Country: Morocco

A Deep Dive Study on the Impact of Regulatory Interventions

Introduction

Despite their potential in driving development, Africa’s capital markets remain underdeveloped. They are narrow and illiquid, with few listed and tradable securities, too few issuers, investors, intermediaries and a lack of financial product diversity, often dominated by government bond markets.

In response to the challenges that African capital markets face, FSD Africa has been providing technical assistance to regulators since 2016, particularly by assisting in strengthening regulatory frameworks and through capacity building. This learning brief presents some key lessons from the some of  FSD Africa regulatory efforts on strengthening capital markets in Africa.

The Emerging Regulatory Agenda – Improving Transparency of Nature-related Risks in Africa

Executive Summary

Financial regulators around the world are recognising that the depletion of nature poses major risks to financial and economic stability: these are additional to climate change risks.

  • They have the opportunity to act on nature-related risks because doing so ensures that they fulfill their core mandate to maintain financial stability.
  • Transparency is the cornerstone of strong risk management.
  • Regulatory momentum regarding disclosure of nature-related risks has been increasing globally.
  • African regulators, in particular, will see the benefit of acting with urgency because the continent is disproportionately exposed to nature-related risks.
  • African regulators can engage with this new agenda by following a set of no-regret moves as a key first step in developing a roadmap to incorporate nature-related risks into financial disclosure.
  • These no-regret actions include aligning with a government agenda, understanding requirements, determining availability of capacity, and engaging with existing nature alliances.

Introduction

Degradation of our natural ecosystems poses a significant risk to our financial and economic stability. A significant portion of our global economic product relies on nature and natural systems. As human activity and climate change continue to deplete these systems, we need to create a regulatory agenda to better manage nature-related risks and the harms they can create. This paper offers up next steps for this regulatory agenda, specifically in the context of Africa, illustrating the urgency to do so for African economies, why transparency should be an important component of any regulatory agenda, and what African regulators can do to support stable nature-positive economies.

A rapid analysis of the gender intentionality of Africa’s Nationally Determined Contributions (NDCs)

Introduction

As countries gather at UN Climate Change Conference (COP28) in the UAE, where the highly anticipated first-ever global stocktake is expected to conclude. We are pleased to share – A rapid analysis of the gender intentionality of Africa’s Nationally Determined Contributions (NDCs).

This paper investigates gender intentionality using several dimensions including gender-responsive budgeting in African NDCs. More importantly, the paper explores whether countries are mobilising and allocating climate finance with a gender lens, and it makes recommendations for governments, financiers, and investors to ensure climate finance is not gender neutral.

African countries are called upon to reflect on key gaps articulated in this paper, and work towards accelerating gender-responsive climate finance actions.

Is it time for a solar receivables finco?

In the last ten years PayGo – the method of distribution and financing of off-grid solar home systems (SHS) – has revolutionized the effort to bring clean, renewable energy to people in Africa without access to electricity.

While the achievements of the PayGo sector are a cause for celebration, the companies that employ this business model have struggled. Several notable companies have failed outright. Others have slowly wound down or continue to struggle. Most – although not all – of the remaining companies have not achieved profitability after five or more years of operations.

Today, those of us working in the PayGo sector are making an effort to understand why PayGo companies have generally not achieved profitability and what can be done about it.

This paper presents our analysis of one of the key weaknesses in the PayGo industry and provides a prescription for the next stage of the industry’s evolution. Our analysis centers around a central feature of PayGo companies: each PayGo company is essentially two businesses. One is a solar products retail distribution company. The other is a consumer finance company, or
“Finco”.

It is estimated that 490 million people are accessing energy through off-grid solar solutions worldwide. In Africa, nearly 50% of these are people that would not have been able to afford solar home systems without the financing provided by PayGo. This is nothing short of remarkable.

Scoping study: Development of a financing offer relating to the green economy in Morocco

Background

Background. Since 2010, Morocco has been considering the green economy as a crucial complementary element to its sustainable development agenda with the potential to trigger development opportunities in various economic sectors. Morocco’s National Strategy for Sustainable Development (NSDS) and its initial and updated nationally determined contribution (NDC) set the country’s commitment to the green economy and put forward the various actions for mitigating greenhouse gas (GHG) emissions and adapting to climate change.

