Frontclear’s development impact is increasingly centered around building inclusiveness and liquidity in domestic money markets through the Tradeclear Umbrella Guarantee Facility platform. In a recently released report, Frontclear shows how these markets are fundamental to the overall ability of a financial system to fund economic growth, poverty reduction and the transition to a green economy.
Following the launch of the Tradeclear facility in Uganda, Frontclear has a strong pipeline in a number of other countries. The long-term vision is to connect local markets via a global trading platform that will bring resilience and strength to emerging and frontier financial markets. The technical assistance required to ready a local market to implement Tradeclear is resource intensive and includes a review of the monetary policy and central bank operations using the Money Market Diagnostic Framework, the review and reform of the legal and regulatory environment and an assessment of and improvement to the local clearing and settlement infrastructure.
New strategic partnerships, such as the unique collaboration with United Nations Economic Commission for Africa (UNECA) in 2022, are needed to improve domestic market resilience through Tradeclear and other initiatives.
“Financial sector liquidity is an important part of the implementation of the African Continental Free Trade Area (AfCFTA). If we want a common market with African trade interaction, it will be crucial to align financial markets as it is the means to boost cross-border trade. There is a strong rationale to develop interbank markets, even more so in today’s context that is plagued by liquidity problems. Our countries, our continent, needs to build its own resilience,” said Sonia Essobmadje, chief for Innovative Finance and Capital Markets at UNECA, cited in the report.
At the same time, Frontclear is increasingly playing an outsized role in larger emerging markets. With the risk-off environment expected to remain in the medium-term and with many global banks retreating from both emerging and frontier markets, a core focus in 2023 is to expand Frontclear’s principal counterparty structure to facilitate onshore-offshore transactions.
The principal counterparty model not only provides market access for frontier market participants to global markets, but also provides an efficient means for offshore counterparties to access frontier markets and thus facilitate foreign investor access to local currency and hedging instruments. Such access will be critical to support economic growth in the future as well as to support key global priorities such as green finance.
Philip Buyskes, Frontclear’s chief exec, was cited in the report as saying: “2022 saw Frontclear’s outstanding guarantee portfolio increase 34% to $278 million at year-end 2022, from $206 million at year-end 2021. This growth is largely attributable to both the addition of 13 new countries (with 31 new obligors) through the first $67 million portfolio guarantee issued in December 2022 and the closing of the first Tradeclear market wide platform in Uganda. The portfolio guarantee has been key to achieving a business objective of better diversification of the portfolio, with the number of countries in the portfolio increasing from 10 to 27 in a single year.”