Despite predictions to the contrary, Africa’s sovereign bonds have been performing well and the appetite for them seems to be growing. But can this appetite for African sovereign debt be maintained or will it peter out as alternatives become more attractive? Peter Guest discusses.
A decade ago, a debate raged over whether African countries should be let off their historical debts to the international public sector.
Today, many are graduating from concessional finance onto the capital markets as they look to fund their huge needs for investment into infrastructure and services. Kenya took the continent’s largest ever Eurobond – a $2bn issue – to market earlier this year, following Nigeria, Senegal, Rwanda, Ghana and Zambia, who all raised money over the past 18 months.
Côte d’Ivoire, which defaulted on $2.3bn worth of bonds during its 2011 political crisis, also came back to market in July, defying analyst predictions that the ‘tapering’ of the US Federal Reserve’s programme of quantitative easing would end investors’ push into frontier debt.
“I think the assumption that it’s all going to come to an end belies a scepticism and pessimistic view of Africa, which is that anything that’s good that can come out of Africa can only last a day or two and never be sustainable,” says David Makoni, head of Africa credit at Stanlib Asset Management.
“The reason why you haven’t seen the level of issuance petering out is that there are positive fundamentals at play, driving that both on the supply side and the demand side.”
Makoni believes that it is a newfound bullishness about African markets, prompted by their strong growth that is bringing investors into the asset class. The ‘Africa Rising’ narrative of stronger macroeconomic management, more stable polities, structural reform and improvements in the domestic business environment has percolated into the mainstream markets’ consciousness.
“You are seeing the rest of the world taking a keener interest in Africa and beginning to see Africa as more of a viable business proposition than it was before. Clearly that will trickle down to how investors allocate capital,” he says.
“The growing interest comes from a more positive shift in mainstream perspectives on Africa, and obviously investors seeing that things really are changing on the ground in Africa. Yes, there are setbacks from time to time. Yes, things could happen quicker and changes could be more brisk, and the level of structural reform could happen with greater vigour, but the fact is it is changing, if you look back at the last 15 years, for the better.”
Sub-Saharan Africa’s aggregate growth story remains undimmed, despite individual concerns around the stability of some of the region’s leading lights, including Ghana and Zambia. Security concerns and the spectre of Ebola have cast a shadow over Nigeria’s ascent as the largest economy on the continent.
The International Monetary Fund forecasts that sub-Saharan African gross domestic product growth will rise from 5% in 2013 to 5.5% in 2014, underpinned by investments in infrastructure, mining and technology and a rebound in agricultural output.