Africa bonds for infrastructure

INTERNATIONAL debt issuance by African countries is likely to be driven by the need to finance a portion of their infrastructure spending, accounting for more than $90bn annually, a senior analyst at Moody’s Investors Services said yesterday.

To date, access to international capital markets has remained limited in Africa, with only 13 out of 54 countries in Africa having issued instruments denominated in foreign currencies on the international markets.

“Over the medium to long term, there is significant potential in Africa for the increased use of international capital market finance, but over the short term, however, we consider that funding via international debt issuance, albeit rapidly expanding, will continue to represent a limited portion of gross capital inflows to the region,” Moody’s vice-president and senior analyst Aurelien Mali said.

Zambia was the latest African country to issue a debut eurobond and attracted $11.9bn for an initial offer of $500m, which was then increased to $750m given the large oversubscription.

With the exception of Tunisia (Baa3 negative) and Morocco (Ba1 stable), which issued international securities in the 1990s

Financing infrastructure projects was the key reason behind recent issuances by Zambia, Namibia and Senegal

and SA (Baa1 negative), which has a relatively developed and sophisticated domestic capital market, sovereign issuances in Africa started in 2001 when Egypt issued its first bond.

International issuance in subSaharan Africa started even more recently, in 2007, with the Democratic Republic of Congo, Gabon, Ghana and Seychelles.

Senegal (B1) issued in 2009, following a pause due to the global financial crisis after the Lehman Brothers collapse. Nigeria came to the market for its debut eurobond in January last year, and Senegal issued in May last year — both countries with a $500m bond.

Namibia issued a 10-year $500m bond with a coupon of 5.5% in October last year.

This offer was almost five times oversubscribed.

Mr Mali said Moody’s expected that Angola, Kenya, Rwanda, Tanzania, Uganda and Mozambique would issue inaugural bonds on the international markets in the next few years.

They would most likely be benchmark issues, which will make them eligible to be included in JP Morgan’s emerging market bond index.

Financing infrastructure projects was the key reason behind the three most recent issuances by Zambia, Namibia and Senegal. In Zambia, the eurobond was dedicated to promote infrastructure development (energy, roads and railways) as well as the social sector (health and education).

According to the World Bank Enterprise Survey 2011, subSaharan Africa is one of the main regions where firms identify electricity supply as a major constraint. It also has the highest percentage of electricity provided by generators.

Of note is that intra-regional trade in Africa represents less than 5% of gross domestic product — which is extremely low by international standards.

The share of regional trade flows made up only 12.3% of Africa’s merchandise exports in 2010, compared with 52.6% in Asia and 71% in Europe.

The World Bank report said African countries are losing out on billions of dollars in potential trade earnings every year because of high trade barriers with neighbouring states, and that it was easier for Africa to trade with the rest of the world than with itself. I-Net Bridge