The 'Buy Africa' perception problem

The African Development Bank''s treasurer, Arunma Oteh is on an Asian roadshow to explain away some misconceptions.

Former investment banker and Harvard Business School graduate, Arunma Oteh is on a mission to change the perception of Africa held in Asia. Having been made the African Development Bank's treasurer in April this year, she is on a roadshow to explain the AfDB's credit and the underlying improvements in African economies. So if you think Africa is a basket case, read on. You may just be watching too much CNN and missing the good news.

You are here in Asia doing this roadshow. How important are Asian investors to the African Development Bank?
Asian investors are extremely important for us. We have a borrowing portfolio of around $7.3 billion and half of that is sourced out of Asia. Primarily today, it is sourced out of the Japanese private placement market. One of the things we're looking at is diversifying our funding sources to other parts of Asia. This year we did two Hong Kong dollar issues, in addition to our private placement deals, and a Singapore dollar issue. We're also looking at the Australian dollar market.
We feel that Asian investors are highly sophisticated, and they understand high quality credits like the African Development Bank. We feel that investors here appreciate us. Our goal is to be able to raise funds at attractive levels, and we've found we've been able to do this on an after-swaps basis using Asian markets.

How much of the buying is by central banks?
We have a strategy of meeting specific investor requirements. Our borrowing programme and the instruments we have give us a lot of flexibility. We have a Euro Commercial paper programme, and that's very attractive for central banks. When we have issued larger benchmark issues in the past, many of the buyers have been central banks from Asia.

Why do you think Japanese investors are so keen on your paper?
One of the reasons is that they do understand our credit story. They understand the basis of the bank's triple A rating by Moody's, Fitch and Japan Credit Rating Agency, and AA+ by S&P. We have been an issuer in Japan for several years. Japanese investors value very highly rated issuers, and especially those which understand their requirements, and are able to provide flexibility.
We pride ourselves on being the most cost-effective provider of resources into the African continent. In order to achieve that, we have found the Japanese market very useful. We have been using structures that allow Japanese investors to increase their yield while still allowing us an attractive funding cost, post swap.

What sort of yield pick-up would Asian investors get for buying your paper versus Asian Development Bank?
We're considered the same general credit as the Asian Development Bank. In some cases, particularly in the Japanese private placement market - based on the information we have - we think we've achieved better levels than they have. They have done bigger benchmark issues and may have achieved slightly better levels than us on those. On an average, we are able to achieve the same levels.

But I would imagine that Asians feel more comfortable buying Asian Development Bank than African Development Bank?
Many Asian countries are also members of the African Development Bank and Japan is one of the major shareholders. China, Korea and India are also members. The Asian Development Bank is probably better known here because it's based in Asia. But amongst investors who understand our credit, they know it is the same credit.

Are you satisfied that you are getting enough demand from Asia?
We're constantly working at broadening our investor base because we know that provides us more flexibility in terms of achieving the kinds of funding we want. As I mentioned earlier, in the last two years we have focused primarily on the Japanese private placement market. More recently, we have begun looking at other growing markets that offer us attractive funding.
In the past couple of days we've been in Hong Kong having meetings with key investors. We will be in Singapore on Thursday and Friday and thereafter we will be in Australia next week. The roadshow will allow us to broaden the understanding of our credit here in Asia. Because we're not based here, we are not as well known.

Many investors on this roadshow will not have bought your paper before, presumably?
I don't know what the proportion is. We have several different products, such as the Euro Commerical Paper programme and the Euro MTN programme, and different investors may have participated in one or all of them.  Additionally, in some regions we have not offered paper in the past.  For example, in the Australian dollar market, investors have not had access to our paper before. Our objective is to meet investors, hear their needs and tailor future issues which they may find attractive.

