Interview with Megan McDonald: COVID-19, African Capital Markets, and What Lies Ahead

COVID-19 Africa Watch talks to Megan McDonald of Standard Bank about the ongoing economic impacts of the pandemic, recent market developments, and the priorities for a robust recovery.


Key Takeaways

Below are a few of the main takeaways from COVID-19 Africa Watch’s conversation with Megan McDonald, who is the Head of Client Coverage, Wholesale Clients, at the Standard Bank Group.

  • Although the South African economy has been hard hit by multiple waves of COVID-19 and particularly the Delta variant, a more positive trajectory is now starting to emerge as its vaccine program (although delayed) gathers speed, and as the economy benefits from commodity price increases.
  • The economic effects of the pandemic have further increased African countries’ interest in developing their local capital markets, together with greater focus on ESG. As part of the recovery, several African countries such as Ghana are now looking to issue green and social bonds to raise finance. These countries need to make sure that the bond framework and the related processes adhere to international environmental, social and governance (ESG) standards. Meanwhile, investors interested in these instruments need to engage with issuers to ensure that bond proceeds are transparently deployed towards the ESG initiatives that were originally suggested, and to work with regulators to create the necessary regulatory framework that incentivizes issuance of these types of instruments.
  • Local currency markets are increasingly vibrant in Nigeria, Kenya, and Ghana, both from a sovereign and a corporate perspective. In Malawi, Standard Bank is currently working on a local currency, ESG-related bond. It is also partnering with the governments of Ghana, Angola, and Rwanda, in developing a robust local currency government bond framework and issuance program that can help accelerate and finance economic recovery.
  • African sovereigns are now re-entering the Eurobond market, following a dearth of issuance in 2020. The continent’s Eurobond issuance has grown by over 300% in 2021 compared to 2020.
  • There is still a need for much stronger international collaboration to overcome the effects of the pandemic: the world doesn’t recover until Africa recovers. Although Africa is helping itself and proving to be resilient, the global response urgently needs to turn its attention towards assisting developing countries. There is otherwise a risk of seeing a two-tier economy (and a widening gap between the developing and developed world). That gap could be narrowed, though, by creating a more cohesive and streamlined global response to COVID-19 that doesn’t leave anybody behind.

The interview was conducted by the Esi Monney with the Securities and Exchange Commission of Ghana, who is also an IFC-Milken Institute Capital Market Scholar. A transcript is available below.



Welcome everyone. I’m Esi Monney with the Securities and Exchange Commission of Ghana and a scholar of the IFC Milken Institute Capital Program. Today I’m delighted to welcome Megan McDonald, the Head of Client Coverage, Wholesale Clients at the Standard Bank. Thank you Megan for making time to have a discussion with us.

To get started, in many ways South Africa has been the hardest hit country on the continent due to COVID-19. How do you assess the economic damage, the policy response and the prospects for recovery? How has Standard Bank itself responded in South Africa since the start of the pandemic?

Megan McDonald

Thank you Esi and it’s great to have the opportunity to talk to you and everybody else. So thank you for inviting me. Your question around South Africa is a really pertinent one. It is one of the countries in Africa, as you mentioned, that has been hard hit by the COVID-19 pandemic. And we’ve seen a number of waves of infections and lockdowns and regrettably, obviously the human toll in terms of people who have succumbed to the virus. We saw the most severe impact from the pandemic during the course of 2020. We started to see in the first quarter of 2021 in South Africa in particular, an improvement. The lockdown was easing and the economy started to regain some of the ground that was lost in 2020.

However, I think a combination of the third wave and particularly the Delta variant, that one started to see emerge in South Africa during the first part of 2021, together with a delay in the rollout of the vaccine program in South Africa, combined to slow the momentum in the second quarter, that momentum that we started to see built in the first quarter of 2021.

Having said that, however, we are seeing a more positive trajectory starting to emerge because the vaccine program, although delayed, has really kicked off and gathered pace once it commenced. And so you’re seeing a large percentage of the older adults in the population having received already the second vaccination. We’re also seeing South Africa benefiting from the commodity price increases, and South Africa being an exporter of some of the key commodities, the economy is benefiting from that.

One of the challenges we have seen recently, which has perhaps impeded that momentum to some extent, is some of the unrest we saw in South Africa during the course of July. While very worrying on a number of fronts, it was short-lived and it affected mainly the retail space. For example, Eskom, the electricity utility, their infrastructure was not affected during the unrest that occurred. We see the effect of that being quite limited in terms of overall impact on the economy in South Africa this year.

