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“We’ve experienced a significant number of external shocks that culminated in the debt restructuring cases we are now working on, but the remaining countries in Africa that have Eurobonds should not enter into Financial Default. We believe that phase is behind us,” said asset manager Yvette Babb of William Blair, in The Hague.
After Ivory Coast and Benin, attention focused on Kenya, where the transaction completed in February could pave the way for Nigeria and Angola to return to the markets, considered by economist and asset manager Kaan Nazli of Neuberger Berman, who also believes that South Africa may return to debt issuance for the first time since April 2022.
In the last two years, Sub-Saharan African countries faced interest rates above 10% if they wanted to issue public debt in international financial markets, which in practice excluded them from accessing financing due to the cost of interest, reflecting the risk assigned by investors to the operation.
Ivory Coast was the first country to risk a return to the markets, in January, after nearly two years during which no country below the Sahara wanted to issue debt, despite the region’s significant financial needs.
Abidjan took a risk and ended up issuing $2.6 billion, about €2.4 billion, at an average interest rate of 8.5%, receiving bids worth $8 billion (€7.3 billion), and following this issuance, Benin also ventured into the markets, paying 8.3% for an issuance of $750 million (€693 million), for which it had offers of $5 billion, over €4.6 billion.
Despite both countries having a rating below Moody’s investment recommendation, investors showed confidence in their ability to service the debt, encouraging Kenya to also take a risk by going to the markets, not only to issue new debt but also to refinance old debt maturing this year, contributing to fulfilling Goldman Sachs’ forecast, which estimates that Sub-Saharan African countries will issue about $4.5 billion, nearly €4.2 billion, this year.
“After the continent spent part of last year trading as a market in over-indebtedness, market indicators show that fears of other nations, beyond Ghana, Zambia, and Ethiopia, entering into default [failure to pay] is a thing of the past,” writes Bloomberg.
The over-indebtedness recorded in recent years resulted, in most cases, from a confluence of factors that included the COVID-19 pandemic, the war between Russia and Ukraine, difficulties in importing grains, and rising central bank interest rates, in addition to an increase in inflation and a reduction in economic growth that translated into an inability to honor external financial commitments.
However, despite ongoing difficulties, market sentiment seems to have changed, also thanks to the support the International Monetary Fund (IMF) has given to the region, where half of the countries have a program and to which the Fund has already channeled more than $50 billion, over €46 billion, between 2020 and 2022, more than double what it mobilized in any decade since the 1990s.
“Yes, there are countries in Africa that are suffering from a high level of debt, but it is not a universal problem, it is not a systemic crisis, and it is important that this is said,” stressed Kristalina Georgieva at a meeting with journalists, in early February.
