The International Energy Agency (IEA) has said that Africa’s bond market totals less than $1 trillion, this is the equivalent of less than 1% of the global total.
The agency stated this in its September 2023 report on energy financing in Africa.
According to the IEA, the bond market on the continent is still in its growth stages for several reasons: bond issuances may not be large enough to meet international market expectations, and many would-be issuers lack investment-grade credit ratings.
African bond markets are also heavily dominated by government bonds, which account for just under 90% of total issuances as of 2021.
A part of the IEA report stated:
- “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.
In addition to its other insights, the IEA underscores the pivotal role that governments can play in driving sustainability initiatives forward. One impactful way 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 IEA also commends Nigeria for its progressive move in 2017 when it established the Green Bond Framework. This pivotal step laid the foundation for the first-ever issuance of sovereign green bonds on the continent.
It serves as a compelling example of how nations can take bold steps to foster sustainability and contribute to the global effort.
What you should know:
Between 2017 and 2021, the Federal Government, One Watt Solar, Access Bank, and North-South Power issued green bonds in Nigeria.
The proceeds from some of the green bonds issued in 2017 and 2019 were used to develop renewable energy projects that were executed by the Rural Electrification Agency (REA).
