Ghana is entering the surging social bond market

A Ghanaian five cedi note.
A Ghanaian five cedi note.
Image: Reuters/Luc Gnago
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Ghana’s planned issue of a social bond could kickstart a trend in Africa.

“With this issue we’re looking at refinancing those debts already raised to undertake projects in the environmental and social sectors,” Charles Adu Boahen, minister of state for finance, told Bloomberg this week, as Ghana prepares to raise up to $1 billion through bonds.

Many more countries in Africa are likely to follow Ghana’s example, says Churchill Ogutu, head of research at Genghis Capital in Nairobi, because of the pandemic’s devastating impact on tax revenues, and the need to fund critical social sectors.

What is a social bond?

A social bond is a debt instrument used to raise funds for projects with positive social outcomes, such as in education, healthcare, and food security. Its issuance is on an upward trajectory globally, as investors combine profit and mission to tackle inequalities. This type of bond reached record levels last year, increasing sevenfold, and this year, it’s expected to grow by 6% to $150 billion in funds raised.

The African Development Bank has been active in this space. It launched a social bond program in 2017 and has so far issued five such bonds, the latest being a SEK2.5 billion ($3 billion) debt instrument to fight Covid-19.

Africa and social bonds

On a country level, African states have been left behind in the social bond trend, as they typically issue bonds to fund debt obligations and heavy infrastructure projects, not social change. Lately, they have had plenty of success funding debt and infrastructure through euro-denominated bonds.

Ogutu says the high global demand for social bonds comes from increased emphasis by investors on environmental, social, and governance standards, or ESGs, which are used to measure the sustainability and societal impact of investments.

“They [investors] want to go into those morally right projects,” Ogutu says, “and that’s where the social sectors tick the boxes.”

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