Saturday 24 August, 2019

Lee Chin champions Diaspora bond

Speaking at a roundtable discussion entitled  ‘Economic Growth Council from Dialogue to Action’, held at the Jamaica Stock Exchange’s 12th Regional Investments & Capital Markets Conference in the Pegasus Hotel, Kingston yesterday, Lee Chin said that reaching out to the Diaspora through a bond issue was one way to generate growth and finance infrastructure projects.

So what is a Diaspora bond? It is a sovereign bond that targets investors that have emigrated to other countries and the relatives of these emigrants.

Earlier this month, he accompanied Prime Minister Andrew Holness to a trade mission in Israel where the idea was discussed.

Israel has successfully issued a Diaspora Bond since Independence in 1951. It has been able to call on its people across the world to come to its aid in helping to develop the nation and to fund a number of infrastructure projects.

Israelis across the Diaspora feels a strong affinity to the motherland and Lee Chin is looking to replicate a similar success story. It is estimated that there are around 3 million Jamaicans living outside of the country who also have a strong connection to their home country.

The vehicle used by Israel to make the bond effective is the Development Corporation of Israel (DCI). This entity has raised more than US$40 billion via Diaspora bonds since 1951, with sales exceeding US$1 billion in 2014 and 2015.

The Israeli Diaspora bond has seen investors coming in as low as US$100 and as high as US$100,000 on a fixed-rate instrument and the bond can only be redeemed at maturity which range from  2,5,7 and 10 years.

The Jamaica Diaspora bond could be used to bridge finance gaps, fund infrastructure and capital projects or help bolster a beleaguered budget of just J$5 billion to fight the ogre of crime.

“Diaspora’s involvement – psychological, social, economic and even political – is much higher than it was 5 years ago. The Diaspora is becoming a transactional actor here,” said Liesi Riddle, a George Washington University professor.

According to the World Bank, around 250 million people, that’s around 3% of the world’s population live outside their native countries.

In 2015, people living outside their countries sent home around US$440 billion. These numbers may be fuelling Lee Chin’s enthusiasm for a Diaspora bond for Jamaica.

The Diaspora bond has proved successful for India. In 2007, the Government of Ghana issued a US$50 million ‘Golden Jubilee’ savings bond targeted at Ghanaians both in Ghana and the Diaspora.

Nigeria used Goldman Sachs and Stanbic as advisors on a proposed Diaspora issue in 2011 and Egypt announced debt certificates denominated in US dollars and Euros to address hard currency shortfalls.

Dave Grant of Prudential in New York told Loop News, “Diaspora bonds have their merits but Lee Chin must be made aware that they can be a high wire act. He has to ask himself, are Jamaicans in the Diaspora sophisticated enough, with enough financially savvy to get behind such a bond which more than likely will not be at a floating rate? The yields will have to be made attractive and will this put even more financial pressure on the Jamaican government which is already carrying a heavy debt load?”

“This bond is a one shot deal and it has to be well executed. If it is not and anything untoward occurs, the Diaspora will turn away from the Jamaican government. One good thing here is that Jamaica has a reputation for meeting its financial obligations and does not default.”

 

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