support by the ECA, World Bank, and other donors [1].
The workshop produced several solutions to developing GSS bond markets in West Africa. These include the need for West African countries to establish a national investment framework that prioritizes green outcomes, sustainability, and climate resilience. Furthermore, it is important to expand the ability of finance ministries to understand the structure of GSS bonds. The new understanding will allow them to build and design eligible projects to underpin GSS bonds.
Other important points raised in the workshop included aligning investment priorities with investor expectations and establishing strategies to measure the impact of issued bonds. Additionally, participants agreed that adjusting the issuance of GSS bonds according to each country's needs and circumstances, including their Environment, Social, and Governance (ESG) criteria, was essential. Finally, participants learned about a new initiative that West African countries might be able to take advantage of - the ECA concept for a new Liquidity and Sustainability Facility (LSF). The ECA established the LSF to increase the liquidity of African sovereign bonds, thereby reducing borrowing costs and incentivizing sustainability-linked investments. African countries may be able to use the LSF to develop a secondary market for African sovereign bonds and, over time, increase their demand.
Interest in sovereign thematic bonds is growing from both issuing countries and investors. According to an upcoming survey of over 80 debt offices conducted by the World Bank, 75 percent of surveyed public debt management offices are considering thematic bond transactions soon. Debt offices see great value in issuing GSS bonds to diversify the investor base, signal commitment to sustainable development, and raise new financing for climate and nature-focused projects. Yet, most debt offices are constrained by challenges related to managing and tracking proceeds, identifying eligible projects, knowledge of international standards, and investor expectations. ECA and the World Bank will continue building awareness and are working to develop a training and advisory program for African public sector bond issuers. The next workshop will be on 19 July 2022, for the Central, East, and Southern African region.”
[1] See Green, Social, and Sustainable bonds to serve Africa’s sustainable investment needs (ECA, 2022)