Africa’s Appetite For Foreign-Denominated Debt Declined In Q3

Africa’s appetite for foreign-denominated debt has declined in recent times as no country issued a bond during Q3’2022, with most countries shying away from the Eurobonds market due to sustained high yields translating to high borrowing costs.

The significant increase in yields is partly attributable to investors attaching a higher risk premium on the Sub-Saharan Countries issues, driven by increased inflationary pressures, and continued depreciation of local currencies on the back of persistent supply chain constraints, as well as sustained debt unsustainability concerns.

Yields on the Kenyan and Senegal Eurobonds increased in Q3’2022 by 11.3 percentage points and 7.3 percentage points to 15.7 and 9.7 percent, from 4.4 and 2.4 percent, respectively, recorded at the end of December 2021.

Below is a 5-year graph showing the Eurobond secondary market performance of select 10-year Eurobonds issued by Kenya and Senegal:

At the same time, Sub-Saharan Africa (SSA) stock markets recorded mixed performance in Q3’2022, with Zambia’s stock market (LASILZ) being the best performing market gaining by 28.7% YTD due to improved macroeconomic conditions that have led to favorable investor sentiments in the country.

Ghana’s GGSECI was the worst-performing market with a loss of 46.7 percent YTD, largely driven by sell-offs from investors following adverse macroeconomic conditions in Ghana driven by high inflation at 33.9 percent as of August 2022.

Kenya’s NASI declined by 28.0 percent at the end of Q3’2022, mainly attributable to increased foreign investor sell-offs coupled with increased uncertainties emanating from inflationary pressures as well as the heated political temperature that surrounded the August elections.

Below is a summary of the performance of key indices: