Just one year after a total of $50 billion in debt relief was granted to many African countries as part of the G8 summit at Gleneagles in Scotland, several African sovereigns are actively considering accessing the international debt markets.
Some deals might even be done before the end of this year. “I know two or three sovereigns that are actively considering coming to the market,” Francis Beddington, head of research, central and eastern Europe, Middle East and Africa, at Standard Bank, told analysts and investors at the annual Emta summer forum held in London. Others, he said, were looking at a six-month to 12-month timescale.
Although the debt relief package that many countries have received means that it is theoretically difficult for them to access the international debt markets in the near future, analysts argue that once the process is concluded, there is little to prevent them from returning to market. “Once the debt is written off, the conditionality becomes less important,” Beddington said.
Such countries as Botswana, Egypt, Ghana, Tanzania and Zambia are best placed to consider tapping the international debt markets, analysts say. Some, however, such as Botswana, have been focusing on developing their domestic yield curves, and so might not be in an immediate rush to issue internationally.
In Ghana, foreign investors have been excluded from investing in local treasury bills and bonds, but a bill has been submitted to parliament to allow local-currency debt investments with three-year maturities to be opened up to foreign investors.
“Many of these markets are not new, it is just that investors had not found out about them before,” said Beddingon. “Kenya has been issuing [local currency debt] for 20 years.”
Some analysts, though, argue that the African countries should be focusing more on developing their domestic markets further. “Sovereign debt is not extinct, but it is an endangered species,” says Arnab Das, head of emerging markets research at Dresdner Kleinwort. This is part of a more global emerging markets trend away from hard-currency debt to local-currency issuance.
One possible solution for smaller African sovereigns that are eager to raise money abroad, but would struggle to sell a big enough deal to bring investors the liquidity they require, is to join together and issue under the auspices of a larger institution, such as the African Development Bank. “For many African countries, a $100 million transaction makes more sense than a benchmark size,” says Beddington.
Some, though, are more wary. “Jumpstarting financial flows through financial engineering might be premature,” argues Das.
