How to position capital markets as an alternative source of funding for African govts

Raising funding for local government-led projects continues to be a pressing challenge in Africa. However, could capital markets provide an alternative avenue for local governments to access funding? David Ofungi, the curator of the Makutano Economic Symposium, shed light on this topic in a recent interview with CNBC Africa. When delving into the realm of local government finance, it's common to focus on the central government and the hurdles within the structures to generate on-source revenue. Ofungi emphasized the importance of sub-national governments increasing their on-source revenue to enhance their credit-worthiness for potential funders. Understanding the parameters of the capital markets is critical in securing capital, as investors seek returns on their investments. By addressing both the demand and supply sides of capital, local governments can navigate the complexities of accessing funding. Ofungi highlighted the need for regulatory frameworks and intermediaries who can guide local governments in structuring transactions effectively. Legislation plays a crucial role in ensuring that allocated funds are directed towards sustainable projects with long-term service delivery benefits. In Uganda, for instance, funds raised cannot be allocated to recurring expenditures but are ring-fenced for infrastructure and service-oriented ventures. Building trust between funders and local governments is paramount in fostering investment opportunities. Educational initiatives and partnership with development partners can help instill confidence in the market. Factors like credit ratings and partial credit guarantees can further enhance the credibility of projects, making them more attractive to investors. In terms of investor interest, institutional players like the NSSF and Standard Bank are seeking avenues for predictable cash flow and returns. Pension funds, in particular, are eyeing sub-national investments as a viable option. To attract growing foreign direct investments (FDIs), local expertise needs to be augmented with global best practices. Collaboration between different stakeholders is key to creating a conducive environment for capital market development. At the Makutano Economic Symposium, participants from various sectors are pooling their expertise to tackle the challenges hindering local government funding in Africa. By leveraging surplus liquidity in the capital markets and implementing necessary policy amendments, African countries can unlock the potential of capital markets as a sustainable funding source for local government projects. With a balanced ecosystem and focus on skill enhancement, the region can pave the way for economic growth and development.