Weidmann: Develop local bond markets in Africa

Jens Weidmann during his speech ©Thomas Koehler / BMF
Jens Weidmann during his speech
Bundesbank President Jens Weidmann has spoken in favour of the development of local bond markets in African countries. "Domestic debt markets are the primary way to raise private funds for investment," said Mr Weidmann at the "G20 Africa Partnership" conference in Berlin. The event is part of the "Compact with Africa" investment partnership launched under the German presidency of the G20.

According to Mr Weidmann, raising capital in local currency is particularly helpful because no exchange rate variations put the investment decisions at risk. "The existence of such a local currency bond market also underscores the credibility of the domestic currency," added Mr Weidmann.

Such markets already exist in South Africa, Egypt and Nigeria, he noted. "I'm convinced that other African countries could benefit from the experience of these three countries," he remarked. Local currency debt markets also have another advantage, the Bundesbank President pointed out. In South Africa, for example, the existence of a large and liquid domestic government bond market has limited foreign-currency denominated debt, even as the country has experienced large current account deficits.

Impact of digitisation

Mr Weidmann also sees digital technologies as being of major significance. These, he said, could help develop domestic debt markets and be key drivers of financial inclusion in less developed countries. A major factor in this is the mounting ubiquity of mobile phones, with mobile money accounts having gained popularity, particularly in Sub-Saharan Africa. In some countries, there are even more adults with a mobile money account than a conventional bank account, noted Mr Weidmann. "So when it comes to digitisation in finance, there may be something the G20 can learn from Africa, too," he reasoned.

Good infrastructure indispensable

In his speech, Mr Weidmann also emphasised the importance of infrastructure as the backbone around which the economy can flourish. "Transport and energy services are essential arteries through which the lifeblood of an economy flows to the veins of the private sector," said Mr Weidmann, adding that a functioning infrastructure raises the return on private investment.

In the Bundesbank President’s view, the "Compact with Africa" stresses the need to put in place a stable macroeconomic environment, reliable legal systems and appropriate regulatory and supervisory frameworks. However, he explained that there is no one-size-fits-all solution, saying that "each country has to tailor these general orientations according to its own individual needs".

The Bundesbank President likened the "Compact with Africa" to an amplifier. "African countries participating in the compact send out a signal that they want to mobilise investment and are willing to undertake the necessary reforms," he said. "The G20 amplifies this signal, making it more audible and more credible."