A Standard & Poor’s report that assesses the performance of the African Development Bank (AfDB) says that the Botswana pula is among currencies that are helping develop African capital markets.
Since 2005, AfDB has issued a series of offshore bonds linked to the Botswana pula, Ghana cedi, Kenya shilling, Tanzania shilling, Uganda shilling, Zambian kwacha and the Nigerian naira as part of its Local Currency Initiative. The Bank currently has authorisation to issue domestically in over 10 African markets including, the CFA Franc zone, Zambia, Ghana, Egypt, Tanzania and Kenya.
“African domestic and currency-linked issuance remains a small provider of total funds. But with transactions in Ghanaian cedi, Nigeria naira, Kenyan shilling, Botswanan pula, and Zambian kwacha over the past few years, the bank is providing additional depth and quality to local capital markets and a more creditworthy option for African soft-currency investors,” Standard & Poor’s says in its ratings report on AfDB.
Issuances in the local markets allow AfDB to lend to its borrowers in local currencies thereby eliminating their own currency risks. They also enable the bank to better mitigate the foreign exchange risks posed by hard currency loans. The bank’s local currency bonds are structured to match the underlying projects to which the bank will lend the proceeds.
AfDB plans to launch more local currency bonds across the continent, with proceeds used to provide local currency loans to the bank’s clients. These issuances also allow the bank to participate in the development of African capital markets by providing a new investment product to local institutional investors.
Standard & Poor’s says that strong demand for the bank’s lending, led to a nearly 30 percent increase in its loan portfolio during the global financial crisis in 2009. Although it has a substantial shareholding in the AfDB, Botswana has never been too keen on the bank’s loans. It was only in 2009 when the global recession began to bite and diamond prices plummeted that, for the first time in 17 years, the country borrowed a large sum (P10.5 billion) for budgetary support.┬áThe loan covered the larger part of the P13.4 billion deficit the government incurred in its 2009/10 national budget with the remainder of the deficit being covered by a P2.2 billion loan that the country got from the World Bank through the AfDB’s Development Policy Lending window. The latter is a fast-disbursing facility intended to assist countries in economic crisis.┬áFor the AfDB, this was a development so welcome that its president, Donald Kaberuka, came to Gaborone for the signing ceremony.
AfDB is providing 31.5 per cent of the money needed to construct the Kazungula Bridge and Border Project, which entails the implementation of new infrastructure to replace the existing ferry and border facilities between Zambia and Botswana at Kazungula. The two countries are sharing costs of the project.
As a result of that borrowing, Botswana is now one of the AfDB’s five largest outstanding balances and disbursed loans. The others are Morocco, South Africa, Tunisia and Egypt. Together these countries accounted for 176 percent of adjusted common equity and 80 percent of total public sector loans on Dec. 31, 2013 which Standard & Poor’s says could be problematic.
“We consider the concentration to be a restraint to the ratings, for example, on Dec. 31, 2013, the bank’s single-name concentration adjustment accounted for 57 percent of Standard & Poor’s risk weighted assets after adjustments. We expect the bank to embark on some innovative capital management techniques over the next few years to reduce concentrations,” the credit ratings agency says.
