Executive Summary
AFTER A BREAK…, THE GREAT RETURN OF EUROBONDS IN AFRICA?
After an almost two-year lull, Sub-Saharan African issuers are clawing their way back in international markets. In fact, with a few exceptions, African countries were largely excluded from the international Eurobonds market. This is due to several factors: high interest rates required by investors following the high inflation in the Eurozone and the US during the recent years, debt distress and sustainability concerns in African countries, as well as weakening local currencies.
In 2022, the average inflation in the Eurozone reached a record high of 8.4%. This rise in prices was fueled by disruptions to global supply chains within an unstable geopolitical context. In 2023, although inflation declined slightly, it remained high at around 5.5%. In this context, the ECB was forced to increase its key rates, thus leading to a reduction in liquidity on the financial markets and impacting the public financing costs.
In the United States, the inflationary phenomenon is also omnipresent. The average inflation reached 8.0% in 2022 and 4.1% in 2023, i.e. above normative levels. In response, the Fed adopted a more restrictive monetary policy, raising interest rates more aggressively in an attempt to contain price increases. This policy led to a systematic increase in financing costs while limiting investment opportunities. Under these conditions, we have witnessed a visible increase in the cost of financing for African countries on the international market.
While dealing with these challenges, African countries have also suffered from the depreciation of their local currencies. For example, the Egyptian Pound lost about -52% of its value against the dollar during the period 2022-2023, the Nigerian Naira fell by -50%, the Ghanaian Cedi lost -30% while the Kenyan Chilling declined by almost -20%. These depreciations have increased the interest cost of foreign currency debt, restricting access to international capital markets.
For 2024, the outlook is relatively improving. Forecasts indicate a significant decrease in inflation, with an estimate of 2.5% for the Eurozone and around 2.6% for the United States. This decline should improve financing conditions and generate a return of appetite for Eurobond issuances.
Read more.
