new finance trends for investment

1. World Economic Forum Annual
Meeting 2014
•Davos-Klosters • Switzerland • 22-25, January 2014

2.  Public investments are important in raising capacity for future
growth. Their financing is thus an important public policy debate.
 What have been the financing trends?
1. Borrowing from the external markets: Debt accumulation after
HIPC – Growing with debt. Countries are now more conscious of
debt sustainability issues.
2. Innovative resource mobilization for public investment:
Borrowing from the domestic markets which requires development of
a bond market.
=> We have seen long-dated papers as well as specific
infrastructure targeted bonds.
3. PPP is shaping up as they create endogeneity in investment
decisions and completion of projects and drive investments.
=> Public investments do not necessarily have to be financed by
debt accumulation.
4. Results: Reshaping domestic capital markets and private sector
response.
 Financial markets have deepened.
 Debt instruments have increased and maturity profiles have been
lengthened.
 Private sector – and more specifically Pension Schemes have
invested in these government securities. 2
I. How are Financing Trends in SSA
Re-Shaping Investment, Growth and
Development?

3. 1. Infrastructure projects that solve the binding constraints
- They reduce transaction costs and enhance private
sector investments’ profitability. This allows
entrepreneurs to earn and allocate returns from their
investments.
2. Public investments to close infrastructure gaps are
complementary to private investments. This raises the
capacity for future growth.
3. Infrastructure projects cover road and railway
networks, clean power generation, efficient ports and
airports - they are also covering regional infrastructure
projects like LAPSSET in Kenya, Ethiopia and South
Sudan.
3
II. But What Projects Impact on
Growth?

4. 1. Capital markets and financial markets are deepening.
2. Encouraged capital inflows for investment.
3. The availability of instruments in the financial markets has
supported vibrancy and encouraged regional markets’ growth.
4. Encouraged private sector to raise long-term finance.
5. Leveraged international capital participation in domestic
financial markets – more integration.
4
III. Effects on Growth of the
Market:
Shaping and Developing
Markets

5. 1.Vibrant Bond Market
5
IV. Evidence
Types of Bonds Issued;
-Fixed Rate Bonds
-Infrastructure Bonds
Amortized Fixed Rate Bonds
Benchmark Tenors; 2yr, 5yr, 10yr,
15yr, 20yr Longer Tenors; 25yrs and
30yrs
Source: Central Bank of Kenya
51.18%
3.39%
30.58%
10.95%
1.23%
2.67%
COMMERCIAL BANKS
CO-OP & OTHERS
PENSION & TRUST FUNDS
INSURANCE COMPANIES
NON-BANK FINANCIAL INST
INDIVIDUALS
Diverse Investors in Government
Securities
Lengthened Yield Curve
8.0
9.0
10.0
11.0
12.0
13.0
14.0
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Yield(%)
MaturityinYears
Stockof Treasurybillsandbondsalongthe Yield Curveasat 31 December 2013
Kes112.41bn
Kes377.82bn
Kes22.14bn
Kes169.22bn
Kes179.81bn
Kes154.19bn

6. Vibrant Bond Market
6
IV. Evidence…
-
20,000
40,000
60,000
80,000
100,000
120,000
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2027
2028
2031
2032
2035
2041
Stock Kes
Mn
Average life of bonds has
lengthened from 8 months in June
2001 to 7.2 years at present.
Debt profile for Bonds extends 27
years - from 2014 to 2041.
 Vibrant trading observed since 2010
following:
o Automated Trading System (ATS) in
November 2009.
o Issuance of Infrastructure bonds from
2009 – traded at NSE.
o Benefits of the benchmark program and
lengthening of the maturity profile of
securities since 2007.
Source: Central Bank of Kenya
Source: Central Bank of Kenya
Maturity Profile –Domestic debt
Total Value of Bonds Traded 2007 - 2013

7. Capital Flows and Remittances
7
IV. Evidence…
Declining current account deficit (estimated at 8.5 percent of GDP in
November 2013 compared to 10.45 percent in November 2012), projections
for Kenya’s remittances endorses a stable outlook for the exchange rate
and increased foreign exchange inflows from international trade.
Source: Central Bank of Kenya Source: Central Bank of Kenya

8. Kenya Financial Market Growth
8
IV. Evidence…
14.90 16.10
18.70
22.50
27.36
30.46
32.16
34.80
40.70
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
2004 2005 2006 2007 2008 2009 2010 2011 2012
US
$
billions
GDP Growth %
Gross Domestic Product 2004-2012
Financial sector contributed 10.9 percent of GDP in the 2nd Quarter of 2013.
During the second and third quarters of 2013, Kenya's economy is estimated to
have expanded by 4.3 percent and 4.4 percent, respectively.
Economic outlook for Kenya remains strong with capacity for future growth.
Source: Central Bank of Kenya Source: Central Bank of Kenya

9. 9
Thank you