Cheap finance “a thing of the past” in Africa, says consultancy
The Oxford Economics consultancy considers that “cheap funding is a thing of the past,” especially for frontier markets, which include Africa, which will face fewer lenders and more inflation.
In a note sent to investors, to which Lusa, the Portuguese news agency had access, the analysts wrote that “the world has changed and cheap funding of budgets in frontier markets is a thing of the past, in the current environment, African nations will face a smaller pool of investors in a context of galloping inflation and currency risks.”
The report on African countries’ financing conditions notes that despite the difficulties, African countries have “financing avenues” that are available and should be used to offset rising financing costs.
“We believe there are financing avenues that can be explored, including greater use of concessional financing options, preferably underpinned by a World Bank or International Monetary Fund initiative, and environmental, social and governance (ESG) bonds also offer a competitive price and support governance and accountability,” the report further reads.
The Oxford Economics analysts draw attention to the possibility of there being a funding shortfall due to a reduction in the liquidity available on international markets, in a context that, they warn, “is not favourable to good financing conditions for fragile African issuers, forcing nations that want to borrow to explore alternative financing options.
One such option, they note, is domestic debt, as Angola is trying to do, taking advantage of the launch of the stock exchange and the interest of foreign investors in the local economy due to the good momentum of macroeconomic conditions.
“The appetite for debt issued in local currency is increasing, in a context in which high inflation and exchange rate risks, such as uncontrolled depreciations, undermine attractiveness, on the contrary, investors anticipate a tighter monetary policy by the national authorities, which benefits the price of bonds,” the analysts write.
Oxford Economics, in its report on African countries’ financing conditions, also recommends that countries avoid taking on more commercial debt because “it puts sustainability at risk” and they argue instead that “African debt issuers need to explore cheaper options, including the concessional debt market or more targeted and growth-friendly instruments such as ‘green debt’ bonds.”
