Investor interest in bonds, such as Côte d’Ivoire’s, “reflects that there is this very strong yield-hungry investor from developed economies that are willing to buy into all sorts of assets,” says Angus Downie, head of economic research at Ecobank capital.
“The [investor] roadshows have visited the UK, the US and Europe from the African sovereigns, and these yield-hungry investors are still out there, because they have these long-term liabilities that they have to offset. The pension funds, the insurance companies, they have to have some sort of pickup in order to meet these liabilities and the only way they’re getting it at the moment is from the high-yielding assets.”
The bonds’ scarcity has also had an effect. According to Standard Bank’s estimates, despite a 34% compound annual growth rate in sub-Saharan African sovereign issuance – outpacing the wider market for emerging market debt – the region still only accounts for around 5% of total emerging market Eurobond volumes.
“There hasn’t been a lot of it going around over the last few years,” says Megan McDonald, global head of debt capital markets at Standard Bank. “That scarcity factor is also adding to the interest that we’ve seen on international capital markets for Africa.”
Investor interest in bonds, such as Côte d’Ivoire’s, ‘reflects that there is this very strong yield-hungry investor from developed economies that are willing to buy into all sorts of assets’
The volume of interest – all of the sub-Saharan African sovereign bonds issued over the past 18 months have been several times oversubscribed – has allowed them to drive down the rates they pay. Côte d’Ivoire, in particular, seemed to get a good deal, paying 5.625% on its 10-year issue.
Although the end of the boom has been forecast incorrectly once before, analysts are questioning how long it can last. “There comes a point where you ask: can we sustain these low yields when at the same time you have US interest rates rising next year?” says Ecobank’s Downie. “I don’t think you can, and I expect you might see some fallout.”
Standard Bank’s McDonald agrees, although she believes that due to the rarity of African debt, the implications will not be too severe.
Perhaps more importantly, there are serious domestic concerns in important markets, in particular Ghana, which was the poster boy for Africa’s economic renaissance – a stable democracy with an economy that had potential for growth and diversification.
It issued its second Eurobond in 2013 and third in September 2014. However, Ghana’s macroeconomic management has been severely questioned by the market over the past year.
In 2010, the country introduced a new wage structure for civil servants – one of several expensive populist measures ahead of elections in 2012 – which increased the wage bill by 47% over the following two years. By 2012, salaries consumed more than 70% of tax revenues and the country’s fiscal deficit had spiralled to 11% of GDP.