Are African Eurobonds merely a short term solution?

by admin 0

The African Eurobond asset class shift from a niche area to mainstream may be a short-term solution to a long-term problem.

According to Antoon de Klerk, portfolio manager at Investec Asset Management, international investors continue to capitalise on the favourable African macroeconomic conditions and diversification benefits offered by the bonds.

“African sovereigns have taken advantage of the lower dollar interest rates that these sources of funding have afforded them,” said de Klerk.

(READ MORE: Weighing up Africa’s issued Eurobonds)

However, de Klerk believes that the African Eurobond is a solution that will not benefit Africans in the long run. He says that supplying Eurodollar bonds in the current low interest rate environment provided opportunities to African countries. However the gap in currencies and risks because of sovereign balance sheets mean that Eurobonds are not the answer to Africa’s affordable capital.

As the annual Macroeconomic and Financial Management Institution of Eastern and Southern Africa (MEFMI) gather in Washington DC to discuss matters such as the deepening if domestic capital markets in Africa, de Klerk will be speaking at the forum to propose the continent focuses on developing the domestic bond market in Africa.

(READ MORE: Could Africa see a tapering of Eurobond issuances?)

“There are currently only 15 investable local currency bond markets in Africa and this is where the real opportunity lies. This is a good way for investors to get exposure to the underlying growth fundamentals of a country,” he said.

According to de Klerk one of the biggest challenges hindering the growth of the domestic bond market is a lack of knowledge of the economic environments and factors that drive each market on the continent.