Growth prospects boost Senegal’s bonds
SENEGAL is offering investors Africa’s best bond returns this year as oil-import costs plunge and the economy powers toward what is predicted to be its strongest growth in eight years.
With gross domestic product (GDP) projected to expand 4.6% this year (the fastest pace since 2007), inflation among the lowest on the continent and government plans to ease poverty, Senegalese debt earned 5.4% this year, compared with an average 1.1% gain for emerging markets, Bloomberg indices showed.
The extra yield investors demand to hold the nation’s July 2024 dollar bonds instead of US Treasuries fell to a two-month low on Tuesday.
The West African nation, whose exports include fish, peanuts and gold, may see growth reach 7% by 2019 under the government’s development plan, which is helping Senegal escape the economic havoc that has gripped the continent’s oil-producing countries amid the 46% slump in crude prices since June.
“It’s not facing the same dire financial and fiscal problems that Ghana, Nigeria and Zambia are struggling with,” said Spiro Sovereign Strategy MD Nicholas Spiro on Wednesday. “Underlying fundamentals are stronger.”
Yields on Senegal’s $500m of 2024 debt fell 57 basis points this year to 6.28% by 12.16pm in London yesterday. The spread over similarly dated Treasuries fell to 408 basis points this week, the lowest since December 8.
The Emerging Senegal Plan, which started last year and runs to the end of 2018, targets cutting the fiscal deficit to 3.9% of GDP, from 5.4% in 2013. It also seeks to lower the gap on the current account, the broadest measure of trade in goods and services, to under 6% by the final year of the programme, according to documents on the finance ministry’s website. Inflation was 1.4% last year, compared with the sub-Saharan African average of 7.3%, according to the International Monetary Fund.
Investors have confidence in “the reform agenda of the government,” said Jerome Cretegny, senior country officer with the World Bank’s International Finance Corporation. Infrastructure projects show the government has “a clear strategy on where they want to spend” Eurobond proceeds, he said.
Senegal is building roads, an airport for the capital, Dakar, and is expanding the city’s port, according to the prospectus from last year’s bond sale.
With a population of about 14-million people, Senegal’s $14.7bn economy has struggled to create jobs as businesses battle with chronic power shortages. The government’s plans to invest in lower-cost electricity generation have been delayed, according to the IMF. While Senegal is building power plants, a failure to secure more investment could curb growth, the prospectus noted.