EAC govts should tap into diaspora bonds to raise development finance

Marie Chantal Uwitonze, the co-founder and president of the African Diaspora Network in Europe (ADNE), an umbrella organisation for African working and living in Europe, was in Kigali to attended the recently-ended second East African Manufacturing and Business Summit.
Money to finance projects like this warehouse in Bugesera can be raised from the Diaspora. / File.
Money to finance projects like this warehouse in Bugesera can be raised from the Diaspora. / File.
Uwitonze believes EAC citizens abroad can help the bloc achieve its industrialisation agenda. / Courtesy.

Marie Chantal Uwitonze, the co-founder and president of the African Diaspora Network in Europe (ADNE), an umbrella organisation for African working and living in Europe, was in Kigali to attended the recently-ended second East African Manufacturing and Business Summit. Business Times’ James Karuhanga caught up with her on the sidelines of the summit to discuss how the East African Community (EAC) Diaspora can finance the region’s manufacturing sector and her push for issuance of Diaspora bonds by EAC governments. Excerpts:

During the summit you said that though you live in Europe, your heart is in Africa. How do you see the Diaspora supporting the regional manufacturing sector?

What I said came from the bottom of my heart. We have two advantages; first, we have skills and secondly, we have capital. You can’t imagine how much money we send to Africa, every year.


Today, for example, diaspora remittances are three times more than the official development aid. This is around $60 billion annually, without considering the remittances transferred through informal channels.


Manufacturing is about big projects that require a lot of money. So, it is essential to find a mechanism, such as issuance of Diaspora bonds, to enable East Africans working abroad to raise money to finance projects like a power dam or industry; it will work.


Otherwise, I am happy that the East African Community is making the necessary efforts to embark on a bold transformation agenda and break dependence on commodity exports by seeking innovative ways to develop the value chains.

I am confident that the Diaspora can add great value to the human and financial capital needed to achieve this objective. East Africans living abroad are ready to support the integration process because it benefits everyone in the regional bloc. We know very well that our future lies in Africa; so we want to support development initiatives on the continent to ensure Africa takes its rightful place in the global economy.

Why are you convinced that manufacturing is the best way toward achieving sustainable development in Africa and the 2030 inclusive agenda?

Industrialisation plays a key role toward sustainable development because it has a multiplier effect as it promotes economic growth, job-creation and interconnection of markets.

Africa, and the East African region, in particular, has enormous potential to industrialise and drive growth as well as help improve people’s income and hence reduce poverty.

The continent has abundant natural resources, favourable climate for agriculture, and young and dynamic population. If we leverage this potential, Africa can successfully become a competitive power.

Many talented Africans continue to leave the continent, sometimes risking their lives on high seas, partly due to lack of job opportunities. Therefore, supporting and expanding the manufacturing sector will enable the region and the continent generally to create the needed jobs for the youth.

How does ADNE’s 2017 theme, “Diaspora investments and industrialisation of Africa” connect with the EAC’s plan to boost its manufacturing sector?

They are connected… we are currently organising a discussion on how to secure the flow of Diaspora remittances to support industrialisation.

In fact, we are co-organising two high level panels at the European Development Days on June 7-8, where this matter will be discussed. We will also organise a side event during the ACP-EU Joint Parliamentary Assembly in Malta, together with the European Investment Bank, UNIDO, the Maltese presidency (Malta is the current chair of the EU), and will also involve the government of Ethiopia which has already experimented with the Diaspora bond.

Ethiopia created two bonds in 2008 and 2011 mainly to fund their Renaissance hydro-power dam. Their successes, mistakes and experience will provide good lessons for us to learn from as EAC.

Why are you promoting Diaspora bonds?

Diaspora bonds are debt instruments issued by a country or a private corporation to raise financing from its citizens working abroad. This enables the country to borrow from its citizens and, therefore, tap the money that was hitherto going through informal channels.

They are a relevant alternative to borrowing from the international capital market, multilateral or bilateral financial institutions.

The Diaspora can overlook many shortcomings of the financial stability because they are indeed investing in their own wealth; their countries development and the well-being of families back home. Historically, Diaspora bonds have helped many countries to overcome economic crisis.

Therefore, I believe these kind of bonds are the only best way you can protect remittances from abroad.

I am passionate about this type of bond because it is a good instrument to raise development finance.

Which countries or best practices are we talking about here?

