Dakar, 20 May 2022 (TDI): The United Nations Economic Commission for Africa (ECA) launched the Liquidity & Sustainability Facility (LSF) in Dakar, Senegal.
The official establishment of LSF took place on the sidelines of the 54th session of the Conference of African Ministers of Finance, Planning, and Economic Development (CoM2022). BNY Mellon and Amundi have been supporting the process of the establishment of LSF.
LSF was first proposed by ECA at the 26th United Nations Climate Change Conference (COP 26), Glasgow, November 2021.
After that, ECA and its partners including African governments and international stakeholders have been working hard on the preparation of LSF.
What Is the Liquidity & Sustainability Facility (LSF)?
The Liquidity & Sustainability Facility (LSF) has two main targets. Initially, LSF focuses on promoting the liquidity of African sovereign Eurobonds.
Besides, LSF also encourages investments in Sustainable Development Goals (SDGs), such as SDG bonds for the African continent.
LSF aims to improve the sustainability of African sovereign debt by providing African governments and individual investors with a liquidity structure on a par with international standards.
Moreover, LSF aims to significantly increase financing of African green and blue bonds at more affordable rates. And it aims to do it by revamping the terms of new SDG-related and climate-related bonds issued by African countries.
Why Is LSF Suitable for the African Continent?
Economic recovery in the post-pandemic era, climate change-related challenges, and the energy and food shortages brought by the Russia-Ukraine conflict are making the global situation more complex.
Thus, African countries need a new transparent and efficient framework to raise funds from individual investors at reasonable rates. Large repo vehicles are common in advanced economies, but relevant global arrangements are no longer suitable for African countries.
Therefore, LSF has the potential to bring more vitality to the African economy. Moreover, from a more specific perspective, LSF highly targets sustainability.
According to ECA, the private sector’s demand for investment products that promote sustainable development has been rising steeply recently. These “sustainability-themed products” were worth $3.2 trillion in 2020.
Furthermore, Africa has vast green resources and increased investor demand in the field of sustainability. However, the continent just accounts for less than 1% of global green bond issuances.
Compared with the global mechanism which is greatly dominated by developed countries, LSF can focus on Africa. LSF can mobilize capital investment towards key sustainable efforts and a green and sustainable recovery for Africa.
