Mr. Goolam Ballim, the group economist of the Standard Bank of South Africa, the parent company of Stanbic bank, said now is not a good time to issue a sovereign bond.
All three countries are looking to issue sovereign bonds for infrastructure development but the present environment tells you it is not a good time, Ballim said.
Ballim was in Kampala last week to discuss the global financial crisis and its real economy implications on sub-Saharan Africa.
Kenya, Uganda and Tanzania were all at different stages of issuing the bonds, which would essentially attract a lot of interest from foreign investors who are at the moment, cannot easily find credit because of the financial crisis.
In Uganda’s case, the country was finalising plans to issue a Eurobond, which would have been the country’s first international debt security.
The bond’s value was not yet known but earlier media reports in May quoted top ministry of finance officials saying it was up to a $1 billion.
A Eurobond is a bond issued in a currency other than that of the country where it is issued.
Growing international interest in Uganda’s economy is supported by a good sovereign credit rating by Fitch (B) and the healthy foreign reserve levels. Sovereign rating is a measure of a country’s capacity to settle its national debt obligations and a good rating enables a country to raise money in the international money markets.
Funds that would be raised by the bond would then be invested in critical infrastructure like roads and energy – sectors that have suffered from under-investment over the years.
Currently much of the funds for developing critical infrastructure are provided by bilateral donors whose resources come with conditions that are a lot of times not favourable to the recipient country.
For Tanzania’s case, Ballim said the country was set to carry out a credit rating, which is a pre-requisite for funding instruments like a sovereign bond.
However the country has announced plans to issue the bond to raise money. The International Monetary Fund (IMF) has committed to provide the necessary technical assistance to assist Tanzania float the bond.
Tanzania’s total public expenditure budget has grown from 17% of GDP in 2000/01 to about 23% in the 2007/8 financial year. With a population of about 40 million people and a largely agrarian economy even with mining now getting bigger, Tanzania is still one of Africa’s top recipients of aid.
Key concerns of international investors wishing to put their money in sovereign bonds include a country’s overall economic strategy, its relationship with international development partners and its fiscal and debt sustainability position.
Others include the attractiveness of rate of return on the bond, reliable information on the country’s economic policy and past performance and the level of support for the issue by all stakeholders, including the political establishment. Investors in the bonds also demand that the issuer has a high level of transparency with a market based economy.
Kenya’s plan to float its own bond is still on course but like Ballim said, the global financial markets are not healthy and raising it despite the environment would be problematic. Kenya is however looking at issuing the bond within the current financial year.
International credit rating agency Standard and Poor’s upgraded Kenya’s outlook rating to stable from positive earlier in the middle of the month, and affirmed the long term credit rating of B+.
The government targets to raise $500 million through the issue.
Ghana and Gabon have already tapped into the international markets through successful Sovereign bond issues floated last year.
Mr. Philip Odera, the managing director Stanbic Bank Uganda told the gathering, which included bank clients and people from the banking sector that amidst the crisis, there is opportunity as well.
“We also believe that opportunities come out of environments like this and we should find ways to better hedge ourselves against it and also identify the opportunities this presents,” Odera said.
Ballim echoed analysis that has been made by other commentators saying Africa’s banking system will not be touched by the credit crisis but the continent’s economies will be affected in other ways.
In real economic terms, while the Africa banking system will have limited exposure, the crisis will translate into a slowdown in demand for commodities, slump in tourism, slowdown in capital inflows, moderation in donor aid inflows, a rise in the cost of capital and a decline in remittances.
Others are increased unemployment and reduced demand for Africa’s exports as marginal consumption is likely to reduce.
“From a volumes point of view, we are going to be shipping less and from a price point of view, we are going to be receiving less,” Ballim said. Over the past five years, sub Saharan Africa has been driven by a commodity boom with exports going to Asia and the EU. – East African Business Week
Â