From a Standard Bank perspective, we released our half year results just last week, actually. So our results for the half year ended 30 June, 2021. And one interesting statistic in those results is actually the strength in the rebound of our South African franchise. Our South African franchise, when compared to our businesses in other parts of Sub-Saharan Africa is actually showing the strongest growth. And so that bodes well for the rest of the year. I’m not by any means saying that South Africa is out of the woods, but we are starting to see some green shoots.


Turning to my country of Ghana, my government has recently announced that it will issue green and social bonds of up to $2 billion. Given that Standard Bank has worked hard to expand the market for this type of bond in Africa. What advice or insight would you have to share with governments contemplating this type of initiative? What advice would you have for investors?

Megan McDonald

I think it’s very exciting to see Ghana forging ahead in this respect. Advice in terms of the first part of your question for governments: I think our key advice would be to really try and make sure that in the bond framework and in the processes (the documentation and so on) that Ghana really tries to adhere to international environmental, social and governance (ESG) standards. There are many trends emerging, but also there are a number of internationally accepted standards and practices when it comes to issuing ESG related green bonds and the like. And so we would encourage Ghana to make sure that they set the best possible precedent in terms of adhering to international frameworks, because that will lay a really good platform for the rest of the issuers from Africa to follow.

In terms of your second question, or second part of the question I should say, what advice would we have for investors? And I think the advice for investors would be probably two-fold. One is to make sure that the investors are engaging with Ghana as the issuer to ensure that the proceeds of the bond are being deployed towards the ESG initiatives that are originally suggested. Some concerns that generally tend to creep in is when the funds are not deployed to the intended purpose and that doesn’t reflect well on the issuer or the investors. And I think the investors can work very closely with Ghana as the issuer to make sure that there is transparency around the use of proceeds and that the proceeds are deployed towards achieving some of the ESG related initiatives. Because again, that will create confidence in the integrity of these instruments and confidence in the markets, which will lend itself to more investment.

The final piece of advice for investors would be to work with regulators to create the necessary regulatory framework that incentivizes issuance in these types of instruments. Many of the investment frameworks for pension funds for asset managers are quite outdated in terms of the types of instruments that they contemplate that investors will invest in. And many of these pension regulations and so on and so forth require modernization to cater for these new asset classes.

So we’ll give you an example: green bonds listed in Kenya receive some sort of tax enhancement, so there’s a relief from withholding tax if asset Managers and pension funds invest these types of instruments. That’s creating the incentivization for investors to support issuers in this asset class. And so we would encourage investors to work with the relevant stakeholders to make the necessary modernization to the regulatory framework that will support investment in ESG related capital markets instruments.


Thank you very much Megan, that was very insightful. And now we turn our attention to Eurobonds. Ghana raised $3 billion in a Eurobond sale in April 2021. And in June 2021, Rwanda issued $620 million in 10-year bonds on the international markets. How do you view the African Eurobond markets today? What have we learnt so far, and what would we expect as the pandemic continues, especially if interest rates in advanced economies remain low?

Megan McDonald

Yes, and it’s lovely to see Ghana leading the charge again in the Eurobond space with that issuance that you mentioned and congratulations on the issuance in April 2021 from Ghana. It started a trend, I think in terms of a re-entry of African sovereigns into the Eurobond market. We saw a dearth of issuance in 2020 from African sovereigns in the Eurobond market, and that was mainly driven by concerns as the pandemic took hold across Africa, but also more broadly across the world. We saw a flight away from risk and a flight to perceived quality from global investors. Generally investors held back from investing in capital markets issuances from Africa. So very low levels of Eurobond issuance in 2020.

As you rightly point out, we’ve seen that rebound in 2021 with the issuance from Ghana followed by the issuance from Rwanda and we understand that these further issuance in the pipeline for the remainder of 2021. An interesting statistic is that Eurobond market issuance from emerging markets (of which Africa forms a part) has increased by approximately 11% year-on-year in 2021, compared with 2020. However African Eurobond issuance when one compares 2021 issuance levels with 2020, has grown by over 300%. So that is showing you that investors are now getting more comfortable again with the way that Africa is responding to the pandemic – with the prospects once again for Africa to hopefully recover from the pandemic and once again thrive in a post-pandemic world.

