As they talked in Nairobi in the second week of May, African bankers and finance ministers attending the African Development Bank meeting faced a major problem: the drying up of Euromarket lending to Africa. For many African countries, Eurocurrency loans had become an important means of funding current account deficits.
The source is dwindling. Syndicated loans to African borrowers totalled $5 billion in 1982, a drop of $2 billion from the year before. Euromarket borrowing declined more drastically in the first quarter of 1983, with the signing of only 17 loans worth $609 million.
At a time when the syndicated loan market has been contracting worldwide, Eurobankers have needed little prompting to close their doors on African borrowers, many of which rank among the world's least solvent countries. Eleven of them have recently rescheduled foreign debt or are in the process of doing so: Central African Republic, Liberia, Madagascar, Malawi, Sierra Leone, Senegal, Sudan, Togo, Uganda, Zaire and Zambia.
Three of Africa's biggest borrowers are possible candidates for rescheduling this year: Nigeria, Morocco and Ivory Coast, which together owe $35 billion. Other candidates include Kenya, Tanzania, Mozambique and Ghana. (For analysis of the Nigerian economy, see "Nigeria on the brink", Euromoney, April 1983.)
Bankers polled by Euromoney believe that only six African countries can still borrow by a traditional syndicated balance of payments loan: Algeria, Cameroon, Tunisia, Botswana, Gabon and Libya. And three of these favoured countries, Botswana, Gabon and Libya, are unlikely to borrow in 1983. However, several other African countries can still tap the Euromarket for project finance on a club basis, as long as the circumstances are favourable for foreign banks. If part of the loan is export credit guaranteed, or if the project contractor is an important customer of the lending bank, foreign banks are more likely to join a project loan.
No African country's creditworthiness has fallen more spectacularly in the last year than that of Ivory Coast. Up till last August, it borrowed regularly and easily on the syndicated loan market. On August 16 Bankers Trust won a mandate to raise $150 million. Two days later, Mexico announced that it would reschedule, and all sovereign lending received a knock. The Ivory Coast deal was no exception and in the end only $123 million was raised.
Bankers were also alarmed by the debt service ratio of 34%, and the news that oil reserves were less than expected. But the market's reluctance was not justified by any sudden turnabout in the Ivorian economy, which remained under the aegis of an IMF programme.
According to the 1983 Ivorian budget, the country will seek commercial bank loans of $183 million this year. A few banks are still prepared to lend on an export-related project basis. They point to the efficiently managed and diversified cash crop sector, and to the likelihood of oil exports starting later this year. "France wouldn't let Ivory Coast reschedule, it's the jewel of French West Africa," said an optimistic banker. "It can continue to borrow from the French Treasury, via the Banque Centrale des Etats de l’Afrique de l'Ouest."
But other bankers are less confident that French indulgence is unlimited. Some banks will not lend any more to Ivory Coast. Inflows of new Eurocurrency funds have fallen to a trickle this year. If more banks hold back new lending, a rescheduling could be precipitated.
Morocco is another country which some bankers have tipped for rescheduling in 1983. Morgan Guaranty predicts that 65% of this year's export earnings will be used to service Morocco's $10.3 billion of foreign debt. Conservative Arab countries are expected to chip in over $1 billion of aid, but that may not suffice to cover the current account deficit.
Morocco will continue to seek Euromarket funds for the development of its phosphates industry. It has 75% of the world's known phosphate reserves. Some leading French banks told Euromoney that they had struck Morocco off the list of countries they were prepared to lend to, but other French banks believed the kingdom could still raise project-linked funds, provided Arab banks supported the loan.
"Despite the grim economic situation," said a French banker, "the European and American banks which are already heavily committed will provide the credits Morocco needs, because of its immense strategic importance; it has offered bases to the US Rapid Deployment Force."
Only a couple of years ago Kenya and Zimbabwe ranked among the brightest credit risks in Africa. Now the ratings of both have entered a steep slide, in part because of political instability. Zimbabwe is becoming a one-party state, while in Kenya political opposition has been crushed following last August's attempted coup.
“Kenya's gone downhill since Kenyatta died; mismanagement and corruption have flourished,” said a British banker who covers East Africa. “It's fifty-fifty whether or not they reschedule this year.”
Zimbabwe should stillbe able to borrow for projects, at the short end of the medium-term market. It is not expected to seek many commercial loans: most of this year's current account deficit, which is not likely to be less than last year's $500million, should be covered by an IMF loan of $384 million agreed in March, together with western aid.
Among the handful of countries which could borrow balance of payments loans without difficulty, Gabon and Botswana are unlikely to do so because of theirextremely conservative economic management, while Libya is unlikely to do so because of its radical politics. Libya does not want to become enmeshed in the capitalist system, so is unlikely to repeat its Euromarket sortie of December 1981, unless oil output drops drastically.
Only Tunisia, Algeria and Cameroon have sought or look likely to seek balance of payments credits this year. Fresh from the success of its $125 million loan signed in February, which achieved an astonishing 50% selldown below lead manager level, Tunisia is expected to borrow again. Falling oil output has widened the current account deficit, not all of which can be financed by Arab aid. Tunisia should be able to hold the very fine spread of ½% which it paid in February, thanks to the scarcity value of its paper. Much in Tunisia appeals to bankers: political stability, up-to-date statistics, and diversified sources of foreign exchange, including tourism, and exports of olives and citrus fruit, as well as oil.
Algeria, like Tunisia, has been spurred to borrow by falling demand for oil. The $500 million eight-year credit launched in April met a warm reception in the market. American, Japanese and French banks joined the five Arab coordinating banks at lead manager level and the amount was increased to $600 million.
The loan's success was despite a split spread of only ½ to ⅝%, Algeria’salarming debt service ratio of 35%, and itstotal foreign debt of $16 billion. The explanation? Algeria has abstained from balance of payments borrowing for four years, its foreign debt has fallen, and it has started to diversify its exports away fromcrude oil towards LNG and refined petroleum products.
Cameroon, like Algeria, has borrowed little since 1979. But this March it returned to the market, with a $350 million loan,led by Bankers Trust and Credit Lyonnais, for the development of the Lokele oilfield. Cameroon's enormous gas reserves of 100 billion cubic metres are still undeveloped, but if President Paul Biya decides to launch an LNG industry, considerable external finance will be required.