Africa News blog
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.
Time to build Africa?
Where once African officials might have viewed infrastructure projects solely as a good source of kickbacks, these days there is pressure from electorates, at least in some countries, to deliver on promises of improvements.
The growth that many African states have enjoyed in recent years has exposed the failure of the continent’s infrastructure still more starkly – with even South Africa suffering the kind of power outages that much of the rest of Africa has grown far too used to.
Infrastructure is in theory the focus of this year’s African Union summit, although as always it will be overshadowed by crisis in Somalia, Zimbabwe, Congo, Darfur etc…
The global financial crisis is an even bigger threat to hopes of strengthening Africa’s infrastructure.
Last year, Kenya, Tanzania and Uganda all set out to borrow money internationally through sovereign bonds, for the upgrade and expansion of roads, water supplies, irrigation schemes and electricity generation capacities. That followed Ghana’s successful launch in 2007 of sub-Saharan Africa’s first Eurobond outside South Africa to help fund infrastructure development.
But the plans of the east African countries have been knocked off course despite early assertions from confident governments that they would not be affected by the global downturn which began in the Western world.
Kenya is exploring alternative ways of raising the $500 million it had originally planned to raise from a debut Eurobond. Tanzania and Uganda both made similar announcements.
Water scarcity, illness, and poverty all go hand in hand. But, people do not realize that infrastructure-deficiency is the real problem in areas around the world (particularly Africa), rather than an actual lack of water. That’s the case in northwest Senegal, where a project to install infrastructure was completed in February – and covered in an interesting TV segment from Voice of America News.
How will Africa weather financial storm?
Isolation might seem like a good idea when it comes to the storm sweeping global finance and there is no doubt that African countries are among the most isolated in the world economy.
Avoiding the impact seems unlikely, though, particularly at a time when Africa as a whole has been enjoying its fastest growth for decades and the continent has become an increasingly popular investment destination – not only for Asian countries in search of resources but for frontier investors willing to take higher risks for higher returns.
The African Development Bank’s chief economist told Reuters that Africa should withstand the first round effects of the financial crisis but that export demand and access to finance could be hit in the longer term.
Although some still see Africa’s isolation as a measure of protection, the enthusiasm of frontier investors has been fading too. The impact can be seen on stock exchanges from Lagos to Lusaka. Ghana has postponed a new debt issue due to the global conditions.
Such things might not appear to have much direct impact for most people in Africa, but rising world prices for food and fuel are being felt even in the remotest villages. If the prices of Africa’s export commodities fall because of global turmoil then that pain is likely to be felt too. If rich countries can afford less aid, that could also be damaging for some dependent states.
And (Nick) be realistic. The west has made conditional aid availeble to the african countries on the condition that they purchase military hardware. A recent example is the (alleged) involvedment of france in sudan. this is a dog eat dog world, there are not many ‘friendly countries’ and every country acts in its own best interests whether it’d be at the expense of another country or not.
the western retailers have been pushing prices of commodities down (cocoa and coffee) to increase their own prices and keep western consumers happy. this has meant that african countries got lower prices for exports, while the costs of imports have gradually increased ( oil and other raw materials), they have had to finance this gap through aid; accumilating more debt.
