Published on : 03/08/2022 – 00:38
This is a global trend that worries African countries. Advanced economies are raising their interest rates in an effort to curb inflation. As a result, money is more expensive and African states will have to pay more to borrow on the financial markets. The IMF fears a new debt crisis, but there are solutions, they go through the local capital markets.
Last June Nigeria waived an international loan of 950 million dollars, which was nevertheless necessary to balance its budget. Reason given, the financial conditions were no longer advantageous. Clearly, the interest demanded by the banks was too high. The rise in US interest rates is causing a global trend towards higher credit prices. Borrowing in hard currency is becoming more expensive, and also more difficult, as Anouar Hassoune, West Africa director of GCR Rating, the South African financial rating agency, explains:
« When interest rates are on the rise, liquidity in that currency tends to become scarcer. And the problem we have in Africa is certainly a debt price problem, but it is above all a problem of making currency liquidity available to our economies, observes the director of GCR Rating. And today, with a rate hike of this magnitude, the liquidity available for emerging countries, in dollars and euros for African countries, risks becoming scarce. »
African states should therefore consider turning to their own capital markets which are denominated in local currencies. Borrowing in one’s own currency has the advantage of no longer depending on foreign currency receipts to repay lenders. This is the opinion of Stanislas Zeze, CEO of Bloomfield Investment Corporation, the leading financial rating agency in French-speaking Africa. For him, Africa must diversify its financial products.
« VYou know, in African countries, liquidity exists. It’s just that the financial markets have to be well organized in order to be able to capture this liquidity. Take the example of WAEMU (West African Economic and Monetary Union, editor’s note), where for a long time there was only one financial product offered to investors, which was “sovereign bond ”, Explain Stanislas Zeze. At one point, it started to run out of steam, they introduced the Sukuk (bond-type financial product respecting the rules of Islamic finance, editor’s note) and we saw the emergence of another type of Islamic investor who strengthened the market liquidity, specifies the CEO of Bloomfield Investment corporation. And then we saw the emergence of Green Bonds (Green Bonds, Editor’s note) and we also saw another type of investor emerge. So that means we have to diversify financial products so as to attract new investors. »
As the financiers say, “the markets are deep” and you just need to know how to organize them. States also have modern tools to finance their infrastructure needs without resorting to borrowing, such as PPPs and public-private partnerships. Debt is not inevitable, and African rating agencies are pushing States to think better regarding their financing policies.
