(Bloomberg) -- Sub-Saharan Africa’s tentative return to international capital markets is already running into a wall as global investors fret over the uncertainty around US presidential election.
Only five of the region’s 49 governments — Kenya, Senegal, Ivory Coast, Benin and Cameroon — have managed to sell dollar bonds this year, after they were all shut out to foreign capital for two years amid the ravages of war and rising global interest rates. The combined $6.2 billion they’ve raised so far is still lower than the amount mopped up by this time in 2022.
But even that is at risk as emerging markets approach August, traditionally a sluggish time for bond sales amid summer holidays. There’s an added layer of uncertainty this year as the dramatic twists in the US election run-up have pushed bond buyers to price in political risks earlier than expected. A victory for Donald Trump is seen as a risk for high-yield borrowers as some money managers bet he will pursue fiscal expansion that might keep global borrowing costs high.
“The US elections, including the potential return to more unorthodox policymaking under a second Trump administration, are expected to make issuance in September through November more challenging,“ said Mark Bohlund, senior credit research analyst at REDD Intelligence.
The expected slowdown in new-bond sales may come from both demand and supply sides. For investors looking to buy high-yielding debt, the US election is a complication — especially after Kamala Harris replaced President Joe Biden as the Democratic nominee with less than four months to go for the November ballot. Harris faces an uphill battle, with polls showing mixed support and questions about her ability to consolidate the anti-Trump vote.
For African governments looking to borrow, there’s less incentive due to the still high borrowing costs, and the already heavy debt loads most of them carry. The availability of alternative funding sources like international aid, concessional loans from multilateral institutions, and domestic debt markets which generally offer more favorable terms and lower interest rates, make eurobonds less enticing.
In fact, the continent’s governments were probably advised to complete their issuances before August as Trump’s chances brightened, Bohlund said.
History backs up that approach. In 2019, there were three sales from Sub-Saharan Africa between August and year end. In 2020 — a US election year where Donald Trump attempted a comeback for a second-term, there was only one.
While global interest rates are beginning to ease, they remain high in Africa. Weakening currencies continue to stoke inflation, forcing most nations to maintain tight monetary policies.
Some money managers already anticipated muted issuance from Africa this year, even before the current US political landscape unfolded. In a note this week, Goldman Sachs Group Inc. strategists including Kamakshya Trivedi, said the outlook for riskier assets is no longer as favorable as it was at the beginning of the year.
“As we move deeper into the year, even a benign macro markets outlook is likely to increasingly take a back seat to the US elections – which may or may not reset the policy landscape in a way that is unfriendly to EM assets,” they said.
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