Why African Bank Is Developing Peace Bonds And What They Do, An Economist Explains

Peace bonds are an investment instrument designed to raise funds for peace and security-related activities, including mitigation or prevention of escalation in African regions, as well as post-conflict reconstruction, Sylvester Kwesi Dadzie, economic and financial analyst, told Sputnik Africa.

SIIBs function just as any other listed, asset-backed security, at the end of the holding period of which the holder is entitled to his stake depending on the terms of issue. What makes peace bonds unique, the economist noted, is that their goal is to facilitate solutions to the problems of achieving peace so that the savings of African states will be invested in economic projects.

"What makes [a peace bond] special is the fact that it is kind of targeted purposefully for peace-related issues. And it is very important because at present governments are sacrificing funds meant for developmental projects to some of the true peace-related issues of which you impoverish a lot of countries," the economist said. "Finance is the bloodline of development, every aspect of development."

Kwesi Dadzie cited the earthquake in Morocco and instability in Ethiopia last year as examples of this shift in the funding priority, where governments were "forced" to divert funds intended for economic development to disaster management. In this vein, the analyst suggested, SIIBs are "necessary because they generate funds specifically for such uncertainties".

In addition, peace bonds will help to resolve already existing conflicts on the continent as they will provide funds for mediation, the economist said.

"It will help to tackle such issues in the sense that there will be enough resources to mediate conflicts that already exist on the continent, to try to resolve them [...] So [a peace bond] is a unique vehicle for that. And I think it's a great initiative from the African Development Bank," Kwesi Dadzie said.

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Peace bonds can also play a significant role in preventing conflict on the continent, the economist believes.

According to him, this investment instrument will allow for a "right detailed assessment" of ethnic tensions before they escalate into full-scale conflict and help resolve some of the controversies.

"Most of the tensions could be tackled before they reach full-blown conflict," the analyst stressed. "And also, it will help in post-conflict reconstruction which will also bring economic development and sustainability."

Post-conflict reconstruction, in turn, will help deal with the already ongoing conflicts in many regions of the continent, and will lead to an increase in foreign direct investment, the expert reckoned.

However, the economist warned that the African Development Bank should be careful not to raise the issue of moral hazard, as African governments can take advantage of the bonds to fight political opponents "in the name of retooling of finances security through police and all the security agencies."

On Monday, the African Development Bank's chief Akinwumi Adesina announced that the bank aims to raise at least $5 billion from international financial markets through such bonds by 2030.