African countries tipped on issuing international bonds

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While favourable growth drivers remain largely intact and ongoing institutional reform efforts across the continent support creditworthiness, experts on , May 20 at the ongoing Annual Meetings of the African Development Bank (AfDB) in Kigali cautioned that tightening global credit conditions threaten to dampen the region's budding international issuance prospects.

During an interactive session on international Bond Markets co-sponsored by the AfDB and BNP Paribas, the panel of experts underscored that though the outlook for Sub-Saharan Africa remains largely stable with favourable growth prospects, there are downside risks largely stemming from uncertainty within the global economy.

In his remarks, Konrad Reuss, the Managing Director, South and Sub-Saharan Africa, from Standard & Poor’s ratings agency, said while it is now relatively easier for African countries to raise money on the international market in comparison to 20 years ago against the backdrop of strong investor appetite, emerging challenges in the global market pose significant risks to this positive development.

He specifically cited the US tapering as the US unwinds its monthly bond purchases that could lead to higher interest rates by next year.

“Going forward, there is a different global backdrop – this is about tapering and risk re-pricing.

It will be a different game. I think what is going to happen going forward is a lot more risk differentiation in the rating,” Reuss said.

The year 2013 saw the highest issuance from Africa in the international debt markets and included a number of debut sovereign transactions coming to the market. For example, Rwanda’s inaugural international bond recently won Euromoney’s “Africa Deal of the Year” and Rwanda was able to fund important projects at historically low yields.

Rwanda’s Finance Minister, Ambassador Claver Gatete, said following the successful debut issuance, the country now plans to mobilize long term resources on the international market in future as it seeks to reduce its dependency on aid.

“We are saying our economy has to growth and if it has to grow we have to get money – this cannot be a one-off instead it is the beginning for a long journey for us to be to continue to rely on the market and as our credibility continues to improve – we believe we can get cheap money,” Gatete said.

He added that the country is focusing on sustaining impressive economic growth, maintaining macro-economic stability, improving the doing business environment in order to attract more investors.  

“We have to make sure that we sustain [economic growth] – we do not want to disappoint them [investors] because we need them.

They are good partners for the future because if we have to graduate from donor dependency we have to make sure we have an alternative that is based on the credibility of our economy,” he said, underscoring Rwanda’s ambition to be self-reliant.

Rajiv Shah, the Director, CEEMEA Debt Capital Markets, at BNP Paribas said investors are increasingly targeting Africa for the long term investment.  

“The stage is now set where investors are looking for new areas to invest. They are looking at high growth countries in particular with what is going on in Russia at the moment.

We are seeing investors looking away from Russia and looking at other regions such as Africa and this is technically supporting the demand for Africa,” he observed, adding that issuance from financial institutions and corporates should increase over the next couple of years to take up that demand.

However, Carmen Altenkirch, Director, Sub-Saharan Africa, Fitch Ratings said the risk for African countries now is that they may have to roll over their debt at a time when market access is more difficult or when a country is going through its own domestic challenges citing the East African nation of Kenya as an example.

Pierre Van Peteghem, Group Treasurer, AfDB, underscored the Bank’s commitment to enhance bond issuance and catalyze the market by providing technical assistance in infrastructure, capital markets and domestic issuance among others.