Israel and India, among others, have benefited. In 1951, Israel launched the Development Corporation for Israel Bonds. The bonds were managed by an autonomous body, and ranged from as low as $100 to as high as $100,000 that can only be redeemed at maturity of between 10 and 15 years.

Investment in Israel through the sale of the bonds is estimated at $1 billion annually. The sale of Israel bonds played a decisive role in Israel’s rapid evolution as a global leader in hi-tech, green-technology and biotechnology.

The Indian bonds restrictively targeted Indians living and working abroad and this gave them incentives to invest in an instrument exclusively available to them. The country has issued bonds in difficult economic periods to settle its balance of payment deficits.

India thus avoided the restrictions and pressures for structural reform imposed by the Breton Woods Financial institutions because it is able to raise development funds from its citizens across the world.

What about Ethiopia and Nigeria, what can we learn from them?

Ethiopia issued the Millennium Corporate Bond launched in 2008 to finance an electronic power corporation, and the Grand Renaissance Dam bond issued in 2011 to fund the construction of a 5,250MW dam on the Blue Nile River at an estimated cost of $4.8 billion.

These bonds were based on the concept of ‘a patriotic discount’, meaning a Diaspora bond coupon level that is lower than the benchmark, or lower than the 10-year US Treasury bond. The patriotic discount put into consideration that the Diaspora will be investing with low rates of interests because they are investing home.

However, the two bonds failed to raise the needed amounts mainly because the interest rates were low and there were no secondary markets that could be generated by foreign investors abroad.

This shows that patriotic attachment alone is not enough, there must be incentives. The relationship between the government and the Diaspora was not good at the time and some of the Ethiopia diaspora entrepreneurs were not aware of the bond.

That’s why it is important to know the targeted Diaspora, their profile and the number of potential contributors, and then raise awareness among the targeted group.

Another key element is the management of the bond. You must guarantee that the money won’t be lost, as well as provide key information and create good relationship with permanent communication with the Diaspora on the strategy about the expected outcome.

How can EAC member states leverage the potential of Diaspora bonds for regional industry development?

Regional governments should create good relationship with the Diaspora and provide them information about their priorities, available opportunities, and strategies, among others. Rwanda has done a perfect job as far as these are concerned.

Though there is room for improvement, it is a good example of how a country can create good relationship with its citizens working abroad. In fact, it is essential that governments ensure permanent dialogue between countries and their Diaspora.

Many Rwandans abroad are willing to contribute because the government showed interest and keeps informing us about its development strategy. That’s why I believe that Rwanda’s approach should be replicated elsewhere in the region for governments to raise the required affordable development finance.

Behind the idea of Diaspora remittances is the sense of patriotism; the belief that one is doing good in contributing to their country’s development. But this comes from the strong ties between the country and its Diaspora.

Knowledge of the target population and awareness among the Diaspora about the bond is also crucial. On this front, our organisation is working on a project to create an African Diaspora Skills Database (ADSD) for Europe to map available skills by sector and this can help regional countries. I also recommend strengthening financial stability and guarantees.

There should be incentives and credit ratings to attract big investors. Bond rates give investors more confidence as they entail diversified resource mobilisation avenues available to a country which can have positive effects on investment.

The issuance should be handled by a competent and neutral institution to ensure investors protection. In addition, securing the remittances will reinforce the trust of the Diaspora while providing African banks a tool to raise additional resources.

What is the origin of the African Diaspora Network in Europe?

The ADNE is an umbrella organisation for African Diaspora in Europe. Our primary objective is to assist member organisations and individuals to engage with policy-makers on issues of common interest to Europe and Africa.

When I arrived in Europe, seven years ago, I discovered the Europeans and Africans living in Europe had a different perception of Africa. So, first point of focus was to contribute to changing this mindset in Europe by raising awareness about the continent, its peoples, culture and development initiatives, among others. My experience working for the European Parliament strengthened this feeling. I was involved in the policy making process and I was somehow frustrated that Africans were ignored when it comes to important development decisions concerning the continent.

I wondered why Africans in Brussels and Europe were not involved, at least in the development debate.

Later, I realised that many of the African Diaspora that have lived in Europe for long actually don’t know their continent; all they know is what is portrayed by the media. This misrepresentation of the continent motivated me to find a way to connect Africans to Africa to enable them to defend and contribute to the development of the continent.

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