Will the real Africa please stand up?

IFR 2104 10 October to 16 October 2015
6 min read

I CHAIRED IFR’s ninth annual African Capital Markets conference this past week in London and it put me in reflective mood, coming as it did – oddly enough – a year ahead of the event’s 10th anniversary.

Big pending anniversaries tend to have that contemplative effect, so as I prepared for this year’s event and thought about what would be on next year’s agenda, I also got to thinking about how much water had flowed under those occasionally enchanting, occasionally treacherous bridges of emerging market event-risk and risk appetite, and of political, economic and market cycles.

Has anything really changed? Well, despite the fact that emerging markets – and Africa is right in there in the mix – are facing so many imponderables and uncertainties, actually yes! When I first pushed out the idea for our inaugural event back in that warm pre-financial crisis spring of 2007, I recall the reception had been one of jubilation and euphoria.

Frontier markets were in; people were saying then that African borrowers would become as popular with international investors as any of the-then EM bellwether debt issuers. Some would say that only proved we were in a credit bubble; others, however, were convinced we were coming into Africa’s time. If you think back, the reasons for optimism were well founded. The Initiative for Heavily Indebted Poor Countries, which overwhelmingly benefited African economies, was more than 10 years old by 2007; just as the supplementary Multilateral Debt Relief Initiative is a decade old this year.

We had a lot of those ”let’s get it all out on the table” sessions in those early days; talk was of debt forgiveness and concessional finance, multilateral conditionality, dictators, pestilence, famine, and corruption. Since that inaugural Africa conference, I’ve hosted them all. We may not quite have hit the aspirational highs that capital markets participants expected back then and progress across many fronts across the continent has been laboured and mixed, but the narrative has definitely moved on.

I’d been wondering with trepidation about the vibe at this year’s conference … I needn’t have worried

SURE, THE PROSPECTS for emerging markets today look pretty menacing: slowing world economic growth (as per IMF’s World Economic Outlook, which came out two days before the conference); the China slowdown (a BIG issue for Africa); dramatically lower oil prices; the sharp downswing in commodity prices; a significant increase in EM indebtedness ahead of a US rate tightening cycle; higher external debt service; international capital outflows; pressure on domestic currencies; selective rating downgrades; and JP Morgan ejecting Nigeria from its Government Bond Index (making GBI-EM trackers forced sellers into squalls of flustered volatility).

From a debt capital markets perspective, the cupboard of African international debt issuance has been almost bare this year. Only Cote d’Ivoire, Zambia and Gabon had printed 2015 tickets on the eve of the conference. Angola had pulled its US$1.5bn outing the day before while on the same day Ghana priced a rather odd-looking partly IDA-guaranteed amortising bond that had a distinct back to the future look about it (paying a chunky dollar coupon of 10.75% for a final 15-year maturity). It gave naysayers a lot of play around market access issues emanating from those headwinds.

On the plus side, though, Ghana got US$1bn off an oversubscribed book and took out some domestic debt with the proceeds as part of its medium-term debt management strategy. Ethiopia, Cameroon and Ghana (this time with a clean sovereign bond) remain in visible supply. African banks and corporates have been absent from the market this year.

So yes, we’re replete with external headwinds, not to mention myriad local themes that vary from country to country but for all of that, this year’s event wasn’t all gloomy.

In the wake of those latent headwinds, I’d been wondering with trepidation about the vibe at this year’s conference. I needn’t have worried. It was well attended – always a good start – with a lot of familiar faces and panels of great speakers who delivered some fabulous and useful insights.

THE INTERNATIONAL DEBT funding environment – whether that be through the bond market or via syndicated bank finance – is tough. But local currency solutions in select markets are providing ‘Africa for Africans’ debt solutions; South African banks are upping their game in the region; Middle East money including from sovereign wealth funds is actively seeking opportunities; trade finance is booming.

I was particularly taken on our alternatives panel at the conference with the levels of optimism out there and how many debt, equity, hybrid and securitisation deals are being done by non-bank sources – private equity firms, DFIs, non-bank direct lenders, specialist principal investment firms and other non-traditional sources of capital.

Specialist lenders originating deals offering cash as well as advice and capacitation skills to local companies in small to mid-size tickets is where the rubber really hits the road.

Here commodity price cycles, Fed tightening or institutional capital outflows count for little. It’s smart money funding the sound opportunities that abound in the region. Lenders here can generate dollar returns that stretch from the mid-teens to in excess of 30% – I didn’t say it wasn’t without risk – but there is life beyond technical macro-data.

Standard Chartered Bank’s 2015 Emerging Affluence Report tells a great story. Here we get “Ambitious Kenyans” and “Optimistic Nigerians” whose priorities revolve around funding children’s education, buying property and cars, investing, international travel, launching businesses amid high levels of confidence.

We’re already planning our 10th African Capital Markets Conference. It’s going to be a cracker!

Keith Mullin