Africa’s Newfangled Novice Nods
The next wave of African sovereign debt candidates may experiment with different forms and structures, according to underwriters and rating agencies, as retail and institutional demand has raised dedicated monthly fund flows to near the $1 billion mark with index providers preparing a range of fresh tracking benchmarks. Zambia previewed the rage last year after its $750 million 10-year Eurobond as the state energy company and city of Lusaka came forward with plans, despite headline tax and labor fights with foreign food and mining groups and a law banning foreign currency use for everyday transactions. Angola will follow a private placement managed by Russian house VTB with a public one soon after completing its IMF program, as the state oil monopoly’s quasi-fiscal functions begin to show in the budget. Hard currency payments will go through local banks under revised arrangements which can foster transparency and financial sector development, as GDP growth hit 8 percent in 2012 on single-digit inflation. Petroleum output is almost 2 billion barrels/day, and infrastructure spending may cause a slight fiscal deficit. Tanzania may pursue the same selected private buyer route in the absence so far of a credit rating. Its financial adviser has proposed a non-standard floating rate instrument as it races East African Community neighbor Kenya for pioneer status. A Fund standby facility was recently signed as power sector problems threaten to drag public debt past 45 percent of GDP. Fuel import costs could aggravate the current account gap although the shilling has been relatively stable on occasional central bank intervention. Commercial borrowing for energy industry rehabilitation has touched the recommended cap within $2.7 billion in total obligations or near one-tenth the economy’s size. A debt management office will be created within the Finance Ministry, and pension fund revamp should deepen corporate and government fixed-income activity. A separate report by Standard and Poor’s postulates the likelihood of sukuk debuts in Nigeria and Senegal with large Moslem populations after a 2012 South African treasury effort. It notes that unrated Gambia and Sudan regularly float short-term shariah-compliant paper in their own markets, and that an expected inaugural global attempt by Egypt in the coming weeks will focus attention on the segment.
Nigeria has enjoyed a bond bonanza as yields have dipped to 10 percent after inclusion in the JP Morgan local index, the IFC launches a 5-year naira issue as a supranational benchmark, and an imminent Eurobond intends to target the diaspora community. The central bank reported $13.5 billion in gross foreign portfolio inflows last year, triple 2011’s amount, as the naira settles around the 155/dollar level. The currency was shunned in the post-2009 crisis as a narrow corridor was maintained and a one-year holding period was slapped on government securities. Officials have rejected reconsideration of controls while admitting old monetary pressure worries.