And so we are optimistic about the rest of the year in terms of seeing more Eurobond issuance from African Sovereigns. We think it represents an opportunity for African Sovereigns also to take advantage of the low interest rate environment that you mentioned globally, and for them to come back to a market that they probably shied away from in 2020.


Related to my previous question, Standard Bank has been a big proponent of local capital market development in Africa, in part so that countries can reduce their reliance on external debt to finance national development priorities. What are the most interesting trends you have seen in this area in the past? How has COVID-19 affected local capital market development in Africa, and what gives you hope for the months ahead?

Megan McDonald

Great question. Thank you. Yes, we at Standard Bank are firm believers in the importance of the development of sustainable capital markets in Africa. And never before has the case been as strong as what we saw happening during the pandemic, where (as we all tried around the world to get to grips with what this pandemic meant) many countries and many investors retreated away from foreign currency markets, away from funding African sovereigns, for example, as we recently spoke about in foreign currency. Because it was the dual combination of credit risk and currency risk against the backdrop of a global pandemic, which probably represented a step too far for investors – and that’s why one saw a death of issuance in 2020.

That reinforced the case for the need to have vibrant, well-operated and deep, liquid capital markets in Africa from a local currency perspective. And never before have we seen such a strong case emerging once again. And the interesting thing for us is the emergence now of a focus on ESG combined with local currency in African capital markets. So for example, in Malawi, we are currently working on an ESG related bond denominated in Kwacha. And that’s a very exciting development for a capital market like Malawi, in terms of the next stage of evolution. And it’s the combination of these two factors (ESG as well as local currency) which lend themselves so well to supporting the growth and development of capital markets in Africa.

We’re also seeing vibrant local currency markets in Nigeria, in Kenya, in Ghana, both from a sovereign and a corporate perspective. In South Africa, we’ve seen a number of ESG related bonds or social bonds, green bonds from, from issuers right across the spectrum. And we’re also working with sovereigns, we’ve worked incredibly well with your government, the government of Ghana, in terms of developing a robust local currency government bond framework and issuance program. And a number of other issuers, Angola, Rwanda for example. We’re working with them to create a similar improvement in the depth and the liquidity of the local currency government bond markets, because we firmly believe that is the anchor of a well-formed and a sustainable capital market going forward.


Thank you very much, Megan. How do you and your colleagues at Standard Bank view global trends right now in terms of the economic recovery and the resilience of the global financial markets?

Megan McDonald

We are increasingly optimistic about Africa’s revival and recovery in a post-COVID-19 world. But we’re also not naive in the sense that we don’t see challenges. I think one of the key concerns that we have is, we still don’t believe that there is a good enough combined and coordinated global response to tackling not just COVID-19 itself, the vaccine roll-out for example, but also how to rebuild the global economy in a post COVID world.

“The world doesn’t recover until Africa recovers.”

And what worries us is there is a great focus from developed economies and developed countries on their own markets. And of course, one needs to look at home first, but what we would love to see going forward is more of a coordinated global response in terms of how developed economies (once they’re back on their feet and all the indicators are that they’re moving in a positive direction, the US, the UK, Europe, China, for example), that there would then be some attention given to supporting developing economies like Africa with vaccines, because we still know many countries in Africa are grappling with COVID-19. Uganda, for example, is in the grip of another wave, which is devastating for people and for the economy. Many countries still need assistance with vaccine supply and rollout.

And the world doesn’t recover until Africa recovers, I think. And so we are positive on the one hand (we’re seeing lots of improvement where Africa is helping itself, as Africa has proven to be resilient in the face of these crises), but we also hope that the global response will turn its attention towards assisting developing countries and that we won’t see a two-tier economy, that gap between the developing world and the developed world widening. In a post COVID world, we would want to see that gap narrowing and to take advantage of the opportunities to work more virtually, to go beyond national borders and the like, to create a more cohesive and streamlined global response to COVID-19 that doesn’t leave anybody behind.


Thank you, Megan. This has truly been a wonderful session. The Milken Institute and I would like to thank you for taking the time to share these wonderful insights on this topic. Please keep up the good work. Good bye and stay safe.

Megan McDonald

Thank you so much. It’s been a privilege for me to talk to you and you will keep up the good work along with Milken. This is a fantastic program and I wish you all well in your further studies.

via COVID-19 Africa Watch
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