(Ecofin Agency) - The United States of America’s decision to postpone the increase of its prime rate was poorly broadcasted by African media yet two African countries are directly affected by this decision. They are namely South Africa and Egypt that are among the relatively important investors in the US bonds.
Data compiled by Ecofin Agency indicate that the two countries invested differently in 2018. During the period under review, South Africa reduced its investment in the US bonds by about $15.1 billion while during the same period, Egypt increased those investments by $7.1 billion despite problems in its external balance.
The FED’s decision to keep the same prime rate, with a low prospect for a new hike, clearly indicates that the profit opportunity on these bonds will be significantly reduced. It is hard to say whether South Africa followed a trend within the BRICs but, it is to be noted that Russia (another member of the BRICs) is the leader in this divestiture strategy with an $83.7 billion disinvested from the US bonds. China and India follow suit with $44.7 billion and $7.3 billion disinvested during the period under review. Among the BRICs, only Brazil differentiated itself by investing more than $34 billion in the US bonds during that period.
The Egyptian Central Bank’s 2018/2019 report will shed a better light on the various decisions that led to its increased investments in the US bonds in 2018. But, for the meantime, let’s note that institutions like Afrexim Bank and the AfDB are now encouraging African countries to invest in their bonds for the development of their continent.
According to Afrexim Bank’s 2018 report, African countries’ total foreign reserves was $417 billion at end 2017 covering an average of 7.3 months of imports.