374

Lenders have appetite for Africa’s more attractive sovereign credits, including fashionable francophone markets Côte d’Ivoire and Senegal (AE 369/19). When in March Senegal raised $2.2bn in a eurobond issue, its Ministry of Finance received $10.3bn-worth of orders for the euro/dollar-denominated facility. It brought African eurobond issues to a total $10.7bn in Q1 2018, following borrowing by Egypt, Nigeria and Kenya. This was more than the 2016 total, and more than half of the $18bn 2017 record, Bloomberg reported.

Thomson Reuters data show total sub-Saharan debt issuance raising $28.5bn in 2017, 27% up on 2016. Côte d’Ivoire was the most active bond issuer, with $10.3bn, followed by South Africa and Nigeria. The data reflect apparently buoyant sovereign credit markets but there are growing concerns that debt could be a problem, as well as an opportunity, for African borrowers.

Zambia has been stress-testing its debt sustainability, while it struggles to trim liabilities and reassure lenders (AE 373/1). Mozambique’s credibility nose-dived following revelations about a $2bn debt contracted in 2013 for supposed fishing and maritime security schemes (AE 349/1).

Mozambique’s restructuring talks have made little progress as creditors resist taking a substantial ‘haircut’ or paying much lower interest rates (of 2% or less to 2023) proposed by finance minister Adriano Maleiane. Donors have cut funding pending a deal on the debt, adding to a crisis that has complicated government plans to raise $2bn to help state oil company Empresa Nacional de Hidrocarbonetos finance its participation in future gas projects.

Renaissance Capital’s chief fixed income strategist Gregory Smith has noted that, since Mozambique’s hidden debts became apparent, there has been concern about where else this might happen. Zambia has been a focus, even though hard evidence has yet to emerge. Questions have been asked about loans in Kenya, still widely criticised for its high levels of corruption (AE 362/21). Government auditor-general Edward Ouko told parliament in early July that taxpayers risked losing more than KSh30bn ($298m) in doubtful loans contracted by state corporations, led by Kenya Electricity Generating Company and including Kenya Power.

Concerns about potential governance problems are reflected in secondary market yields, which are rising even as sovereign creditors’ fundamentals improve – not least from higher oil, copper and other commodity prices. The International Monetary Fund (IMF) expects 14 of the 20 African eurobond issuers to grow faster in 2018 than in 2017, but markets are paying more attention to negative data. Egypt, Kenya, Mozambique, Namibia and Zambia are expected to have a fiscal deficit larger than 7% of gross domestic product in 2018. There are concerns about a repayment shock in 2022-25, although some analysts, like Renaissance Capital’s Smith – a former World Bank economist in Lusaka – doubt this is a major threat.

The IMF said Senegal’s March bond issue could endanger Dakar’s low-risk debt rating unless the government retained some of the $2.2bn to help finance the 2019 budget deficit. The IMF has highlighted the need for domestic revenue mobilisation to strengthen sub-Saharan economies, while in late June Moody’s Investors Service said the strengthening US dollar since mid-April had led to currency depreciation and falling foreign exchange reserves in a number of countries, increasing credit risks for those with large external funding needs. Among those most vulnerable to a stronger dollar are Ghana and Zambia.