While the transition to a green economy concerns all actors in the economic fabric, particular attention should be paid to Morocco’s small and medium-sized enterprises (SMEs) as these businesses represent 93% of all companies in the country and employ over 46% of its workforce. However, these businesses generate only 40% of the nation’s gross domestic product (GDP) and 31% of its exports, demonstrating the growth potential of Morocco’s SMEs and the need for support with integrating into global value chains. To achieve this potential, these companies require diversified and accessible financial assistance that allows them to grow in line with Morocco’s green vision, in turn benefiting the national economy, bolstering the competitiveness of Moroccan SMEs in international markets and allowing the country to meet its climate and sustainability targets.

In order to effectively contribute to the development of green investment mechanisms for Moroccan SMEs, the Ministère de l’Economie et des Finance [Ministry of Economy and Finance] (MEF) of the Kingdom of Morocco, with support from the British Embassy in Morocco (part of the Foreign Commonwealth Development Office) and Financial Sector Deepening Africa (FSD Africa), has commissioned this scoping study. This study focuses on the provision of green finance to SMEs, helping them to both grow by offering green products and services and improve the sustainability of their own operations

AMMC Gender Bonds guidelines

Foreword

These guidelines were prepared by the Moroccan Capital Market Authority (AMMC), with the support of FSD Africa, in order to promote the development of financial instruments aimed at financing sustainable development and further expand opportunities for sustainable finance transactions.

As gender bonds are generally considered type of social bonds, the guidance provided in this document completes the previous guidelines published by AMMC. The present guidelines also introduce a new standard: the sustainability-linked bonds principles, that can be used to structure gender bond issuances as well as other types of sustainable bonds.

The present document provides useful information on mobilizing adequate financing for issuers interested in developing projects or activities aligned with gender equality and women’s empowerment. In addition, investors and other market participants can also rely on the guidelines for a better understanding of gender bonds and their relevance for sustainable finance approaches.

West African Economic and Monetary Union (WAEMU) Green Bond Scoping Report

The Member States of the West African Economic and Monetary Union (WAEMU) face the triple challenge of addressing the consequences of climate change, developing infrastructure in light of strong anticipated demographic growth, and rebounding from the impacts of recent global shocks such as the COVID-19 pandemic (hereafter “COVID”) and the war in Ukraine. These challenges need to be met in the context of sizable long-term financing gaps in several economic sectors, and within the fiscal constraints imposed by sovereign debt burdens which, for some Member States, are significant – especially in the context of tightening global credit markets and rising interest rates. Faced with these challenges, Member States need to ensure the development of their economy, while integrating the commitments developed within their Nationally Determined Contribution1 (NDC), which aim to combat climate change as part of broader national development plans. In this regard, private sector actors are required to contribute alongside public sector actors to the achievement of climate change mitigation and adaptation objectives, particularly in sectors whose expected contribution has been defined as relatively important.

“Green Bonds” are financial instruments whose proceeds are utilised to finance eligible projects and activities designed to foster sustainable, resilient and inclusive growth. In this sense, Green Bonds fit into the list of alternative financing mechanisms that can be used to solicit some of the capital needed for national objectives, potentially allowing access to a broader and more diverse investor base, some of whose investment mandates include positive environmental and social impact requirements.

This Study focuses on the feasibility of developing an active market for Green Bonds in the WAEMU region and aims to assess the potential for sovereign and corporate Green Bond issuance. The Study highlights multiple deficiencies that may impede the development of such a market, and provides recommendations to overcome them. Initiatives and interventions that should be taken to foster the emergence of such a market are also presented, as well as opportunities to develop a pipeline of green projects and activities eligible for Green Bond financing.

Given the regional, multi-country scope of the Study, a desktop review and stakeholder consultation was undertaken to identify common barriers, which are primarily related to three themes:

  • The underdevelopment of the regional financial market relative to international standards.
  • The lack of Green Bond and general climate initiatives from national governments, institutions and industries.
  • The generally low level of familiarity among key market stakeholders with the international standards and requirements associated with Green Bonds, and consequent low capacity to meet such standards.

For each barrier identified, actionable recommendations are drawn from the lessons learned from more successful Green Bond programmes in other Sub-Saharan African countries, whilst giving due consideration to the specific nuances of the WAEMU region to assess their applicability. The findings from the desktop research were then supplemented and validated during additional interviews and in a stakeholder engagement workshop to ensure the recommendations are context appropriate.

