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Africa: Sovereigns weigh the price of diversification

African countries’ ability to access diversified funding is becoming more important. Deepening the local-currency bond markets is essential, but is the price worth paying? And are development organizations doing enough?

Over the past 18 months, African sovereigns have come on to the international community’s radar – for all the right reasons. Successful Eurobond issues have brought previously unknown – often obscure – African credits to the forefront of emerging markets investments.

There are now an impressive 11 sub-Saharan African countries in JPMorgan’s Emerging Market Bond Index: Angola, Côte d’Ivoire, Gabon, Ghana, Mozambique, Namibia, Nigeria, Senegal, South Africa, Tanzania and Zambia. All of them have raised at least $500 million on the bond market.

"This is an exciting period," says Jan Dehn, head of research at Ashmore Group, an emerging markets investment manager. "We are seeing a whole new generation of countries embarking on capital market development."

Sub-Saharan African credits have become a permanent fixture for large institutional funds. African credits are, perhaps for the first time, becoming institutionalized.

One of the main ways to be recognized at the international level is by issuing Euroclearable dollar debt, says Basile Guy Tossou, portfolio manager and trader of emerging markets debt at FFTW, a BNP Paribas owned fixed income asset manager. "In most cases it’s a lot cheaper to issue dollar debt for borrowers as interest rates can be cut by half in some instances compared with local-currency bonds.

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