Gerald Gondo, Business Development Executive, RisCura Africa. Credit: afsic.net
Given the continued global search for yield and growth in an increasingly low-yield world, debt markets in Africa should and will attract increasing attention from institutional investors.
Pensions and savings institutions around the globe are facing rising liabilities because of low interest rates. Coupled with the effect of volatile markets and low equity returns, the gap between assets and liabilities has widened for many advanced economy pension plans.
African fixed income investments are presenting a compelling asset class, particularly the sub-set of infrastructure bonds, which could help institutional investors narrow this gap.
According to the World Bank, Africa’s current need to finance its infrastructure amounts to approximately US$ 93 billion a year, one third of which is for the maintenance of existing infrastructure. Over the next four years, (2017-2020) emerging market and developing economies are forecast to achieve a real GDP of 4.91%, which will further exacerbate the need for infrastructure investments.
In recent years, several African countries have participated in the international issuance of Eurobonds.
In theory, African governments should be able to fund the infrastructure backlog from domestic sources, such as pension funds and insurance companies. However, the ability of most governments – in particular, Sub-Saharan countries (SSA) excluding South Africa – to fund this infrastructure is limited by inherent fiscal and current account deficits, as well as by relatively small and illiquid domestic debt markets.
Besides South Africa, only two countries, Mauritius and Ghana, have a domestic bond market capitalization exceeding 40% of GDP. Consequently, the infrastructure backlog dwarfs the capacity of SSA debt-capital markets.
Therefore, Eurobonds are a potential way to tap a broader investor base. Such potential is further facilitated by the fact that most SSA Eurobonds are included in global bond indices. Eurobonds overcome the limitations of SSA bond markets’ size and liquidity. Furthermore, Eurobonds do not have the currency risk associated with investing in local currency bonds.
With the deepening and development of local capital markets within emerging and developing markets, one should expect to see local pensions and savings also playing a greater role in these markets.
The divergent economic growth prospects between advanced economies and emerging and developing economies are self-evident. Emerging and developing economies offer investors a solution to the structural economic challenges that investors face in advanced economies. Emerging and developing economies feature young populations, which feed into growing workforces, rapid urbanization and rising disposable income for an emerging middle class. Infrastructure development and the provision of long-term financing to enable the provision of such critical infrastructure is a strong underpinning to the noted structural investment themes.
- Private equity firm Abraaj is interested in buying Barclays Africa (Infographics & Video)
- Compelling investment markets in Africa – Inside Riscura’s Bright Africa 2015 Report: Debbie O’Hanlon, Senior Analyst, RisCura (Infographics)
- Africa: Now a major player in emerging markets financial services
- The African economy: Better than people think
- Bright Africa 2016 – Private Equity: RisCura (Report)
- Africa Asset Management 2020: PwC (Infographics & Report)
- Across Africa, 3 in 4 countries improve business environment (Infographic)
- Africa: A growing insurance market
- African IPOs Set to Double Capital Raised in 2016: Baker & McKenzie (Infographics)
- Bright Africa 2015 – The drivers, enablers and managers of investment on the continent: RisCura (Report)
- African Markets Guide 2015: Barclays (Report)
- Real estate: Building the future of Africa – PwC (Report)
- Property fund Mara Delta agrees to buy Tamassa Resort in Mauritius
- Bright Africa 2014 – A guide to equity investing on the continent: RisCura (Report)
- Private Equity Firms Bid Up Africa M&A Prices on Record Funds
- Eris and Momentum to invest over $308M in West African real estate
- More African companies seek exchange listings
- Here are 4 ways for American investors to invest in Africa right now
- Helios Towers Africa Raising almost $1B for regional expansion
- Main street invests in Africa’s stocks: Nile Fund’s Larry Seruma on the continent’s modernizing equity markets
- African economic growth: The twilight of the resource curse?
- South Africa’s Stanlib seeks property returns abroad as domestic growth slows
- Africa’s neither ‘rising’ nor ‘falling’ but it is growing. Fast
- Rate cuts & healthy FX reserves pave way for next bull run in Africa’s markets: Ryan Hoover, Portfolio Manager, Africa Capital Group
- Five private equity funds targeting real estate investments in Nigeria (Photos)
- Africa property offers rich pickings for the brave
- Why Invest in Africa? The Big Picture
- South African private equity ten-year returns at 18.5%: SAVCA/RisCura
- Africa is one of the few bright spots on the global economic horizon, says billionaire investor George Soros
- Private equity is an investment opportunity for growing African pension funds: Craig Metherell, Analyst, RisCura
- ALTX Africa targets small investors with new Uganda exchange
- London Stock Exchange eyes dual listings on West African capital markets
- Africa Exchange Guide 2015: African Alliance Capital Markets (Presentation)
- Lions go global: Deepening Africa’s ties to the United States
- Investors increasingly turning to Africa’s private equity markets: Erika Van der Merwe, CEO, Southern African Venture Capital and Private Equity Association (SAVCA)
- East African Community a bright spot amidst emerging markets gloom
- Africa’s consumer data opportunity is being tackled by startups
- West African stock markets are planning to join forces (Video)
- The case for South African hedge funds: Jaclyn Petrone, Director of International Business Development, Laurium Capital
- East Africa Private Equity Deal Dashboard 2016 (Report): RisCura & East Africa Venture Capital Association (EAVCA)