Ethiopia to raise funds on international bond market

by Elayne Wangalwa 13 views0

Ethiopia will make its debut in the sovereign bond market by early January.

The country – which is sub-Saharan Africa’s fifth biggest economy and at the frontier of investment destinations – will tap into the international bond market for mega infrastructure developments. Currently, there is a sovereign bond craze that has seen a surge in borrowing by sub-Saharan African countries.

Nonetheless, what the Ethiopian government is keen to raise from the sovereign bond market is yet to be established.

(READ MORE: Ethiopia’s impressive economic growth)

“Kenya started the precedent by hitting the one billion US dollar mark as far as it goes and we will not be surprised if countries such as Ethiopia would take a similar bite of the cherry of the investor appetite. But more importantly, if you look at Ethiopia it has had a more ambitious capital expenditure plan and with the growth and transformational plan coming to an end I am sure the question on policy makers’ minds is how do we finance the next bout of growth,” Julians Amboko, research analyst, Stratlink Africa told CNBC Africa.

In recent years, Ethiopia has significantly increased its borrowing. The east African country’s debt-to- GDP ratio has reached a record of 35 per cent. The second most populous country in Africa received its first international credit ratings this year. The country was assigned a long-term foreign and local currency Issuer Default Debt Rating (IDR) of ‘B’ with a stable outlook by the international credit rating agency, Fitch Ratings. Amboko therefore believes that Ethiopia could easily surpass the one billion mark in terms of the money they raise.

(READ MORE: Ethiopian finance minister calls for ECA support)

“Ethiopia is a lot better positioned than many other sub-Saharan countries because at 30 per cent to the GDP ratio, Kenya is at about 50 per cent but more importantly is that when you look at their budgetary structure, Ethiopia is a lot more debt reliant than Kenya for instance and therefore much as it gives a bullish outlook than what they would actually seek to raise, we would obviously take a cautiously optimistic position as far as that is concerned,” Amboko explained.

With Ethiopia’s growing economy largely sustained by infrastructure investment, the nation’s economic growth has unswervingly well outdone its peers in sub-Saharan Africa, averaging about 10 per cent real GDP growth over the past decade. Many investors see the government’s intention of issuing a sovereign bond as perfect timing.

“I think it is auspicious because for one we have seen a trend of gradual liberalisation of the Ethiopian economy. We have seen them liberalise the energy sector, we have seen them introduce the mobile money band therefore the global perception is that this economy – that was for a long time closed – is actually now opening up,” Amboko said.

(READ MORE: Ethiopia opens up for foreign investment)

Africa which first appeared on foreign fixed income investors’ radar in 2001 allure has ever increased. South Africa, Angola, Côte d’Ivoire, Gabon, Ghana, Namibia, Nigeria, Rwanda, Senegal, Seychelles, Zambia and Kenya have been able to raise funds in international debt markets. Kenya was the latest to follow the growing trend. The country secured bids worth 8.8 billion US dollars counter to the government’s target of two billion US dollars, making it the largest debut for an African country in the sovereign bond market.