Issue bonds to fund infrastructure - IFC

Monday November 04 2019

An aerial view of Karuma Dam. IFC believes strong domestic capital markets can allocate capital more efficiently and allow for better risk-sharing, while providing an alternative source of funding to complement bank financing. PHOTO BY RACHEL MABALA

Uganda needs to move fast in developing and deepening the capital markets industry so that it can be able to begin issuing infrastructure bonds to finance government projects, the International Finance Corporation (IFC) has said.

A bond is an instrument to borrow money. In specific perspectives, infrastructure bonds refer to bonds issued to fund infrastructure projects.

Governments and companies need to borrow money for projects or expansion. Infrastructure bonds are borrowings to be invested in government-funded infrastructure projects within a country.
Infrastructure bonds are good for people who need a fixed income because they offer a decent rate of interest and tax benefits. The maturity of these bonds is often between 10 to 15 years or 20 years.

Governments, authorised infrastructure companies or Non- Banking Financial Companies issue them.

Strong capital markets
Speaking during the Uganda Debt Capital Markets Workshop on Friday at Kampala Serena Hotel, Mr Moses Manuel, IFC country manager for Uganda, said IFC believes strong domestic capital markets can allocate capital more efficiently and allow for better risk-sharing, while providing an alternative source of funding to complement bank financing, with a view to providing better pricing and longer tenors.

“Better access to financing, mobilised through debt capital markets can help Uganda meet its infrastructure requirements and improve its delivery of social services,” he said.


Mr Manuel said the World Bank estimates the financing required for infrastructure alone in Africa is about $93 billion annually. Of this, about half or $45 billion, is available.

“IFC is helping close the gap by helping countries like Uganda and others develop well-functioning capital markets,” he said.

Generally, Mr Manuel said Capital markets play a central role in mobilising domestic savings for investment in a variety of key sectors while creating jobs and supporting economic development.

“Liquid, diverse, and well-regulated local capital markets are an essential source of local-currency financing for governments, financial sector participants and for end-users such as small businesses,” he said.

He said practically since its founding, the World Bank Group has helped countries develop their capital markets so they can access private-sector financing.

Mr Manuel said: “For example, we are doing this through the IFC Pan-African bond issuance programme and the Efficient Securities Markets Institutional Development programme, or ESMID.
Through the programme, the World Bank Group supported the development of guidelines for the Issuance of Asset-Backed Securities and helped harmonise the regional requirements and standards for bond issuance in Uganda, Kenya and Rwanda.”

He further stated that the programme also supported the reforms on the Primary Dealer system in Uganda (firms that buy government securities directly from the government).

“We launched a new programme, the Africa Capital Market Development Programme in October 2018. This programme is building on the achievements of ESMID to strengthen capital markets in Africa,” Mr Manuel said.

Issuers: infrastructure development, privatisation, securitisation and government decentralisation create demand for bond issuances.

The IFC’s Vice-President and Treasurer John F. Gandolfo, said: “We support domestic capital market development by issuing local currency bonds, by providing advice to market participants, and by helping first-time issuers access capital markets. Our bonds provide us with local-currency funds that we use to support private sector development.”

However, the chief executive officer of Capital Markets Authority, Mr Keith Kalyegira told Prosper Magazine in an interview that Uganda’s plan to start issuing infrastructure bonds is still far from sight because there are still many things that need to be done.

“The question is who should issue infrastructure bond? Government, Bank of Uganda or another institution?” He asked.