Are Diaspora Bonds Worth the Risk for Diaspora Africans? – By Dele Meiji Fatunla
The perennial worry of migrant producing states has always been that their emigrating populations have left for good, taking their skills, labor and crucially income (taxable or otherwise) with them. In recent times, the buoyant volume of remittances from emigrants to many African states has blunted that perception somewhat, and now, an even more lucrative means of tapping into the wealth of diasporas is on the radar of African governments – one that involves playing on the same feelings that encourage members of a diaspora to continue supporting their “˜home’ teams during sporting events and celebrate national holidays in another land. They’re called “˜Diaspora Bonds’ and the idea behind them is quite simple. Essentially these are sales of government debt on which investors can earn interest, and which are sold at a premium to diaspora investors, to take advantage of a presumed patriotic bond; very often for interest which would not be considered competitive on the international market, but which patriotic investors are able to accept.
Where remittances are often sent in response to family and community needs, Diaspora Bonds are a direct investment in the economy at the national level. Even though they are being explored for the first time by African governments, the idea is not new. India and Israel pioneered the concept, and have used it to varying degrees of success to tap into overseas populations whose origins lie in their countries. Israel began issuing Diaspora Bonds in the 1950s to finance the general development of the state. India, meanwhile, has used Diaspora Bonds specifically to address issues of access to cash for the country, where other lenders have been reluctant to lend to the country; investors of Indian origin have been enticed to buy into its development. In both cases, Diaspora Bonds have proved a valuable additional source of financing for their economies; for those guiding the economies of some of Africa’s biggest countries, Diaspora Bonds are an exciting new source of financial leverage. In the last year, three of Africa’s largest countries, Ethiopia, Kenya and Nigeria have outlined plans to issue them. Nigeria’s minister of Finance has even co-authored an article with Dilip Ratha, the World Bank expert on the subject.
The estimated $400 billion in savings of Diaspora Africans is clearly an attractive pool of serviceable investment for African governments, and Diaspora Bonds, offer a way to get hold of it. The attraction for governments is plain enough, but is the temptation worth the risk for their citizens in the diaspora? Like all investors, Diaspora Africans are being asked to take a bet on the future prosperity and stability of their countries of origin. A bet that those in the international market might not make for a variety of reasons; the low returns compared to risk as well as the general problem of political instability. So far, citizens of African countries that have launched diaspora bonds have overwhelmingly voted no with their pockets. Ethiopia launched a diaspora bond, – The Millennium Diaspora Bond – in 2009 to finance the building of a hydroelectric power damn. Take-up of the bonds was low.
Ethiopia has launched a second bond, The Grand Renaissance Dam Bond, which it hopes will be more successful. The new bond is aimed at dispelling the fears that hampered its original bond issue through new features, such as the payment of interest every six months.
In Kenya, the government is hoping that the money raised from its bonds will be tied to particular development projects will ensure a good uptake of the scheme. Nigeria has also indicated that its bonds will be tied to specific infrastructure and development projects. For many a diasporan, restless to make an impact beyond sending the occasion remittance home, investing through the purchase of bonds maybe a viable option. The long-term of maturity of the bonds, in most instances over 5-10 years, offer the satisfaction of participating in an infrastructure project for a significant part of its development. The Ethiopian Grand Renaissance Bond is available in as low a denomination as 50 US Dollars to encourage take-up. The minimum purchase for the original bond was 500 US Dollars.
Despite these measures, the underlying concerns with Diaspora Bonds remain, at root, a distrust of the governments issuing them. In Ethiopia for example, the reticence of many in the diaspora to finance the authoritarianism of the incumbent government may explain some of the hesitancy in taking up the bonds.
It’s clear that Diaspora Bonds are here to stay, yet the questions remain: Are Diaspora Africans willing to dip their hands into their pockets and purchase bonds on trusts from the governments of our home countries? It would require a shift in attitude from remitting cash which is relatively easily monitored and for which communities of trust and accountability exist, to actively partnering with “˜home’ governments in investing in their countries. Can Diaspora Africans truly believe their home governments when they say your word is my bond?
Dele Meiji Fatunla is Editor of Diaspora Debates.
Interesting. Does anyone know of municipalities or private developers using the diaspora bond concept to finance smaller-scale infrastructure projects in Africa?
As a student in the United Kingdom, one of the questions I have always encountered from my fellow Africans and the British people is whether I will go back to Africa after graduating. And my answer has always been uncertain. As an African I would want to go back to Africa to contribute in my little way to Africa’s development. That is in the ideal. How am I sure I will get good job befitting my years of learning? Staying back in the UK is not a very fantastic option because as an African without a British passport how is job search a guaranteed success? Those from the UK and the European Union will be considered first. It is so sad but that is the fate of diaspora communities.
Part of the idea of diaspora bond is to discourage brain drain. Good idea by governments in Africa who have failed to tidy up some fundamental issues of infrastructural decay, corruption, unemployment, poverty and bad leadership. Any person that refuses the government bond will not be blamed because for decades governments in Africa have performed dismally to earn the confidence of their people. One’s home they say is the best. But what kind of home is that where the basic things of life – security, food and shelter, constant power and water supplies, and steady source of income are not available. The institutions of government have been hijacked by those close to the corridors of power. And how will a willing investor in the diaspora bond be assured of the safety of her hard-earned money? These are the attractions in those parts of the world where Africans have migrated. African leaders should wake up and change the face of Africa and watch diaspora Africans coming home in droves diaspora bond or not.
@Hugh Matheson I don’t know of any examples of municipalities or private developers using the diaspora bond concept for infrastructure projects, but one of the ways in which governments are trying (for example, Kenya) to make diaspora bonds more attractive is to earmark funds raised for specific projects.