Thursday, 26 June 2014

More African Eurobonds expected this year

 Logistical Infrastructure need massive funds 
KENYA'S  US$2 BILLION Eurobond was oversubscribed by 500 per cent by the close of offer.  The Bond, Africa’s largest sovereign bond so far is likely to lead to a stampede on the Eurobond issues in Africa.

It was in many respects a pathfinder for other budding bond issuers.  A number of African countries are said to be considering floating Eurobond of their own but waited to see the response on the Kenya bond which was considered ambitious.

 However, the over subscription is a morale booster that could see other intending issuers up their offer.  Kenya herself has indicated that she will be back in the market with another sovereign Bond, next year. This time around she will be targeting the interest-free Islamic bond.

 To date, the highest African sovereign Bond is the US$750 million Zambian Bond issued in 2011. Initially the bond was meant to raise US$500 million but it was oversubscribed by 238 times at $11.9 billion. Zambia therefore accepted to $750 million.

Nigeria, Angola, Tanzania, Uganda and Mozambique are said to have been toying with the idea of floating a Eurobond worth more than US$1 billion but were held back by uncertainty about market response.  They are now expected to hit the road with gusto.

So far Africa has borrowed more than US$2.6 billion in Sovereign Bonds since 2011. Kenya’s sovereign bond, which amounts to 77 per cent of all bonds- borrowing in Africa so far, is expected to provide the answers to such uncertainties.

The appetite for African sovereign debt in the international capital market is growing. And Africa itself is salivating for more.  The conditions favour Africa: Interest rates in the U.S. and Europe are low and unlikely to rise soon. This means that investors have to look elsewhere to better returns. For Africa, it is time to obtain low-cost funding before the global economic recovery brings an end to stimulus that drove gains in emerging-market debt.

The continent needs money to finance its development programme.  In addition, to financing projects and completing them in time and on budget, local currencies gain while interest rates in the domestic market will decline. Low interest rates buoy domestic economy by encouraging more borrowing by the private sector leading to further growth.

  Given the prevailing circumstances for investors, the best destination for their funds is Africa. The result is a high demand for Africa’s sovereign debt.  Consequently, this year, the international capital market is expected to raise more funds for Africa.

 Why has Africa become the darling of investors? Good house-keeping and robust economic growth in the second-  half of the decade of 2010 has changed the perception of Africa risk. Also the discovery of hydrocarbons and other natural resources is raising the investing profile and mitigating the risk profile.

Consequently, investors are snapping up African debt paper as returns are still better than in the West. The rise in debt issuance by African countries is underpinned by relatively high risk-adjusted yields. Global investors inclined to diversify their asset portfolio are attracted by favourable yields offered by African assets, discounting the risk of low ratings for many of these countries.

Africa needs the foreign money to finance its development programs, especially in infrastructure. According to experts, Africa experiences a financing deficit of US$30 billion needed to finance infrastructure. Its annual requirement is US$90 billion out of which Africa raises US$60 billion from its resources. Given that sovereign debts are long-term in nature, governments are borrowing to bridge the gap.

Monday, 16 June 2014

East Africa's growing Economic independence

Proposed second Terminal at JKIA, Kenya
EAST AFRICAN COUNTRIES are increasingly becoming independent from the economic standpoint. The regional countries read the coordinated budget for the year 2014/15. The budgets amounted to US$40 billion, a whopping 30 per cent of the GDP estimated at US$120 billion. 

An outstanding feature of the budget is that the region will finance on average, 76.5 per cent of the total budget from domestic sources. This is a major leap compared to 10 years ago when the region financed only about 55 per cent of their US$11 billion budget. Only Kenya, the largest economy in the block could finance her 2004/05 $6.7 billion budget from the domestic sources. Tanzania, whose budget in 2004/05 stood at $2.5billion, could finance only 59 percent of her budget from domestic revenue. Ten years later, Tanzania will finance to 61.4 per cent of a budget that is five times larger. The current budget stands at US$12 billion while domestic revenue will stand at US$7.4 billion.

Uganda, which financed 54 per cent of her budget estimated at US$1.8 ten years ago, will finance 82 per cent of the 2014/15 budget which is three times larger. The current budget stands at US$ 5.8 billion while the domestic revenue will stand at $4.8 billion.

