North and sub-Saharan Africa countries raised $8.1 billion bonds in the last one year, the largest ever amount of hard currency from international capital markets.
A report by Financial Times (FT) said the bond issuance record set in 2010 has been broken by this year’s feat.
Egypt and South Africa have issued the largest share of United States’ dollar bonds so far this year in Africa, with smaller contributions from Ghana, Nigeria and Rwanda.
Moody’s, the credit rating agency, said the raised fund is above the previous record of $7.2 billion set in 2010 for the whole year and far above the $1.2 billion they raised from bonds a decade ago.
It said although the issuance has increased substantially, the size of the international bond market in Africa remains small. Moody’s put the total stock of government and corporate debt in hard currency at 3.7 per cent of the size of the African economy, compared to 11.3 per cent in Latin America and 5.1 per cent in Asia.
The record issuance comes as the World Bank warned that Africa’s economic outlook could suffer due to the impact of higher global interest rates arising from the “inevitable” tightening of monetary policy in developed countries.
“The search for yields among investors has supported strong capital flows to developing countries in recent years, including sub-Saharan African countries,” the Washington-based body said in its semi-annual report on the continent, adding that a “disorderly increase in interest rates”represented an economic risk.
African officials and some investors are worried that an increase in interest rates in countries such as the US would reduce the significant portfolio inflows that nations including Kenya and Nigeria have seen in their local securities markets.
But Aurelien Mali, a senior analyst at Moody’s, told FT that the African region had shown considerable resilience to financial shocks.
“We expect that investors’ interest for the region will be sustained given the strong macroeconomic growth outlook for Africa, which we estimate to average five to six per cent over the next five years,” he said.
The JPMorgan Nexgem Africa index, which tracks the bond market in the region, is yielding 6.8 per cent, down from a peak this year of 7.9 per cent in late June when fears about the direction of Fed policy drove rates higher. But the index is up from a low-point in January of 5.3 per cent. Yields move inversely to prices.
Moody’s anticipates that six new African countries will debut in the international capital markets with hard currency bonds within the next few years: Angola, Cameroon, Kenya, Tanzania, Uganda and Mozambique.
“We see significant potential in Africa for increasing the use of international capital markets in the medium to long term,” the rating agency said in a report.
“African sovereigns will probably lead the region’s bond issuance, and we believe this will promote further international issuance by government-related institutions,” Moody’s added, saying that state-owned, strong utility companies could use the yield on any existing government bonds as a benchmark for their own issuance.
Africa showed up on foreign fixed income investors’ radar first in 2001, when Egypt issued its first global bond.
South Africa, Tunisia and Morocco had earlier tapped the international capital markets in small amounts. The region’s attractiveness increased after the Seychelles and Ghana became the first sub-Saharan African countries outside South Africa to issue bonds in 2006 and 2007, respectively.
