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African Development Bank picks Citi for US dollar coronavirus bond sale

In depth
This article is part of the dossier: Corona Chronicles: 23-27 March

By David Whitehouse
Posted on Thursday, 26 March 2020 10:26

Citi sees agriculture and agri-processing as African industries of the future. REUTERS/Baz Ratner

Citi has been appointed by the African Development Bank to help tap markets with a bond to finance governments and companies fighting coronavirus in Africa, Miguel Azevedo, Citi’s head of investment banking for Africa and the Middle East, told The Africa Report.

As active joint book runner, Citi is effectively leading the transaction, said Azevedo, who is based in London.

The size and coupon of the three-year US dollar bond have yet to be decided.

  • Proceeds will be allocated in line with the African Development Bank’s Social Bond program and will help to create the conditions for economic recovery, he said.

Social bonds from the African Development Bank have been used to finance projects such as agricultural infrastructure in Botswana, water supply in Morocco and food security in Egypt.

READ MORE: WHO’s Tedros: ‘Don’t abandon the poorest to coronavirus’

Funding from the bank per project is typically below $200m, though a power-sector reform programme in Angola drew funding of $1bn.

The impact of coronavirus on African bonds and equities has been “unprecedented,” Azevedo said. Africa’s economic recovery will depend on the extent to which the global recovery bounces back, he added.

  • Azevedo declined to comment on the financial impact of the virus in Africa on Citi. “We expect the storm to pass, but only those governments and corporates with clear, sensible and detailed plans to deploy capital will regain access to the capital markets quickly and on efficient terms.”

Industries of the Future

Africa’s densely populated urban areas create “enormous challenges” in dealing with coronavirus, but the continent’s young population will hopefully allow for higher levels of resistance, Azevedo said.

READ MORE: Nedbank bets coronavirus can accelerate shift to digital banking

Combined with the oil price collapse, coronavirus is highlighting that Africa needs to reduce import dependency and raw materials export dependency, and produce far more of the goods it consumes, Azevedo said.

  • “On this basis, I believe agriculture, agri-processing and light manufacturing will be the focus sectors” of the future.
  • Governments will need to adopt micro-economic policies to support Africa’s entrepreneurial spirit, Azevedo said.
  • “It will be critical to provide access to capital and backing to those companies that can have a multiplier effect.”

READ MORE: Coronavirus: ‘Africans don’t repeat our mistakes!’ in open letter from Italy

Mobile money and other industries which do not require physical proximity will “almost certainly” get a long-term lift from coronavirus, Azevedo said.

  • “This trend was already established with some of the most exciting stories in the mobile money space happening in Africa. I think payments and the digital economy in general will fare better and recover faster than other sectors.”
  • The fact that coronavirus started before the Africa Continental Free Trade Agreement comes into effect may limit the damage to the economy.
  • “This is very new and to date not much has happened,” he says. “Assuming this crisis will be sorted out in months rather than years, the impact may be not that big” for the accord.

Bottom Line: Coronavirus is already forcing investors to re-imagine what Africa’s industrial future will look like.

 

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