Construction of Bujagalli Hydro Dam in Uganda

Kenya for her part will finance 86 per cent of her US$20 billion budget from domestic revenue. This is to say she will raise some $17.7 billion from domestic revenue. This is a decline from the previous level where she funded 96 per cent of her budget which was a third of the current budget. The budgets are a confirmation that East African economies have been on a growth trajectory over the past decade creating opportunities for economic players, putting more money in people’s hands and reducing poverty.
This trend has analysts saying that East Africans are slowly but surely taking charge of their economy. The casualty of this trend is aid dependency which has declined from nearly 50 per cent to less than 25 per cent in 10 years. This decline is expected to accelerate further and even be eliminated in less than 10 years as the region begins to produce oil and Natural gas.

Kigamboni Bridge in Dar-Es-salaam,
Another outstanding feature is that more than 20 per cent of the budget will be development expenditure. Much of the money will be spent on physical Infrastructure. Transport infrastructure will gobble up some $4.0 billion broken down as: Kenya S1.7 billion; Tanzania $1.3 billion and Uganda $0.995 billion. In addition they have allocated huge sums to electricity generation.  

Both Kenya and Uganda will construct a regional Standard Gauge Railway from Mombasa to Kigali Rwanda through Kampala in Uganda. Tanzanian for her part is planning to rehabilitate both the rolling stock and the hardware on central railway line. 

 Natural resources have placed the east Africa in the pedestal of an expected economic boom. Consequently physical infrastructure has been identified as the major bottleneck to the exploitation of such resources and the resultant largesse. Consequently the region is investing heavily on energy and transport infrastructure. Estimates show that the block needs to spend an estimated $10-13 billion a year on infrastructure up to 2020.

This economic independence and the resultant dilution of aid importance has emboldened Africa resulting into several run ins with the donor community especially in the West. Africa has in the recent past chosen an independent path defying Western nations that have been promoting what to Africa is debauchery.

Wednesday, 11 June 2014

Why Africa grew by 6 per cent in 2013, WB

STRONG DOMESTIC DEMAND drove Africa’s GDP growth last year. Sub-Saharan Africa’s GDP, excluding South Africa grew by 6 per cent. However, when the sluggish South Africa economy is included, GDP grew by 4.7 per cent says the World Bank’s Global Economic Prospects.  The Bank expects GDP to remain growth rate to hold and 4.7 per cent in 2014 and rise expected 5.1 per cent in 2015.

South Africa, Africa’s second largest economy grew by a paltry 1.9 per cent in 2013. This was mainly due to structural bottlenecks, tense labour relations and low consumer and investor confidence.

The World Bank stated that GDP growth projections in the region in 2015 and 2016 are expected to be supported by firming external demand and investments in natural resources, infrastructure, and agricultural production.

East Africa is expected to drive the strong growth in Sub-Saharan Africa “due to supported by Foreign Direct Investment flows into offshore natural gas resources in Tanzania, and the onset of oil production in Uganda and Kenya,” it said.

 Natural resources have placed the east Africa in the forefront of an expected PPP boom as they invest heavily on infrastructure. The region needs an estimated $10-13 billion a year to spend on infrastructure up to 2020.

Kenya is a front-runner in the respect with some three or four major projects to write home about. These include; the Aga Khan Nairobi Hospital (2010), Olkaria III Geothermal Phase II Power Project (2009) and Expansion Project (2011), and the approximate $900 million Lake Turkana Wind Power Project (2014. The country is also expecting to generate an estimated 400MW of geothermal power from Menengai wells through PPP.  This is a case study of success not only in East African community but also for sub-Saharan Africa. The country still requires an estimated $4 – $5 billion per year through 2020.

Tanzania is home to various minerals, including gold, diamonds and coal, but the sector has not witnessed expected growth. Furthermore Tanzania’s natural gas boom has, in part, been overshadowed by the one south to it in Mozambique and, in part, subdued by the country’s mass infrastructural challenges across all sectors. The country requires an estimated $6 – $8 billion to keep up with expected infrastructure needs through 2020.