Africa: Issuances Come To A Halt

Only three African countries—Angola, Nigeria and South Africa—issued Eurobonds since the start of the Russia-Ukraine war because of tightening financial conditions.

African countries halted the issuance of dollar-denominated notes and Eurobonds due to tightening global financial conditions.

High-interest rates and yields have caused certain regional sovereigns to switch focus to domestic and multilateral borrowing.

Only three African countries—Angola, Nigeria and South Africa—issued Eurobonds since the start of the Russia-Ukraine war. And each country has deferred the issuance of foreign currency denominated notes since April. Other countries such as Kenya, which initially lined up a $1 billion issuance in June, are now making an about-face on dollar and euro issuances.

The average emerging-market (EM) dollar yield has surged to over 9%, rising 433bps this year, Tellimer chief economist Stuart Culverhouse explains, citing how EMs across Africa are finding current borrowing costs too prohibitive. “There has been very little private investment due to the external environment. Instead, African sovereign borrowers turned more to official sector creditors in response (including multilaterals and/or bilaterals), domestic borrowing, policy tightening, or in some cases restructuring,” Culverhouse says. There were no foreign-denominated long-term paper issuances for African countries during the third quarter.

Nigeria and Kenya are struggling to prop up their currencies against a stronger US dollar. Ghana has also been hard-hit, given the surging yields on its Eurobonds and massive sell-off of its cedi currency. “African countries have stopped issuing international bonds because bond yields have soared since the start of the Russia-Ukraine war,” Fitch Solutions senior analyst Gianmarco Capati says. “Unfavourable market conditions for emerging markets will keep African governments reluctant to issue new Eurobond debt until the second half of 2023 or 2024.”

A strong dollar is inflating foreign-currency debt payments, Capati explains, reducing appetite for new foreign-currency debt. It is also “reflective of capital flows out of emerging markets,” he adds, thereby raising borrowing costs for African nations.

The IMF has approved financial programs for Zambia, Tanzania, Mozambique and Benin. Ghana is also negotiating a new IMF lending facility while Egypt presses for a similar bailout.