Recent Developments in African Debt Markets

Debt capital markets in Africa have historically been thin and illiquid, growing much more slowly than equity markets. Several recent events suggest a desire among market participants, governments and multilateral institutions to give the bond markets a boost.

In April, the International Finance Corporation and Standard Chartered Bank launched a pan-African bond issuance program. Officially called the Pan-African Debt Medium Term Loan Program, the initiative aims to improve the investment climate in the targeted countries and create a mechanism for long term financing for infrastructure and other projects. The program will launch initially in Botswana, Ghana, Kenya, South Africa, Uganda, and Zambia.

The African Development Bank recently received approval to issue shilling denominated bonds in Uganda. This Note Programme is part of the AfDB’s local currency initiative under which it has issued local currency bonds in Botswana, Ghana, Kenya, Tanzania, Uganda, Zambia and Nigeria.

Later this year South Africa will likely be included in the Citi benchmark World Government Bond Index. This is an index of Sovereign debt for countries that meet certain requirements for liquidity, credit worthiness, and openness to foreign capital. South Africa has met these requirement–the only sub-Saharan African country to do so. Inclusion in the WGBI means that South Africa will be eligible for inclusion in a wider range of global investors’ portfolios. It is estimated that South Africa’s government bond market could attract $8.8 billion of inflows from index trackers.

It is interesting to note that each of these events have focused on the same half dozen or so countries. The implication is that these are where the capital markets–and the institutional underpinnings of capital markets are most advanced. It is these countries that I will steer my clients toward when considering projects in Africa. They are examples for other emerging and frontier countries seeking to attract foreign investment.

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