presentation-world-economic-forum-davos-2014.ppt
- 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