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Local sources of financing for infrastructure in Africa : a cross-country analysis

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  • Irving, Jacqueline
  • Manroth, Astrid
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    Abstract

    With the exception of South Africa, local financial markets in sub-Saharan Africa remain underdeveloped and small, with a particular dearth of financing with maturity terms commensurate with the medium- to long-term horizons of infrastructure projects. But as financial market reforms gather momentum, there is growing awareness of the need to tap local and regional sources. Drawing on a comprehensive new database constructed for the purpose of this research, the paper assesses the actual and potential role of local financial systems for 24 African countries in financing infrastructure. The paper concludes that further development and more appropriate regulation of local institutional investors would help them realize their potential as financing sources, for which they are better suited than local banks because their liabilities would better match the longer terms of infrastructure projects. There are clear signs of positive change: private pension providers are emerging in Africa, there is a shift from defined benefit toward defined contribution plans, and African institutional investors have begun taking a more diversified portfolio approach in asset allocation. Although capital markets remain underdeveloped, new issuers in infrastructure sectors-particularly of corporate bonds-are coming to market in several countries, in some cases constituting the debut issue. More than half of the corporate bonds listed at end-2006 on these countries'markets were by companies in infrastructure sectors. More cross-border listings and investment within the region-in both corporate bonds and equity issues-including by local institutional investors, could help overcome local capital markets'impediments and may hold significant promise for financing cross-country infrastructure projects.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4878.

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    Date of creation: 01 Mar 2009
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    Handle: RePEc:wbk:wbrwps:4878

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    Related research

    Keywords: Debt Markets; Banks&Banking Reform; Access to Finance; Emerging Markets;

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    1. Patrick Honohan & Thorsten Beck, 2007. "Making Finance Work for Africa," World Bank Publications, The World Bank, number 6626, August.
    2. Huw Pill & Mahmood Pradhan, 1995. "Financial Indicators and Financial Change in Africa and Asia," IMF Working Papers 95/123, International Monetary Fund.
    3. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
    4. Valeriano F. García & Lin Liu, 1999. "Macroeconomic Determinants of Stock Market Development," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 29-59, May.
    5. Calvin A. McDonald & Liliana Schumacher, 2007. "Financial Deepening in Sub-Saharan Africa," IMF Working Papers 07/203, International Monetary Fund.
    6. E. Gelbard & Sérgio Pereira. Leite, 1999. "Measuring Financial Development in Sub-Saharan Africa," IMF Working Papers 99/105, International Monetary Fund.
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    Cited by:
    1. Anton Eberhard & Orvika Rosnes & Maria Shkaratan & Haakon Vennemo, 2011. "Africa's Power Infrastructure : Investment, Integration, Efficiency," World Bank Publications, The World Bank, number 2290, August.

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