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Here’s a statistic
you may not be aware of: about 50 percent of the world’s uncultivated,
arable land is in Africa. This abundance of potential farmland offers
Africa the opportunity to feed itself and to help feed the rest of the
globe. But consider another statistic: Because of poor roads and a lack
of storage, African farmers can lose up to 50 percent of their crop
just trying to get it to market. In other words, Africa needs not only
greater investment in agriculture, but also in roads, ports and other
facilities that are vital to moving the land’s products to consumers.
Fortunately, part of the solution could lie with the almost 23 million
African migrants around the globe, who together have an annual savings
of more than $30 billion. Tapping into this money with so-called
diaspora bonds could help provide Africa with the equipment and
services it needs for long-term growth and poverty reduction. These
diaspora bonds would be in essence structured like any bonds on the
market, but would be sold by governments, private companies and
public-private partnerships to Africans living abroad. The bonds would
be sold in small denominations, from $100 to $10,000, to individual
investors or, in larger denominations, to institutional and foreign
investors.

Preliminary
estimates suggest that sub-Saharan African countries (excluding South
Africa, which doesn’t have significant emigration) could raise $5
billion to $10 billion a year through diaspora bonds. Countries like
Ghana, Kenya and Zambia, which have fairly large numbers of migrants
living abroad in high-income countries, would particularly profit from
issuing diaspora bonds. There are precedents for such moves. Greece
announced this week that it was preparing to issue $3 billion worth of
diaspora bonds in the United States. India and Israel have issued
diaspora bonds in the past, raising over $35 billion, often in times of
financial crises.

Why would diaspora
bonds work so well? For one thing, the idea taps into emigrants’
continuing patriotism and desire to give back to their home countries.
And because diaspora populations often build strong webs of churches,
community groups and newspapers, bond issuers would be able to tap into
a ready-made marketing network.

Another advantage
of diaspora bonds for African countries is that migrants make more
stable investors in their home countries than people without local
knowledge. They’re less likely to pull out at the first sign of
trouble. And they wouldn’t demand the same high rate of interest as a
foreign investor, who wants to compensate for the risk of investing in
what would seem to them like a relatively unknown developing country.
Diaspora bonds could also be issued in the local currency, as migrants
are likely to be less averse to the risk of currency devaluation.
That’s because members of the diaspora have more use for local currency
than foreign investors; migrants can always use it when they go back
home or for family-related expenses. Take, for example, an African
living in the United States who now earns an annual interest rate of
less than 1 percent on small deposits; a diaspora bond with an interest
rate of about 5 percent certainly might seem attractive. To make the
bond even more appealing, the countries the migrants reside in could
provide tax breaks on interest income. Donor or multilateral aid
agencies could also offer credit enhancements in the form of partial
guarantees, to mitigate default risks.

Even more money
could flow into Africa if countries tapped into the billions of dollars
that members of the diaspora send home each year by using those
remittances as collateral to raise financing from international
markets. This approach has allowed banks in several developing
countries — including Brazil, Egypt, El Salvador, Guatemala,
Kazakhstan, Mexico and Turkey — to raise more than $15 billion since
2000.

Here’s how this
works: when a migrant transfers foreign currency to a relative’s
creditworthy bank in his home country, the bank pays out the remittance
from its holding of local currency. That transaction creates a foreign
currency asset equivalent to the size of the remittance, which can be
used as collateral for borrowing cheaply and over the long term in
overseas capital markets. Such borrowing has no effect on the flow of
money from migrants to their beneficiaries. Yet development banks,
national banks in developing countries and donor agencies can partner
to harness enough remittances and create enough collateral to raise
significant sums of money to invest in agriculture, roads, housing and
other vital projects. The people of Africa are scattered around the
globe, but many still feel a powerful sense of belonging to the
continent. Through diaspora bonds and remittances, they could create a
better future for their homeland.

(Ngozi
Okonjo-Iweala is the managing director of the World Bank. Dilip Ratha
is the manager of its Migration and Remittances Unit.)