In 2012, DMA wrote an article on diaspora investment and effective programming. A lot has changed in the way of actors in this space and the products available for diaspora investment. However a lot more still needs to be done to really assess the demand from the diaspora and understand fully how the donor community and governments can provide the supporting structures needed to mobilise funds.
The below article offers an interesting perspective and is a useful piece for reflecting on how far we have come and how much more is still needed to reach our potential in this area.
Diaspora Investment and Effective Programming
Much has been written about the African diaspora of late. The huge impact that could come from a more engaged approach is well recognised. Whilst all major stakeholders (governments, development agencies, multilaterals and the private sector) have taken notice of this potential - there is still a great deal of work needed to get this agenda moving.
The large flow of remittances from developed to developing countries has been the biggest reason for such sustained interest in involving the diaspora in the development of their countries of origin. Indeed to Africa alone, some 40 Billion USD was sent home by nationals living overseas in 2011.
More recently the interest is beginning to focus on the financial resources of the diaspora that is not being sent in the form of remittance, but saved in their country of residence. With the unrelenting economic slump across developed countries, it may be the perfect time to really drive diaspora investment – highlighting the earning potential that just cannot be matched in Europe or North America currently. With around 30 million Africans living in OECD countries, many of whom are committed savers – the potential resource could be huge. The most recent estimate by the World Bank put the total deposit size of savings by Africans in OECD countries at close to 40 billion USD.
Many African governments have made concerted efforts to tap this resource – with varying success. The Ethiopians have released two bonds in the last few years as well as Kenya releasing its Infrastructure bond in 2011. The Ghanaians set a target of raising 50 million USD with their Jubilee bond. Although it was oversubscribed it is not clear that the investment came from the diaspora and not institutional investors hoping to take advantage of the attractive coupon rate.
A few multilateral institutions have been working with governments to this effect, with the surprisingly successful Zimbabwe diaspora bond, structured, guaranteed and marketed by Afrexim bank earlier this year. Similar to the Jubilee issuance, it is not clear that the oversubscription was due to sustained interest from the Zimbabwean diaspora and not capital market investment.
So what is required to really drive diaspora investment into Africa? We think a number of things.
Although governments have been actively engaged in this debate, more needs to be done in the way of building longer term strategies for diaspora engagement – taking advantage of and growing existing networks to disseminate information and facilitate communication. Kenya have really made strides in this area, with their vision 2030 policy, the Diaspora Charter and the brand new Kenya project, which puts the diaspora centre stage. This was all communicated at the DMA hosted Kenya Diaspora Investment Conference in August of this year – where President Kibaki and a number of ministers actively encouraged better communication and more investment from their UK diaspora base.
Real data is needed to better understand the nuances that exist amongst specific elements of the African diaspora. This is required on both a country and regional level, recognising the value gained from understanding differences. This is strongly expressed by the senior economist at the World Bank, Sonia Plaza, who discussed at the recent Accra conference on diaspora engagement the importance of looking beyond diaspora organisations and getting representation from different segments of the diaspora.
The role of Multilaterals
Multilaterals such as the African Development Bank and the World Bank need to be more proactive in supporting the issuance of securities based products directed at the African diaspora. Utilising their credit ratings to facilitate multi exchange issuances, will greatly assist the marketing of such products and their uptake.
Projects of Interest to the Diaspora
Projects for investment need to be interesting – they also need to be chosen based upon expressed interest from the potential investor. Doing the research to assess demand for certain sectors should be an integral part of any diaspora Investment strategy. Allied with this, work needs to be done to get interesting and successful SMEs into the formal sector, building their capacity and readiness for investment will ensure a strong portfolio of potential projects is developed.
With diaspora groups popping up all over the developed world, it is clear that there is a strong desire to remain engaged. Indeed many have a structured mandate for contributing to development efforts in their country of origin and have been doing so for many years. This interest is wide reaching, thus with the right package, an effective strategy and a focussed long term approach, high levels of investment could provide much needed access to capital across the continent.