Africa Turns to Digital Bonds for Infrastructure Financing
Africa's infrastructure financing gap is a pressing issue that continues to hinder the continent's growth. According to the Africa Development Bank, the annual infrastructure financing gap exceeds $80 billion. To address this challenge, African countries are turning to innovative solutions, including digital bonds.
The Africa Finance Corporation (AFC) recently became the first African institution to issue a digital bond, raising 350 million Swiss francs ($427.4 million) through a five-year tokenized security on a Distributed Ledger Technology platform. The bond was priced at a 1.4925% coupon and attracted interest from high-quality investors.
Eric Musau, Head of Research & Sustainable Finance at Kenya's Standard Investment Bank, notes that digital bonds can resolve frictions in traditional bond issuances, making them suitable for investors with different risk appetites. Digital bonds are debt securities issued and recorded on DLT or blockchain, and they are gaining traction globally.
The AFC has identified inadequate infrastructure as the primary threat to Africa's long-term growth. The institution believes that digital bonds will help accelerate financing for critical sectors, including transport, power, natural resources, heavy industry, and telecommunications.