Trends and Developments in African Frontier Bond Markets

Before 2006, only South Africa had issued a foreign-currency denominated sovereign bond in sub-Saharan Africa. From 2006 to 2014, at least 14 other countries have issued a total of $15 billion or more in international sovereign bonds. This sudden surge in borrowing in a region that contains some of the world’s poorest countries is due to a variety of factors, including rapid growth and better economic policies in the region, high commodity prices, and low global interest rates. Increased global liquidity as well as investors’ diversification needs, at a time when the correlation between many global assets has increased, have also helped increase the attractiveness of the so-called “frontier” markets, include those in sub-Saharan Africa. Whether the rash of borrowing by sub-Saharan governments (as well as a handful of corporate entities in the region) is sustainable over the medium to long term, however, is open to question. The low interest rate environment is set to change at some point—both raising borrowing costs for the countries and reducing investor interest.