On 3rd March, Cardano Development officially launched its CD Insights platform. Where we share our ideas and expert knowledge of local market development in frontier and emerging markets, with a strong focus on local currency financing.

To mark the occasion, we were joined by an esteemed panel of guests including Joost Zuidberg, CEO Cardano Development, Chinua Azubike, CEO InfraCredit, Karin Pasha, Derivatives Trader, Cardano, Ugo Panizza, Economist and Professor of Economics at the Graduate Institute, Geneva and Hans Loth, Group Executive VP Rabobank.

Moderating the session was Othman Boukrami, Managing Director, TCX Fund. They discussed the latest financial market trends for 2020/2021, based on the Cardano Development Annual CEO Letter.

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Webinar discussion summary:

Ugo Panizza, Economist and Professor, Graduate Institute Geneva

What is the current situation in emerging and frontier markets?

“Even before COVID the situation in low-income countries and frontier markets was deteriorating.”

• A sustainability analysis from 2013 conducted by the IMF and the World Bank, found that less than one-quarter of countries were classified as either in debt distress or at high risk of debt distress.

• In 2019, three-quarters of countries were classified as having high-risk or risk of distress.

• Based on pre COVID-19 analysis, what drove debt ratios up in many countries, was higher debt ratios with a large fiscal deficit.

This was all before the huge economic shock of COVID. All countries in the world have now realised lower GDP growth than what was expected in 2020. Only seven countries in the world experienced low but positive GDP growth in 2020. If we compare this with what happened after the global financial crisis (GFC), about 80 countries after the GFC, still had positive GDP growth. So, this COVID climate is a true financial crisis.

What kind of policies can increase resilience to crisis?

One key policy is to have safer debt structures for borrowers and that means more local currency debt. It also means access to longer-term debt. However, more lending by investors will not resolve long-term financial issues. That is where better crisis management and increasing resilience come into play.

• The G20 framework was launched a few months ago, which outlines improvements to economic resilience.

• In coordination with Rabah Arezki, Chief Economist at AfDB I have penned an e-book ‘COVID-19 in Africa‘ which discusses topics of resiliency and solutions to the current crisis.

Joost Zuidberg, CEO Cardano Development

What are the main trends you see in financial markets for 2020/2021?

“Local currency financing is now more important than ever.”

This crisis is not a sprint, but a marathon. Cardano Development is staying very aware, as much as possible of where this crisis is going. So that we can assess whether there are problems that we have solutions for. There are several very important trends that we see in the pandemic climate. These effects will unfold over the next few years but on micro levels, there will be effects in terms of access to finance, at the base of the pyramid for our clients.

We highlighted in our Annual CEO Letter, four important trends:

• There is a great need for local currency financing in developing countries.

• The blended finance logic of donors and patient investors is evolving to create a total capital systems that is well suited to the needs of developing countries.

•  Institutional investors in the developed world are moving and ready to start engaging with solutions to achieve the UN Sustainable Development Goals (SDGs).

• Domestic markets are maturing.

Karin Pasha, Derivatives Trader, Cardano

What are the key trends for Western institutional investors?

“The urgency of climate change has landed with the institutional investors. We are beginning to see investors make commitments towards net-zero emissions.”

These are my four trends, regarding sustainable investing with institutional investors.

Climate change

• Investors are making commitments towards net-zero emissions. However, Institutional investors need meaningful targets to meet this requirement.

• Investors need to finance green economic activities necessary for us to meet the climate change goals. Beneficiaries are putting pressure on investors. They are demanding green and social investments.

Human rights

• There are a growing number of stakeholders such as employees, beneficiaries, clients and governments weaving human rights issues into their decision making.

• Investors are applying the UN guiding principles across business investments which has the potential to contribute towards achieving the (SDGs).

Data

ESG data is of the essence. We need timely data, accurate sustainability data, comparable across industries, portfolios, countries, and time series.

• Institutional investors need to set reasonable and challenging targets to fight against greenwashing.

• For consistency, we need clear collaboration across regulators and market participants.

Regulation

The fourth trend is about a sharp increase in regulation. It is inevitable that policymakers and beneficiaries will demand more from institutional investors in the months and years ahead to support sustainable investing and prevent greenwashing. Naturally, there are a number of policy interventions rising exponentially. Even if investors are not convinced sustainable investing is needed to prevent significant uncertainties and risk. They are forced by regulation to be transparent on ESG issues.

Chinua Azubike, CEO InfraCredit

“Beyond just providing access to finance, improving the capacity of local investors is important.”

Of the currently estimated Nigeria pension assets under management of NGN 12 trillion as of  December 2020, only less than 1% is invested in corporate infrastructure debt of the allowable 35% due to a lack of adequate quality supply of infrastructure projects. This is Nigeria’s infrastructure paradox, despite available funds, large pipeline, and clear demand for funding, few projects reach financial close, and not enough money is being spent. 

• Institutional investments in infrastructure cannot increase significantly unless there are improvements in the capacity of institutional investors to evaluate infrastructure assets; and the quality of preparation of infrastructure assets.

• To improve accessibility and affordability, there are multiple parameters that can be tackled: the currency of the debt; the supply quality of the asset; the interest rate of financing, the cost of infrastructure; and the capacity of investors and the local capital markets. 

Hans Loth, Group Executive VP, Rabobank

What kind are movements are evident in the public and private sector investment space?

“We see a convergence of the public and private agenda, a convergence on sustainability, convergence on a climate agenda.”

There is an intrinsic motivation of leadership within banks to grow a better world together. Banks need to reinvent themselves from their original models of gaining a lot of interest. They need to look on other income models to address the intrinsic motivation we have on sustainability; we are currently challenging ourselves to go into innovative business models that address agri-sector financing.

When we think of our clients, we consider these challenging factors:

• Our clients are in a perfect storm, where they need to produce more food for more people on the planet with less CO2 impact.

• Finance is an enormously useful tool in that transition.

• Financing smallholders is simply not possible because they are deemed to be too high risk.

To address these issues together with regulators and banks we have created an in-house solution AGRI3 Fund, together with UN Environment Program, FMO and IDH and incorporated Cardano Development as an investment advisor.

ENDS