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

new finance trends for investment

1. World Economic Forum Annual
Meeting 2014
•Davos-Klosters • Switzerland • 22-25, January 2014

2. Publicinvestmentsareimportantinraisingcapacityforfuture
growth.Theirfinancingisthusanimportantpublicpolicydebate.
Whathavebeenthefinancingtrends?
1.Borrowingfromtheexternalmarkets:Debtaccumulationafter
HIPC–Growingwithdebt.Countriesarenowmoreconsciousof
debtsustainabilityissues.
2.Innovativeresourcemobilizationforpublicinvestment:
Borrowingfromthedomesticmarketswhichrequiresdevelopmentof
abondmarket.
=>Wehaveseenlong-datedpapersaswellasspecific
infrastructuretargetedbonds.
3.PPPisshapingupastheycreateendogeneityininvestment
decisionsandcompletionofprojectsanddriveinvestments.
=>Publicinvestmentsdonotnecessarilyhavetobefinancedby
debtaccumulation.
4.Results:Reshapingdomesticcapitalmarketsandprivatesector
response.
Financialmarketshavedeepened.
Debtinstrumentshaveincreasedandmaturityprofileshavebeen
lengthened.
Privatesector–andmorespecificallyPensionSchemeshave
investedinthesegovernmentsecurities.
2
I. How are Financing Trends in SSA
Re-Shaping Investment, Growth and
Development?

3. 1.Infrastructureprojectsthatsolvethebindingconstraints
-Theyreducetransactioncostsandenhanceprivate
sectorinvestments’profitability.Thisallows
entrepreneurstoearnandallocatereturnsfromtheir
investments.
2.Publicinvestmentstocloseinfrastructuregapsare
complementarytoprivateinvestments.Thisraisesthe
capacityforfuturegrowth.
3.Infrastructureprojectscoverroadand railway
networks,cleanpowergeneration,efficientportsand
airports-theyarealsocoveringregionalinfrastructure
projectslikeLAPSSETinKenya,EthiopiaandSouth
Sudan.
3
II. But What Projects Impact on
Growth?

4. 1.Capitalmarketsandfinancialmarketsaredeepening.
2.Encouragedcapitalinflowsforinvestment.
3.Theavailabilityofinstrumentsinthefinancialmarketshas
supportedvibrancyandencouragedregionalmarkets’growth.
4.Encouragedprivatesectortoraiselong-termfinance.
5.Leveragedinternationalcapitalparticipationindomestic
financialmarkets–moreintegration.
4
III. Effects on Growth of the
Market:
Shaping and Developing
Markets

5. 1.VibrantBondMarket
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
-4-3-2-10123456789101112131415161718192021222324252627282930
Yield (%)
Maturity in Years
Stock of Treasury bills and bonds along the Yield Curve as at 31 December 2013
Kes 112.41bn
Kes 377.82bn
Kes 22.14bn
Kes 169.22bn
Kes 179.81bn
Kes 154.19bn

6. VibrantBondMarket
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
Averagelifeofbonds has
lengthenedfrom8monthsinJune
2001to7.2yearsatpresent.
DebtprofileforBondsextends27
years-from2014to2041.
Vibranttradingobservedsince2010
following:
oAutomatedTradingSystem(ATS)in
November2009.
oIssuanceofInfrastructurebondsfrom
2009–tradedatNSE.
oBenefitsofthebenchmarkprogramand
lengtheningofthematurityprofileof
securitiessince2007.
Source: Central Bank of Kenya
Source: Central Bank of Kenya
Maturity Profile –Domestic debt
Total Value of Bonds Traded 2007 -2013

7. CapitalFlowsandRemittances
7
IV. Evidence…
Decliningcurrentaccountdeficit(estimatedat8.5percentofGDPin
November2013comparedto10.45percentinNovember2012),projections
forKenya’sremittancesendorsesastableoutlookfortheexchangerate
andincreasedforeignexchangeinflowsfrominternationaltrade.
Source: Central Bank of Kenya Source: Central Bank of Kenya

8. KenyaFinancialMarketGrowth
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
200420052006200720082009201020112012
US $ billions
GDP Growth %Gross Domestic Product 2004-2012
Financialsectorcontributed10.9percentofGDPinthe2
nd
Quarterof2013.
Duringthesecondandthirdquartersof2013,Kenya'seconomyisestimatedto
haveexpandedby4.3percentand4.4percent,respectively.
EconomicoutlookforKenyaremainsstrongwithcapacityforfuturegrowth.
Source: Central Bank of Kenya Source: Central Bank of Kenya

9. 9
Thank you