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Countries pull expatriate cash with ‘diaspora bonds’

NEWS
By Reuters | April 19th 2016

A growing roster of developing states are turning to their compatriots abroad to raise cash by marketing “diaspora bonds”.

This is a funding strategy successfully pioneered by India and Israel, but sometimes tricky to imitate.

Some 250 million people, around 3 per cent of the world population, live outside their native countries, according to World Bank data from 2013. They are an important source of funding for their homelands: last year they sent home around $440 billion (Sh44.5 trillion) — three times more than global development aid.

Cash raised by governments directly by marketing securities to their overseas citizens represents just a tiny fraction of that, but looks set to grow, judging by a number of recent announcements.

HISTORIC RELATIONSHIP

Egypt has announced debt certificates denominated in dollars and euros to ease hard currency shortages.

Kosovo, which estimates a third of people of Kosovan descent live abroad, proposed issuing bonds for expatriates last month. Sri Lanka discussed such bonds last year, and Nigeria has tried to revive plans for a diaspora issue after naming Goldman Sachs and Stanbic as advisors on a proposal in 2014.

Homestrings, a platform created to put potential diaspora investors in touch with opportunities, has raised funds for infrastructure projects in Kenya, and offers US-based Macedonians the chance to invest in small businesses back home.

But not all such efforts succeed. Many countries overestimate the generosity of their natives abroad.

One high-profile example was Greece, which proved unable to raise a hoped-for $3 billion (Sh303.5 billion) from the million-strong Greek community in the United States at the height of its debt crisis in 2011.

Ethiopia’s 2009 bond to fund a hydro-electric dam failed chiefly because it could not convince investors it would repay the debt. Some also objected to the project on environmental grounds.

In 2009 and 2010, Nepal raised a fraction of its target when it offered yields below 10 per cent over five years on rupiah bonds — well below local rates at the time. Moldova also decided not to issue diaspora bonds, concluding that Moldovans abroad who were willing to invest in its currency would probably prefer local bank accounts that pay 25 per cent interest.

“Many governments need to really look at themselves in the mirror, as to what has been their historic relationship with their diaspora and use that reality in their calculation when they offer investments,” said Liesl Riddle, a George Washington University professor, who has studied diaspora financing.

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