TEN years ago African bonds were a rare sight. Of all the countries south of the Sahara, only South Africa had ever sold a dollar-denominated bond to foreign investors. Since then, 16 more have. Excluding South Africa, African countries issued $6.75 billion of dollar debt last year, just short of the record $7 billion sold in 2014. But depreciating currencies, low commodity prices and a rise in interest rates in America are taking the shine off.

Africa’s bond bonanza suited both investors and governments. With government bonds in their own countries offering measly returns, rich-country pension funds looked to Africa for higher yields. And by issuing debt in dollars, African governments could avoid the double-digit rates they pay to borrow at home. For a while, optimism reigned. Ghana’s debut dollar bond was four times oversubscribed. Zambia, buoyed by a copper boom, did even better: its ten-year bond, issued in 2012, was 24 times oversubscribed, and sold at a yield of 5.6%—lower than the equivalent Spanish bond at the time.

Governments were able to issue bonds thanks partly to debt cancellation, which brought down external debt in…Continue reading