The Financial Times on August 28th carried Nigeria’s request for proposal for potential financial advisers for a $100 million diaspora bond. To my knowledge, after Israel, this is the first diaspora bond being implemented the right way: it would be registered with the US SEC. In a smart move, Nigeria also wants to recruit an international bank and a Nigerian bank as financial advisers, which would enhance the credibility of the bond to Nigerians living abroad. And by setting a low target of $100 million – for comparison, Nigeria received over $20 billion in remittances in 2012 – it is almost certain that the bond would be oversubscribed. A separate report from the Reuters mentions that the bond would have a maturity of 5 years and offer a coupon of around 350 basis points above comparable US Treasury. At that high rate, the bond would be hugely attractive for Nigerian individuals who are getting close to nothing on their overseas bank deposits.
At the recent Congressional Black Caucus (CBC) Legislative week held in Washington DC, African Diaspora was the focus. Economic development—supporting Africa’s priorities in the areas of jobs, education, gender, health, youth—was one of the main threads that ran through the week-long discussions.
At the session “Africa Rising: A Continent of Opportunity”, Makhtar Diop, the World Bank’s Vice President for Africa, was one of three panelists discussing “Africa’s Growing Economies.” Africa’s average growth has exceeded five percent per year and accelerated to six percent before the global economic crisis. Performance of the 22 non-oil exporting countries averaged higher than four percent annual growth for the decade between 1998 and 2008, all of which he attributed mainly to better macroeconomic policies.
A challenge for developing countries considering issuance of bonds (including diaspora bonds) is costly and onerous SEC registration requirements in the U.S. and Europe. The Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act (CROWDFUND Act) passed by the U.S. Senate on March 22 could potentially make the regulatory process simpler for some small-scale financing for small and medium enterprises (SMEs) in developing country.
Of late I have been receiving a number of questions on legal requirements for selling retail diaspora bonds in the US. I am enclosing below some general information, but with the caveat that I am not a lawyer and I may be wrong. In the end reputable law firms (rather than economists like me) ought to be consulted.
- Retail diaspora bonds (even if they are a part of a larger institutional offering) should be registered under SEC Securities Act 33 Schedule B.
- It can take 2-3 months to complete registration.
The side event on diaspora bonds organized during the annual meetings of the World Bank and the IMF attracted significant interest. Senior officials in the Bank considered forming a task force to implement diaspora bonds, while the governors of the central bank of Kenya and that of Bangladesh argued in favor the importance of the diasporas as a source of remittances and investments for their countries. Kenya has issued a new series of infrastructure development bonds and is marketing it to retail diaspora investors until February. The governor of the Bank of Bangladesh also expressed strong interest in issuing a diaspora bonds. Separately, Nigeria's finance minister also issued a press release that Nigeria is going to issue a diaspora bond.
More information on this side event is now posted at http://go.worldbank.org/WC69CPEP60.