Despite a shared currency and regional stock market available to eight different countries, the West African Economic and Monetary Union (WAEMU – also referred to as UEMOA from the acronym of its name in French) falls behind other regions in Africa when it comes to innovative finance.
South Africa is currently responsible for more than 70% of green bond issuances in Africa, with Morocco and Nigeria accounting for a further 23%.
The mainly Francophone WAEMU region, however, is yet to seriously raise capital which attracts climate investors and is funnelled into green projects.
In 2021, Emergence Plaza, the owner of the Cosmos Yopougon shopping mall in Abidjan, issued Francophone Africa’s first corporate green bond at the value of $18.1m.
The bond was oversubscribed, signalling that investors were bullish about sustainable corporate finance in the region, with analysts expecting the first issuance to open the floodgates to many more.
However, it has not since been repeated and the current global economic climate is dampening the outlook even further as investors flee Africa’s bond market.
Ismaël Cissé, founder and CEO of Sirius Capital, an Abidjan-based investment bank, says that the current environment is tricky for governments and companies alike.
“It’s becoming harder and harder to get liquidity from international investors. The government of Côte d’Ivoire normally issues at least one to two Eurobonds a year, but nothing has been issued yet. If the conditions persist, it will be really hard for the government to go and get funds from the market.”
Expanding debt transactions
In the face of an international financial squeeze, Cissé believes that local actors must turn to local markets and funds for investment – a switch which he believes his firm is well positioned to facilitate.
Founded in 2014, Sirius Capital has around $100m of assets under management and has helped corporates and governments raise around $3bn.
The firm has been the co-lead manager on more than five occasions for Côte d’Ivoire government bond issues.
In 2021, it developed a $200m green bond for the government which will enable the Akouédo landfill site in Abidjan to be turned into one of the largest urban parks in the region.
The CEO says that pension funds and the WAEMU stock market, the Bourse Régionale des Valeurs Mobilières (BRVM), are two local forms of finance which are underused.
In terms of debt transactions, which account for almost 95% of the firm’s portfolio, Cissé says that the BRVM is only really used by governments to raise money.
“The private sector doesn’t leverage it enough, to issue papers and to raise long-term funds,” he says. “The bourse is not working to its full potential. Around 90% of the issuances are from governments.”
After a successful career in North America working for PwC, Cissé returned home to Côte d’Ivoire to fix this problem and help private firms raise debt on the local market.
“I have positioned Sirius Capital as an innovative investment bank. Instead of waiting for the deals, we work closely with the private sector at the early stages to help them structure projects.”
One of the main barriers to private sector participation is the lack of a track record for debt raises in the region and the lack of guarantees which might be used for similar issuances with governments.
“You cannot use the same structures to finance a company that you use to finance a sovereign,” he says. “You need to use a little bit of innovation that will make the structures suitable for companies in different industries.”
Pension funds
On the investor side, there is also a huge space for the growth of pension funds in the region. As with bond issuances, South Africa and Nigeria have some of the biggest pension funds in Africa by size whereas Namibia, Kenya and Rwanda are the largest related to GDP.
Cissé explains that the main barrier to WAEMU pension funds investing in the region is overcoming risk perceptions.
“Their main concern is actually understanding the market,” he says.
“They are unaware that there is an approach that can reduce the risk of investment. That’s why Sirius Capital is there to structure transactions that are legitimate, and to make sure that all the due diligence is done.
“We also make sure there is transparency on the whole process because when you don’t know these markets, especially in West Africa, the deals are opaque and it’s hard to gauge the risk. We make sure the deals are transparent.”
The CEO says there are plenty of opportunities in the sub-region, with Sirius Capital focusing on infrastructure, agriculture, real estate and healthcare.
Opening the market
Another issue for the regional bourse is that it is only used by institutional investors and governments, with very little participation from retail investors.
Cissé says that he is on a mission to change this by making the market more accessible to normal people.
“In developed countries the biggest part of what makes capital markets is public savings. The main barrier is that the processes are too complex for the general public.”
To overcome the barriers, Sirius Capital has partnered with Ivorian fintech Julaya to create an app which allows users to invest in the stock market via mobile money and bank accounts.
The app provides a solution to processes that were formerly very complex and time- consuming, like receiving a pay-out for dividends.
The platform has around a dozen users at the moment, but Cissé expects this number to shoot up when the latest version is launched in September.
Islamic finance
Another opportunity for growth in the region is Islamic finance.
“It’s not very well known here,” Cissé says. “But with Islamic finance you have the opportunity to tap into a lot of international investors that are interested in the region but do not have enough opportunities.”
Sirius Capital is currently working on two sukuks in Côte d’Ivoire which it plans to issue this year: one for the government and the other for the real estate sector.
The investors, he says, include international Islamic finance funds and local pension funds.
In 2018, the investment bank was the co-lead manager for the launch of a $250m sukuk in Mali with the participation of the Islamic Development Corporation.
Around half of the company’s portfolio this year is in innovative finance – green bonds, Islamic finance and impact investing – but the CEO hopes to ramp this up to around 70% over the next few years.
Moving into equity
Another milestone on the horizon for Sirius Capital is moving into equity transactions. Cissé says there is a huge potential for equity investments but most of the institutional investors that he works with are very hesitant to enter the space.
“We don’t have many well-structured opportunities in the region,” he says. “When you want to invest in equity there is an amount of work that you need to be willing to do for the investment to be right.
“Usually, institutional investors are not equipped to do that. It is not a developed market where you have a portfolio of deals which are mature enough to invest in. Here, you have to work closer to the opportunities for them to be right.”
The CEO says Sirius Capital is looking at transactions between $1m to $5m in what he calls the “missing middle”.
Most of the current ticket sizes in the market are above $5m, which makes it a significant challenge for SMEs which need an initial injection of capital to take off.
In terms of the sectors, Cissé reports that local institutional investors do not have much appetite for tech but will be looking more at traditional sectors like real estate and agriculture.
However, the firm is also in the process of expanding its reach by establishing a network of global venture capital (VC) investors.
“We are talking with VC investors in South Africa, Eastern Africa and Europe. Because all of the funds that you see here in our ecosystem are targeting funds between $5m to $15m – and those are not where the opportunities are.”
Financial hub
Despite a slow start for the region, Cissé believes that Abidjan is rapidly developing into the financial capital of West Africa.
“You have the African Development Bank (AfDB) here,” he says. “You have a lot of financial institutions which have offices here or are based here. When you look at the capital market, there are 35 brokers and 20 of them are based in Côte d’Ivoire. We have the most dynamic financial sector in the West Africa region.”
The CEO is so bullish on the region that he expects his portfolio of assets under management to increase four times to $400m over the next five years, with deal transactions increasing to $10bn.
