The Microstructure of Corporate Bond Markets in Emerging Economies: Evidence from Africa

By exploring the microstructure, this study seeks to address the frictions, inefficiencies and lack of competition of corporate bond markets in Africa.

The accessibility of low-cost, long-term finance by firms is a necessary condition for a vibrant private sector capable of achieving and maintaining high productivity, increased income, the growth of enterprises, employment creation and lifting of many citizens out of poverty, and hence resulting in sustained economic growth of a country. As firms continue to turn to debt financing, the fundamental question arising is: which type of debt (private or public) is more appropriate and economical? This study conjectures that African firms’ preference for bank debt is the result of frictions, inefficiencies and lack of competition in the financial markets in Africa caused by underdeveloped corporate bond markets, and institutional, structural and regulatory barriers in the corporate bond markets.

Therefore, this study seeks to explore the microstructure of corporate bond market in Kenya, Uganda, Tanzania and Rwanda to unlock data on the structure, design and institutional framework of each of the markets in a bid to identify the specific areas of frictions and inefficiencies. The study will further take stock of the status of development and determine the key drivers of corporate bond markets development. This will help to understand (i) what is the microstructure of corporate bond markets in Africa and how does it affect firms choice of debts (ii) what is the current state and key drivers of corporate bond markets development in Africa?

This study is among the pioneer studies of corporate bond markets in Africa and the first to carry out a detailed cross-country analysis of the microstructure of all individual corporate bond markets using a comprehensive set of primary data supplemented with most current secondary data. Thus it will fill the gaps in existing studies which focus on sovereign bond markets and help identify key drivers of market development for more appropriate policies.