The Emerging Emerging Market

The global credit crunch has shaken the kaleidoscope of the world economy. As sub-prime lending problems ricochet around the world, capital is seeking new places to grow. And it is looking farther afield than ever before -- not just to the well-established emerging economies of China or India, but to "emerging emerging" markets in Africa.

Earlier this month, Nigeria concluded a government debt issue at 7% -- and was seven times oversubscribed. Ghana recently issued a $750 million, 10-year dollar bond at 8.5% and was $3 billion oversubscribed. The premium you receive for investing your cash in Lagos rather than in New York is just a paltry few percentage points. The rules of the game are changing.

Their success has been driven by getting the fundamentals right. Nigeria has benefited from banking and pension reform, a crackdown on corruption, debt relief based on sound fiscal policy and the high oil price. Perhaps more remarkably, Ghana has achieved its success without oil windfalls. A strong technocratic team in the top ministries has pushed through a homegrown reform program which has rationalized the electricity sector, led the development of a domestic debt market, and freed up capital controls. There is nothing to stop the rest of Africa following this lead. And the signs are encouraging: The IMF expects sub-Saharan Africa to grow 6.1% in 2007 and 6.8% in 2008.

The World Bank recently announced the creation of a Global Emerging Markets Local Currency Bond Fund, designed to help emerging economies to attract more investment by developing their local currency bond markets. Clearly, reaching the Millennium Development Goals for sub-Saharan Africa cannot be achieved by the public sector alone. Africa needs to create jobs not dole queues, entrepreneurs not bureaucrats, sustainability not dependence.

An increasing number of African governments understand the importance of sound fiscal and monetary policies after years of austerity to qualify for debt relief. For example Ghana, Nigeria and Zambia are now well-placed to avoid the pitfalls which characterized bond market entries among politically and economically less mature emerging economies in other regions. Government bonds do much more than simply raise money for the state: They also help private businesses get access to much-needed capital. Government dollar bond prices give a clear picture of the perceived risk of lending to the government. They also allow the market more confidently to measure the risk of corporate bond issues as a spread above the government bond yield.

It is equally important to develop Africa's local currency bond markets. In the short term, though, these markets should expand only in line with the development of local institutions to avoid exchange-rate instability. Donors have particularly important roles in institution-building to help governments issue dollar bonds and speed up the process of deepening local markets and developing good market governance. Bond markets would introduce a new type of real-time, market-based accountability in Africa, which would help the continent move away from economic planning by fiat, so many years after the demise of Soviet five-year plans.

Channeling some of our aid into developing African bond markets would increase local entrepreneurs' access to capital, empower maturing African governments while establishing new means of accountability. It would also give Western taxpayers greater value for their money and better help poor Africans.

Mr. Mitchell, a member of the British Parliament, is the shadow secretary of state for international development and a director of Lazard.