Mid October Editorial

In its August 20, 2011 edition, the Economist run an article on the potential that Diaspora bonds could hold for a continent like Africa. Earlier in April this year, CNN’s Business Unit had also run a piece of the same import. Basically, these two international papers are floating something that has been endorsed by the World Bank and is, apparently working very well for countries like Nigeria.

This type of investment is very simple: People in the Diaspora – People of color such as ourselves – simply use our savings to lend money to our home countries. Of course, many immigrants have various reasons for leaving the land of their forefathers – many of them negative – and may, thus, not want to have anything to do with the administrations of their countries. However, negative aspects aside, a bond is not just a loan. It is an I.O.U. For this to work, a country like Barbados just has to present its Diaspora with the opportunity purchase bonds. When you buy a bond, you’re lending money to the country that issues it. The country, in return, promises to pay interest payments to you for the length of the loan or the I.O.U. How much and how often you get paid interest depends on the terms of the bond.

Again, why would anyone want to give money to the country they left? Also, there’s a chance that the home country is corrupt; that as a person with ears and eyes on the ground, you know of all the dark games played by the officials that are selling you the bond. So, in response, you close your eyes and ears to their wares and continue to send money to your relatives – remitting these funds so you can build a small retirement estate! This is all well and good.

However, truth be told: There are no 100% secure investment vehicles. You could send money to a relative and lose it all through nothing you or your people could control. Or you could decide to invest it in these outside countries and get hit by the volatility of the markets. The reason this paper endorses bonds from countries is on two levels:

First, by the time a country comes to issue an infrastructure bond to its Diaspora, it will have done a little homework and especially tried to spruce itself up – making itself as attractive as it can to potential investors. Because we live abroad, we tend to be harsh in our judgments on the people we left behind. In this way, there is a chance that their efforts will be a grade higher than window dressing. For those in the know, anything above window dressing in the 3rd world is better than nothing. It should, therefore, be embraced with open arms.

But even more importantly, most of these bonds are usually for things like infrastructure. The third world needs roads and communication services. If an infrastructure bond were floated for a country like Kenya, a great many of the Kenyan Diaspora would buy into these things. After all, Kenyans send more than $ 1bn home annually. These monies could simply be used to fix the road from Nairobi to Mombasa. This road is a major feeder to Uganda, Rwanda, Burundi and Sudan. Just think of the progress made! Besides, if you buy a bond for 5 years – with interest each year – then you are making ‘sure’ money off your investment. What is wrong with that – even when you disagree with the politics of that country?

According to the World Bank and the African Development Bank, recorded remittances into Africa increased fourfold between 1990 and 2010, reaching almost $40 billion in 2010. If just 10% of this money was availed to the different governments to invest in infrastructure, Africa would develop much faster. But what is more important is for the African governments to first strengthen and then maintain their links with their nationals abroad to realize the full economic benefits of migration. One way of strengthening ties and links with people such as us is that governments have to make promises. Once we have these in our hands, we might as well take them all the way to bank.

Dennis Matanda,
Editor