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Monday, July 3, 2017

THE DIASPORA’S BET!

Global remittance flows have grown over the past decade at about 4.2% a year to $445 billion in 2016, according to the UN’s IFAD agency. Many of the estimated 33 million Africans living outside their countries sent home hard-earned cash to the tune of $60 billion, that’s up 36% since 2007.

Those big numbers have caught the eye of several African governments over the last decade. Learning from the success of Israel and India in particular, these governments have been mulling, and in some cases experimenting, with the idea of diaspora bonds. They see these bonds as a route to formalize the inflows of much needed hard currency into an investment for the migrant and a cheaper loan for the government.
On paper, diaspora bonds make a lot of sense. Most immigrants would be keen to formally contribute to the development of their home country particularly when bonds are linked to specific infrastructure projects. The hope is also that the migrant investor will be more likely to take a ‘patriotic discount’ because they believe in their home country’s future more so than an investor without emotional ties.
Ethiopia was the first African country to launch a diaspora bond in 2008 but it was widely seen as a flop because the government was unable to convince investors that it wasn’t too risky a bet . Its next diaspora bond was deemed successful but ended up running afoul of US regulatory laws by selling to Ethiopian diaspora without the right permissions.
Nigeria, which has been mulling the idea of tapping into its huge diaspora for some time now, issued its first diaspora bond last month, a five-year bond at 5.625% which raised $300 million.
Ultimately, the key difference between a diaspora bond and say a more traditional issuance like a eurobond, is really all about its marketing. A diaspora bond is targeted at members of that migrant community usually at relatively low retail denominations.
So what does it mean if a country issues a diaspora bond but few in its diaspora hear about it? The reports about the Nigeria bond explain it was targeted through private banks and wealth managers. These are not services that are in common use with many migrants. This would likely mean this debut diaspora bond was mostly taken up by professional investors (who may or may not be Nigerian). But the important thing was probably to get the first one off the ground. There are still millions more patriots willing to bet on their country.
Yinka Adegoke, Quartz Africa editor

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