Africa’s eurobond debt passed the $100-billion milestone after Ghana issued $2.7 billion on March 26.
African countries issued a record $27.1 billion in 2018 alone, according to analysts at Renaissance Capital (RenCap). In 2019, three countries—Egypt, Ghana and Benin—have already issued $7.6 billion. More are expected from South Africa, Kenya, Angola, Egypt (again) and Nigeria but RenCap estimates the total will come in closer to $17.6 billion this year. In 2010, just 10 African countries had issued eurobonds. Now, 21 have, with more likely to join the club.
All of this might sound worrying but analysts at the Brookings Institution say we shouldn’t be alarmed at the size of the debt and insist another systemic sovereign debt crisis is not imminent. The average total debt-to-GDP ratio for African countries today is low at 53% compared with 90% during the worst excesses of the 1980s and 1990s. What Brookings does find “unsettling”: the rapid rate of increase in debt, rising debt servicing costs and the nature of the debt structure relative to the “highly indebted nations” years.
African debt has been rising again because of range of factors, from after-effects of the global financial crisis and the commodity pricing slowdown to low domestic savings rates and infrastructure investment promises made by democratically elected governments. Low interest rates in the US and other advanced economies has also meant more investors have been attracted to frontier markets like those in Africa.
At some point you might be expecting some experienced investors rolling out the old saw, “This time it’s different.” And it is different, but that doesn’t make it necessarily better.
Debt levels aren’t the problem. Brookings predicts debt-ratio levels falling to 47% by 2023. But one of the concerns has been short-term maturities of 5 to 10 years for the early eurobonds, which don’t often match the timespans of infrastructure projects they were to fund. More recently there have been more 30-year bonds, an improvement that adds flexibility.
Debt-service costs and repayment risks are the bigger looming issues.
“Many of the 21 eurobond issuing countries are borrowing like middle-income countries,” RenCap’s Gregory Smith says,”but are not yet collecting revenue like one.”
Servicing costs doubled to 10% in 2017 from 5% in 2012 and RenCap is worried about a large spike of $12 billion in repayments due in 2024—mostly from smaller oil-importing countries. If the global economy is bad shape in 2024, it won’t be easy to roll over debt.
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