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Sub-Saharan Africa (SSA) economies in 2018 tapped more into the Eurobond market, increasing by 77 percent the amount they raised from off-shore sources as they sought to access cheaper funds to meet domestic needs, United Capital Research says.
The countries raised US $18.6 billion last year, from $10.5 billion they issued in 2017, United Capital, a leading African financial and investment services company in Nigeria, said in a 2019 outlook report released recently.
BusinessDay analysis of the report shows that in the first quarter of 2018, four SSA countries (Nigeria, Kenya, Senegal and Ivory Coast) issued $5.5 billion and €3.3 billion worth of Eurobonds while Angola, Ghana, and South Africa followed suit in the second quarter by issuing $7.5 billion worth of Eurobond.
A Eurobond is a special type of bond that is issued in a currency other than the issuer-country’s home currency. Since it is issued in a foreign currency and its tar- get investors are foreigners, it is considered one way that a country can raise foreign pubic debt.
SSA countries are faced with financing challenges including need to fund infra- structural gaps, but domestic high interest costs are pushing the governments to look out- wards to tap into lower-cost funds. This has led to rising exposure by these countries to the financial markets of the developed economies. But analysts warn that with rising interest rates in the mature markets, the attractiveness of these markets may begin to wane for the SSA countries.
This trend is being driven by the higher-yield environment within the SSA region relative to yields in the development markets, says Ayodeji Ebo, MD, Afrinvest Securities Limited said. Consequently, he said, “The SSA countries reduce domestic borrowings,” citing the example of Nigeria, which raised more external debt in 2018 than in 2017.
The report said however that primary market activities were largely muted in the third quarter amid rising rates in the developed markets with only Nigeria issuing another $2.9 billion in the last quarter albeit at a more expensive rate.
In 2017, Nigeria, South Africa, Senegal, Ivory Coast and Gabon issued $4.7billion, $2.5 billion, $1.1 billion, $2 billion, $0.2 billion worth of Eurobond, respectively, while Angola, Ghana and Kenya issued none.
According to Cytonn report by the Cytonn Investments team that that provides reliable market in- sights for investors interested in the high-growth East Africa region, SSA seems to have positioned itself as an attractive investment destination as seen by the improving macroeconomic conditions.
By, BUNMI BAILEY for BusinessDayNg