Ignorance and the perception of negative risk has Africa paying a high premium
Loading player...
Abuja — Macky Sall had a bone to pick with creditors. Sitting before the head of the International Monetary Fund (IMF), investors and diplomats during a conference on African debt in December, the Senegalese president complained that Western prejudice keeps borrowing costs unfairly high on his continent.
“This negative-risk perception is not in tune with the reality of our continent,” Sall told the gathering that included the IMF’s Kristalina Georgieva. “People think that this is a problematic continent and demand a rate of return that is unparalleled elsewhere in the world.”
Sall was lashing out from inside a high-ceilinged, post-modern conference centre that overlooks a satellite city being built on the outskirts of Dakar. The new city, which will house ministries, universities, residential buildings and a sprawling industrial park, together with the six-lane toll highway connecting it to a gleaming new airport, was all financed with debt.
Like other African governments, the former French colony has rushed to sell sovereign bonds to fuel an era of unprecedented growth that helped lift millions out of poverty over the past decade. Eurobonds have displaced multilateral lenders such as the IMF as Africa’s main source of financing, going from one nation offering $200m (R3.32bn) in 2006 to about two dozen selling $117bn of such paper.
Africa premium
Foreign investors, hungry for returns in a world awash in cheap money, have snapped up African debt. But that hasn’t lowered African nations’ borrowing costs, which, for 10 years, are between 5% and 10% — well above other emerging markets.
To some, the “Africa premium” stems from racial prejudice and lazy analysis that taints all countries on the continent with the same brush — one of political instability, corruption and financial mismanagement.
“Some investors really think that Africa is the jungle and there is a lot of chaos; that is the underlying perspective with which they establish their own required return,” said Misheck Mutize, who leads an AU project to help governments improve their credit ratings.
Consider Senegal, for example. It is one of continent’s most stable democracies, praised by the IMF for its economic management and poised to become a major oil exporter after discovering crude and natural gas off its shores. Yet it pays more than five times more on its 10-year notes than Greece, the epicentre of Europe’s debt crisis in 2008, which has a lower credit rating. With average annual growth of ...
“This negative-risk perception is not in tune with the reality of our continent,” Sall told the gathering that included the IMF’s Kristalina Georgieva. “People think that this is a problematic continent and demand a rate of return that is unparalleled elsewhere in the world.”
Sall was lashing out from inside a high-ceilinged, post-modern conference centre that overlooks a satellite city being built on the outskirts of Dakar. The new city, which will house ministries, universities, residential buildings and a sprawling industrial park, together with the six-lane toll highway connecting it to a gleaming new airport, was all financed with debt.
Like other African governments, the former French colony has rushed to sell sovereign bonds to fuel an era of unprecedented growth that helped lift millions out of poverty over the past decade. Eurobonds have displaced multilateral lenders such as the IMF as Africa’s main source of financing, going from one nation offering $200m (R3.32bn) in 2006 to about two dozen selling $117bn of such paper.
Africa premium
Foreign investors, hungry for returns in a world awash in cheap money, have snapped up African debt. But that hasn’t lowered African nations’ borrowing costs, which, for 10 years, are between 5% and 10% — well above other emerging markets.
To some, the “Africa premium” stems from racial prejudice and lazy analysis that taints all countries on the continent with the same brush — one of political instability, corruption and financial mismanagement.
“Some investors really think that Africa is the jungle and there is a lot of chaos; that is the underlying perspective with which they establish their own required return,” said Misheck Mutize, who leads an AU project to help governments improve their credit ratings.
Consider Senegal, for example. It is one of continent’s most stable democracies, praised by the IMF for its economic management and poised to become a major oil exporter after discovering crude and natural gas off its shores. Yet it pays more than five times more on its 10-year notes than Greece, the epicentre of Europe’s debt crisis in 2008, which has a lower credit rating. With average annual growth of ...