African governments facing falling levels of foreign aid are on a borrowing spree to pay for new roads, power stations and other infrastructure, prompting concern from many analysts that this could raise debt levels and undermine growth.
“It comes with some risks,” the director of the IMF’s African Department, Antoinette Sayeh, said on Monday. “Whereas what it costs the countries to issue these bonds can often look lower than what they would pay on domestic borrowing … the real cost in the final analysis will also depend on the evolution of exchange rates in the course of the life of the bond issuance.”
In 2007, Ghana became the first African beneficiary of debt relief to tap international capital markets, issuing a $750m 10-year eurobond. Since then, previously debt-burdened countries such as Senegal, Nigeria, Zambia and Rwanda have all joined in.
“In the last two years we’ve seen new issuers — Kenya issuing the largest amount of sovereign bond this year and Côte d’Ivoire, as well also having issued this year and then Rwanda last year,” said Ms Sayeh.
“In 2014 alone we’ve seen some $7bn already in sovereign bond issues, which is a record high for the region,” she added.
Tanzania is in the process of securing credit rating and plans to issue a debut eurobond worth up to $1bn in fiscal year 2014/15. Ethiopia aims to make its first foray into the international bond markets by January, while Rwanda is planning another sovereign bond.
Ms Sayeh said foreign investors were interested in sub-Saharan Africa’s “good economic prospects” and “sound macro-economic policies”.
“The increased possibility of issuing bonds for sub-Saharan African countries comes from the fact of lower returns on the global markets,” she said.
But local investors remained the biggest source of financing for African infrastructure projects, and there was “more room for private investments in infrastructure,” she added.
The IMF said on October 7 it expected sub-Saharan Africa’s economy to grow by 5% this year and accelerate to 5.8% in 2015 on infrastructure investments.
Rwanda is planning to offer longer-dated local debt and may sell its second eurobond as early as next year as its economy is set to grow faster than the regional average.
The dollar debt sale “won’t be this year”, Finance Minister Claver Gatete said in London on Monday. “We believe it can be 2015.” The government is deciding whether to make the maturity on next month’s Rwandan franc issuance seven years, the longest yet, he said.
Rwanda is transforming its debt market with more sales of local securities after the debut $400m international bond last year. The eurobond due May 2023 returned 11% this year, compared with the 9.5% average among 57 emerging markets tracked by Bloomberg indexes.
President Paul Kagame said in August the country may sell as much as $1bn in its second international offer. Mr Gatete said they are still working on details and declined to comment on the amount or what the proceeds would be used for.
Published on Bloomberg in October 2014
