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Five African Nations Hold 71% of Continent's Eurobond Value

Friday, 14 June 2024 19:48
Five African Nations Hold 71% of Continent's Eurobond Value

(Ecofin Agency) - Five African nations  Angola, Egypt, Ghana, Nigeria, and South Africa collectively hold 71.10% of the total nominal value of Eurobonds issued by all countries on the continent. This finding comes from a report published on May 28 by Development Reimagined, a China-based think tank specializing in development consulting.

Titled "Africa's Eurbonds : How large are the eurobonds held by africain countries, how might they impact budgets in future, and what scope for reducing their costs ?", the report specifies that 19 African countries issued a total of 91 US dollar-denominated eurobonds between 1997 and 2023, with the aforementioned five countries accounting for 65.93% of these issuances.

The cumulative nominal value of these Eurobonds amounts to $111 billion. Egypt leads the way with 22 Eurobonds outstanding, ahead of Nigeria and South Africa (10 Eurobonds each).. Egypt also boasts the longest (40 years) and shortest (4 years) maturities among the countries surveyed, although the 10-year maturity remains most common across the continent.

In terms of Eurobond value as a percentage of Gross Domestic Product (GDP), Gabon tops the list at 24.75%, followed by Ghana (24.02%), Angola (19.05%), and Côte d'Ivoire (16.87%).

The report highlights varying annual repayment amounts for Eurobonds across countries, largely influenced by coupon rates that can exceed 9%. Consequently, some countries face annual repayments of up to $5 billion.

Given the current borrowing conditions, African economies are expected to face continued budgetary constraints, often prioritizing debt repayment over critical development needs.

To alleviate the repayment burden, the report advises African countries planning new Eurobond issuances to target longer maturities and implement measures to mitigate the "African risk premium."

Inspired by Egypt's decision in 2010 to shift away from 10-year Eurobond issuances, other African nations have followed suit by opting for longer-term bonds. Lengthening maturity periods compresses annual coupon payments, spreading them over a longer period, thereby providing borrowers greater budgetary flexibility and reducing default risks.

Moreover, these efforts should be complemented by a unified campaign among African nations to combat decades-long perceptions contributing to the "African risk premium." This campaign addresses biased sovereign risk perceptions by financial rating agencies, which make international capital market borrowing more costly for African countries compared to their global counterparts.

Over the next four to five years, African countries are encouraged to consider buying back their outstanding Eurobonds to preempt foreseeable budgetary strains. Such buybacks offer an effective means for governments to manage debt service payments by lowering interest burdens.

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ECOFIN AGENCY offers a selection of articles translated from AGENCE ECOFIN. Founded in 2011, Agence Ecofin is a leader in Francophone Pan-African economic news, particularly in West and Central Africa. The agency publishes daily news on nine African economic sectors: Public Management, Finance, ICT, Agribusiness, Energy, Mining, Transport & Logistics, Communication, and Training.

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