The desktop review covers the following key determinants of market development potential:

  • Regional debt capital market (structure, regulation, depth, liquidity, stakeholders, etc.)
  • Historic context and current trends regarding sovereign and corporate bond issuance (issuance features, context and objectives, subscription rate, credit, etc.)
  • Regional and national advances in climate integration and related initiatives.
  • Stakeholders’ capabilities with regard to international standards and requirements for Green Bonds
  • Investor appetite (investor awareness, investment trends, incentives, obstacles, etc.).

 

Fintech for Climate Resilience

 Climate change impacts are likely to send more than 130 million into extreme poverty by 2030. Africa, Latin America, and South Asia are among the most vulnerable regions, where natural disasters, food insecurity, and health hazards are already exacerbating the vulnerability of local communities. There is on urgent need to buildclimate resilience among households and communities vulnerable to the impacts of climate change.

Startup innovators ore at the forefront of creating the tools and services people need to manage disasters, adopt their assets and livelihoods, and build long-term resilience, They ore collecting data on disaster risk, launching insurance products, crafting regenerative agricultural models, and designing ways to access carboncredit markets.

As promising and impoctful as these innovations ore, they struggle with many of the challenges that face early-stage ventures: funding, talent, customer acquisition, partnerships, and more. At the heart of these challenges Is a commontheme: the difficulty of creating monetizable, commercial models that ore scalable with venture funds.

Fortunately, !he last decade hosshown us that fintech can enable greater accessibility and affordability of products for underserved, last­ mile populations, leveraging digital payments, satellite data, online marketplaces, and embedded finance infrastructure lo bring down costs. deliver access for low-income populations, and drive scalability of business models. Such achievements explain why investments in fintech companies increased from nine billion in 2010 lo over 220 billion in 2Q21.

Regulating for innovation in Africa – Cross-country synthesis note

This document outlines the findings across a series of studies commissioned by FSD Africa on the state of insurance innovation and regulation in eight countries in Sub-Saharan Africa (SSA): Ethiopia, Ghana, Kenya, Malawi, Nigeria, Rwanda, Uganda and Zimbabwe. It aims to inform regulatory authorities across the continent in the quest for balancing the mandate for market development and innovation with that of consumer protection.

 Innovation snapshot

Cross-cutting challenges to market development highlight untapped market potential. Across the study countries, low insurance penetration rates persist. Though the share of life insurance premiums in total premiums is growing, the market is for the most part still dominated by non-life insurance, and compulsory insurance plays a strong role. The result is that the voluntary retail insurance market still reaches a limited number of policyholders, and that large population segments such as rural inhabitants, informal sector workers and MSMEs remain un- or underserved. This indicates substantial untapped market potential in all the study countries.

More – and different – innovation needed. While innovation is present in all the study countries, each country is at a different stage along the innovation journey, depending on its unique country and market context. Some insurers have started to digitalise their processes and client engagement journey, and COVID-19 has provided an added impetus to do so. Some are implementing or pursuing alternative distribution partnerships, and some are doing market research to help target new market segments such as MSMEs. Partnerships with insurtech firms are emerging to help streamline internal systems and processes. On the whole, however, the cross-country innovation assessment shows that innovation is not yet entrenched in the fabric of the market or leveraged to reach underserved target market segments at scale.

 Key constraints to innovation

Various elements of the enabling environment or ecosystem shape the current innovation picture.

Capital Markets Impact Report

Africa stands at a crossroads: the continent has just exited a recession following the COVID-19 pandemic, but the recovery is fragile. Beyond the health dimensions of the COVID-19 crisis, the pandemic caused an estimated 6.1% fall in per capita incomes in 2020 – setting living standards back by a decade in a quarter of sub-Saharan Africa.

The IMF estimates that employment fell by about 8.5%, and more than 32 million people were thrown into extreme poverty in 2020, erasing at least five years of progress in poverty eradication.

Economic recovery will face headwinds primarily due to limited fiscal space for countercyclical support, a temporary collapse in private capital inflows from overseas, and the rumbling African government debt crisis, which continues to play out unevenly across much of the continent. In addition, there has been a significant shift in the pricing of African Eurobonds, with some countries effectively shut out from the international debt markets due to increased risk-aversion.