What are the questions that investors ask you if they've never bought your paper before?
The question they normally ask is what's the basis for our being so highly rated. I tell them that the AfDB is owned by 77 countries, including the G7, and that we have a solid ownership structure, which is 60% African countries, and 40% non-African countries. We enjoy strong membership support, and have a long track record of consistent income generation and a strong financial condition. We enjoy preferred creditor status from all of our borrowers and we have a good basis for our triple A rating. There is value in buying our paper because we have a smaller borrowing programme (around $1 billion per year) than other multilaterals, and so do offer an opportunity to diversify and obtain value.

You've laid out the facts, but bluntly, how much do you suffer in Asia from the perception that Africa is a disaster zone, and rescheduling debt all the time?
It is an issue to the extent that there is not as much information about the continent of Africa here in Asia. As you rightly point out, what you see on television are issues relating to conflict, debt management issues and other non-positive information. One of the things that we hope we will do in this roadshow is allay those concerns about the continent. Over the last 20 years the continent [of Africa] has undergone a lot of positive developments. Many reforms - economic, social and political - have occurred. In fact, our view is that the continent is poised to increase investment and productivity. Our role in the continent is to be a catalyst for this positive development.
Clearly there have been issues related to conflict, and debt, and policies that didn't support the private sector. But today, many African countries realize that the way they can catalyze investment by providing the right kind of environment. That is already happening. As you probably know, the major African countries have developed the "new Africa initiative" and they have provided a commitment to making sure African countries provide the right environment. And we are very eager to provide support.
The other thing is debt. The highly-indebted poor countries initiative started in 1996 in order to help with debt reduction. In the case of Africa, around 31 countries are involved and debt relief will amount to around $30 billion. This will certainly reduce the constraints they face and better focus on issues that will better support the development of their economies.
To give you a better idea of where African economies stand as a whole, at the end of last year GDP grew at an average rate of 3.2%, which is a little over the population growth rate. In the past, growth rates were never above the population growth rates. In addition, inflation is under control in many countries. Six to seven years ago we saw inflation rates of 40%, and now they average 10%. Budget deficits are also under control.
Our Asian country members like being members of the African Development Bank. One reason is that if we are financing a project, their private sector companies can benefit in the construction of that project. As you know, we finance a lot of infrastructure and agriculture projects.
From an investor's point of view, one thing that has emerged is that, Africa, even on a risk-adjusted basis, offers the highest returns in the world. Sectors like energy, and telecom offer very high returns. Those are some of the issues we need to provide more information on, so that people can see the positive aspects of doing business in Africa.

How do you go about that in practical terms?
The starting point is an understanding of an institution like ours. We need to leverage off this understanding and do more investor meetings in Asia and present the story. What will also happen is that as more countries in Africa start to look for international funding sources, they will be out here as well. South Africa this year has done a number of deals. Botswana just got rated and is the highest rated African country at single A. Egypt is rated and Tunisia and Mauritius are rated. As many more African countries and companies come out to Asia to seek funding, the breadth of understanding will increase.

Is Botswana planning a roadshow in Asia?
Having  recently obtained its credit ratings and being the most highly rated African country, we believe that they will consider funding opportunities as they appreciate the value of being well known in the markets.  It is also likely that they will consider non-deal roadshows to broaden understanding about investment opportunities in Botswana.

What do you say to investors who say to you 'Ive been buying the Asian Development Bank for years, and I know it inside out. Why should I go out of my way to understand you. What's in it for me?'
I tell those investors that the African Development Bank offers you diversification away from the Asian Development Bank, and for many investors there are credit limits on an individual institution's paper, so if you've reached that limit, you'd want to diversify into an institution like ours with a strong capital structure.

Are these Asian investors saying, diversification is fine, but I want extra yield to buy your paper?
We haven't had that yet. So possibly the investors we are speaking to understand the credit and realize it is the same credit.

Looking forward, the greater China central banks now have massive reserves. Will they be key part of your marketing going forward?
We feel yes. Our sense is that they already buy us.  As they continue to build up reserves they will become more important. This is one of the reasons we chose Hong Kong for this roadshow.

Have you done a deal in Taiwan dollars?
No, not yet. It is a market we will look at, if we are able to meet specific investor requirements and still achieve our funding target.

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