African Countries: Taking the Easy Way Out?

In recent years, most African countries have turned to the international debt capital market to satisfy their funding needs while turning a blind eye to the cheaper but stricter loans by supranational organizations.

As at the start of 2019, 20 African countries have tapped into the Eurobond market, bringing the total outstanding African sovereign Eurobond to $92bn with over 50% of the Eurobonds with yields above 7%.
This action has led to various criticism by Economic watchdogs (World Bank and IMF) amid fears that most of the countries in the region might be taking the easy way out and neglecting the long-term risks to rising external borrowings.

Despite the criticism, African countries do not seem to be slowing their appetite for the relatively less stringent capital. According to recent reports from Bloomberg and Reuters, Kenya is set to become the fourth African country to issue Eurobonds in 2019 as it recently embarked on a Roadshow to sell its new 12-year and 31-year note, trailing the likes of Ghana, Egypt and Benin that had successfully raised a total of $7.6bn in Q1-19.

In our view, we allude more to the views of the IMF and World Bank that African sovereigns need to look inwards to grow revenue and reduce their rising fiscal deficit. With that said, we opine that funds raised in the capital market should be tied to capital projects with matching funding maturity.

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May 10, 2019