Investors eyeing Sub-Saharan Africa

• Author: John Wakeman-Linn and Piroska Nagy
• Position: IMF African Department
• Pages: 17-27

Page 17

Two African countries successfully tapped international capital markets in the second half of 2007, demonstrating global investors' rising confidence in sub-Saharan Africa's economic performance and prospects. The IMF's latest forecast shows growth in Africa rising to 7.0 percent in 2008, up from 6.0 last year.

Page 27

Ghana entered the international capital market in September 2007 with a $750 million bond issue. It was more than four times oversubscribed; total bids exceeded $3.2 billion. Despite increased volatility in international capital markets, Gabon followed in December with a $1 billion bond issue to repay Paris Club debt, with terms similar to those for Ghana.

These bond sales are the logical outcome of the growing interest of international investors in Africa and in emerging and developing countries worldwide. The economic situation of sub-Saharan African (SSA) countries has improved markedly; collectively, they are experiencing the highest growth and lowest inflation in 30 years.

Countries in the subcontinent have substantially improved their economic policies, they have received significant debt relief through the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative, and the external environment is favorable. That is why investors are looking at SSA countries in their search for yield, diversification, and potential, despite recent outbreaks of violence in Chad and Kenya.

Foreign holdings

Besides raising funds on international capital markets, several African "mature stabilizers"-countries that have made significant progress toward macroeconomic stability and debt sustainability- have succeeded in selling treasury bills in their own currency to foreign investors. At the end of June 2007, foreigners held about 11 percent of Ghana's domestic currency government debt valued at more than $400 million. In Zambia, foreigners reportedly hold more than 14 percent of local currency government debt, and they hold a significant share in Tanzania and Uganda.

This heightened international investor interest presents SSA countries with significant opportunities but also with significant challenges. The opportunities are obvious. With international donors not yet delivering on their Gleneagles promise to double aid to help low-income countries meet the Millennium Development Goals, funds from private investors offer SSA...