The International Energy Agency (IEA) has disclosed that Africa’s bond market total is still less than $1 trillion, which is just less than 1% of the global total.
The agency, in its just released September 2023 report on energy financing in Africa, noted that the bond market on the continent was still in its growth stages for several reasons.
According to the report, given the low bond market’s total, bond issuances may not be big enough to meet international market expectations even as many would-be issuers lack investment-grade credit ratings.
The report further reflected that African bond markets were also heavily dominated by government bonds, which account for a little below 90% of total issuances as of 2021.
The IEA report stated in part: “Worldwide, bonds are a common way for companies to raise debt, but they are less prevalent in EMDEs since issuances may not be large enough to meet international market expectations and many would-be issuers lack investment-grade credit ratings. Bond markets in Africa are still nascent, totalling less than $1 trillion – the equivalent of less than 1% of the global total.
“Green, social, sustainable and sustainability linked (GSSS) debt instruments have been growing in popularity since they often attract a lower yield than their vanilla counterparts (known as the “geranium”). These instruments can be issued by corporations to support projects or company finance, by financial providers to support green lending, or by government bodies to support debt management and raise green public capital.
“GSSS issuances in Africa have increased from $207 million in 2018 to nearly $1.9 billion in 2022, but still account for less than 1% of the global GSSS market.
“Green bonds are generally the preferred instrument by a number of issuances. The use of proceeds is dominated by renewable energy, which accounts for 40% of cumulative issuances”, the agency added.
The IEA, in its latest report, underscores the crucial roles that governments can play in driving sustainability initiatives forward through bond issuance, adding that one of the ways they can do so is by creating comprehensive taxonomies for sustainable finance and implementing robust reporting frameworks for environmental, social, and governance (ESG) factors.
The agency commended the Nigeria government for its progressive move in 2017 when it established the Green Bond Framework, noting that the step lays the foundation for the first-ever issuance of sovereign green bonds on the continent.
It further stated that the initiative by Nigeria served as a good example of how other countries can take bold steps to foster sustainability and contribute to the global efforts targeted at growth across geopolitical frontiers worldwide.
It would be recalled that the Federal Government had between 2017 and 2021, in collaboration with One Watt Solar, Access Bank, and North-South Power issued the first green bonds with the proceeds used in developing renewable energy projects executed by the Rural Electrification Agency (REA) nationwide.
