AfDB urges Nigeria, others to be ‘tough’ negotiating eurobonds

AfDB invests $2b to train six million African scientists

NIGERIA and other governments in Africa need to be tougher when negotiating the terms of Eurobonds and commercial loans, the African Development Bank (AfDB), warned on Monday.

Its President, Dr Akinwumi Adersina, said some external debts mature before the infrastructure projects they fund start generating returns, which raises refinancing risks. Neither should African borrowers be “price takers,” he said.

“The short-term maturity of some of these debts do not match the long-term revenue streams. You are going to have to pay back when you are not earning the money. These bonds are oversubscribed because people see opportunities to make a killing,” Adesina said in an interview in Johannesburg. “

Governments have increased their issuance of dollar and euro bonds in recent years as loose monetary conditions in developed nations push global investors to buy higher-yielding assets, not least those in emerging markets.

Africa’s sovereign issuance in the two currencies totaled $53 billion in 2018 and 2019, according to data compiled by Bloomberg. Egypt, Angola, South Africa and Nigeria were the most prolific borrowers in that period.

This year, Angola, Gabon and Ghana have tapped the Eurobond market. Ghana got about $15 billion of orders for a $3 billion deal last month.

Investors have been richly rewarded for buying African sovereign dollar debt. It generated a total return of 21 per cent last year, more than any other region in emerging markets.

Public debt in sub-Saharan Africa has doubled to 50per cent of gross domestic product since 2008, the International Monetary Fund estimates.

Kenya raised its debt ceiling last year and the International Monetary Fund (IMF) said the government should be more cautious in building credit. In South Africa, authorities see debt spiking to 78 per cent of GDP by 2028, from just above 60per cent. And while Nigeria’s debt is low as a proportion of GDP, the government spends more than half its revenue servicing it, according to the IMF.

Rising debt-service ratios are “increasingly problematic,” Razia Khan, Standard Chartered Plc’s chief economist for the Middle East and Africa, said in a tweet.