Boom fuels growth in African bonds

Although much investor attention has focused on African equities, few have noticed the growth of African debt as an asset class.

The same factors that are bolstering African equities – notably an economic boom fuelled by rising commodity prices – are boosting the bond market too.

In December, Gabon issued a $1 billion (£500m) bond to repay its official debt. In the same month the Republic of Congo also restructured just under $500m of debt. And in September Ghana had a $750m bond issue which was four times oversubscribed.

Nigeria, one of the biggest African economies, also completed a government debt issue in October that was several times oversubscribed.

It is likely that international investors would have an appetite for more Nigerian debt but at present the country has no need to issue it.

According to a report by John Wakemann-Linn and Piroska Nagy of the International Monetary Fund (IMF) African department: “These bond sales are the logical outcome of the growing interest of international investors in Africa, and in emerging and developing countries worldwide.

“The economic situation of sub-Saharan African countries has improved markedly; collectively they are experiencing the highest growth and lowest inflation for 30 years.”

Werner Gey van Pittius (pictured), an emerging market analyst at Investec Asset Management, takes a similarly upbeat line.

“We think the trend is going to continue,” he says. In his view it is positive for both local markets and foreign investors.

However, as would be expected, such investment also involves risks. The next bond issue was expected to be from Kenya but it has been shelved following the recent violence.

More generally, the biggest risk is that commodity prices go into reverse for some reason.

“If that happens we’re in a world of trouble,” says van Pittius.