African business, politics and lifestyle
Time for an Afribond?
“Europe possibly needs an Afribond,” commented one contributor this week on the Thomson Reuters chatroom for fixed income markets in Kenya.
A nice quip from Henry Kirimania of The Cooperative Bank of Kenya and a reminder of just how much better placed Africa is now in terms of its debt burden than it once was and particularly in relation to what might now be regarded as the world’s Heavily Indebted Formerly Rich Countries.
“It used to be that when you thought about highly indebted countries, you thought about those in our part of the world,” Maria Ramos, head of South Africa’s Absa Bank told the recent World Economic Forum on Africa. “You can’t any longer.”
By global standards, African debt has also performed fairly well during the crisis over Greece. Although the yield on Ghana’s Eurobond spiked when concerns over Greece reached fever pitch before the EU and IMF safety net announced at the weekend, it has been on a steady downtrend and has fallen back somewhat this week.
Ghana, set to be the world’s fastest growing economy next year after it starts pumping oil later in 2010, is especially well placed, but debt yields have been falling elsewhere in Africa too.
Rising commodity exports, helping to feed Asian demand, generally better economic management, increased political stability and technological change such as the explosion of mobile phone networks have all helped to put Africa on a sounder footing than it was before.
Many African countries were also among those that received debt relief as Heavily Indebted Poor Countries over the past decade, significantly reducing their indebtedness now.
That means they may have room to borrow. Although many African countries have plans for eventual Eurobond issues, following those by Ghana and Gabon before the global crisis hit, plans for issuing debt in foreign currencies appear largely on hold given the global market uncertainties.
But with borrowing needs driven up by government deficits and the need to build or repair shambolic infrastructure in much of the continent, the more advanced African states also have growing local debt markets to turn to – where they don’t face the same currency risk if things turn against them.
“As you can see from the case of Greece, if the national savings rate is low and you are to borrow from abroad it has to be done carefully,” Donald Kaberuka, president of the African Development Bank told us.