All dollar bond countries in Africa now rated junk

EVERY African nation that has sold dollar debt now has at least one junk rating, but it would be hard to tell by looking at the bond market.

The average yield on sovereign Eurobonds in Africa has hovered near the lowest level in two years this month, according to a Standard Bank Group index, even after Moody’s Investors Service cut Namibia to below investment grade on August 11. The world’s biggest producer of marine diamonds had been the continent’s only dollar-bond issuer without a junk rating.

A low interest rate environment in the developed world has encouraged investors to look past the problems plaguing African economies, including low commodity prices, dollar shortages in some of them and rising political tension in others.

“The dynamics around African Eurobonds are mostly driven by external rather than domestic factors,” said Ronak Gopaldas, a Johannesburg-based Africa strategist at FirstRand’s Rand Merchant Bank. “Since late 2014, the continent’s economic fortunes have declined due to the combination of bad luck and own goals.”

Most of the developing world was hit with credit-rating downgrades after the 2014 crash in prices for raw materials, but Africa’s problems have lingered longer. Even as commodity-rich nations such as Brazil and Russia see growth return, the continent’s two biggest economies – Nigeria and South Africa – are shrinking due to scarcity of foreign-exchange in the former and political uncertainty in the latter, while Mozambique and the Republic of Congo missed coupon payments this year.

This year alone, countries including Angola, Gabon, South Africa and Tunisia have been downgraded.