Meanwhile, on the heels of the pandemic, the unprovoked Russian invasion of Ukraine in February 2022 has brought turmoil to the global markets and increased inflationary pressures. As the manifold effects of the conflict reverberate globally, a key risk factor to monitor for African economies will be the impact of sharply rising global costs for food staples and critical agricultural inputs such as  fertilizer. Ukraine is the world’s largest exporter of wheat and wheat prices have risen more than 80% in Q1 2022 compared to their 2017-21 average, creating acute challenges especially for those African countries running both food and balance of payments deficits. At the same time, the war in Ukraine brings into focus the strategic importance of African markets for global economic stability: to take just one example, new Liquid Natural Gas (LNG) export mega-projects under development across the continent – from Senegal and Mauritania to Mozambique and Tanzania – hold the potential to help reduce global energy dependency on Russia.

Looking beyond the near-term geopolitical uncertainty, many African countries are also faced with the twin challenge of climate change and biodiversity loss, which threaten to erode recent and future developmental gains across the continent. The sixth assessment report by the Intergovernmental Panel on Climate Change (IPCC) indicates that Africa is a natural capitalreliant continent and remains one of the most vulnerable to climate change. The IPCC report forecasts that extreme weather conditions will persist in Africa, increasing the risks of droughts and flooding, especially in coastal and low-lying areas.

Furthermore, Africa faces significant transition risks to a net zero carbon world. Unless they are proactively managed, the legal, policy and technological changes involved in the transition could leave an array of stranded assets on the continent whilst rendering whole sectors uncompetitive.

But the moment of crisis also presents an opportunity to build back better. By efficiently channelling growing pools of domestic and international savings towards critical parts of the real and social economy, capital markets are a key enabler to achieve the United Nations Sustainable Development Goals (SDGs). Capital markets also play an important role in green finance by funding climate smart investments that support mitigation, adaptation and resilience to climate change and bio-diversity loss. Furthermore, local currency capital markets can reduce currency and refinancing risks, improving the financial sector’s resilience to external shocks and supporting more efficient intermediation of scarce domestic savings. Finally, deeper capital markets have a key role to play in mobilising and directing the patient investment needed to build Compact, Connected, Clean and Resilient cities, thereby unlocking the significant ‘urbanisation dividend’ available in a continent that is the fastest urbanising world-wide.

At FSD Africa, we believe the role of Africa’s capital markets has never been more critical. The mobilisation of domestic resources through stronger financial intermediaries and capital markets is already a key African Union priority, encoded into its ‘Agenda 2063: The Africa We Want’ strategy – the continental blueprint for transforming Africa into a global powerhouse of the future. Since 2015, from our headquarters in Kenya, our dedicated team of Capital Markets development professionals at FSD Africa has been driving capital markets innovation and development. As you will read in this briefing note, the team operates across the continent, leading over 50 initiatives in more than 30 countries. We work in close partnership with private sector leaders and governments on a range of flagship programmes – from product development in areas such as gender, green and carbon-linked sustainability bonds to regulatory support, policy development, new market infrastructure, engagement with institutional investors and institutional strengthening.

As part of FSD Africa’s new strategic approach, our Capital Markets team will now focus on five priority countries: Ethiopia, Ghana, Kenya, Morocco and Nigeria. We will also double-down on early successes, building green bonds markets in Ghana, Kenya, Nigeria, Morocco, and the Southern African Development Community (SADC) region. We are proud of our results to date, and of the strong relationships we continue to build with a broad array of decision-makers, innovators, and opinion formers in Africa’s capital markets ecosystem. We offer our partners a fresh way of working – underpinned by our agility, deep knowledge of the continent, ability to deliver world class support and willingness to take risks. We are also based in Africa – close to the partners we work alongside and uniquely positioned as a neutral and trusted convener in a fast-evolving marketplace. We hope you enjoy reading about our work. We are always looking for new opportunities to deliver: so, if you would like to learn more, please be in touch. The final section of this note introduces you to our Capital Markets team, and it would be great to hear from you.

At FSD Africa, we believe the role of Africa’s capital markets has never been more critical.

Yours sincerely
EVANS OSANO