Sarah Travers
The Sub-Saharan African region’s cautious steps back into the international capital markets are encountering formidable obstacles, mainly due to the increasing anxiety among global investors about the forthcoming US presidential election. This election-induced uncertainty threatens the region’s efforts to attract essential foreign capital, undermining the recent progress after a long hiatus.
To date, only five out of 49 Sub-Saharan African governments — Kenya, Senegal, Ivory Coast, Benin, and Cameroon — have succeeded in issuing dollar bonds this year. These countries have collectively raised $6.2 billion, which is notably less than the amount collected by the same time last year. However, maintaining this momentum is now in jeopardy as emerging markets enter August, a typically slow period for bond sales due to summer vacations.
The current year’s added uncertainty stems from the unpredictable developments in the US election lead-up. Investors are factoring in political risks sooner than usual, especially with the potential return of Donald Trump. Many investors anticipate that a second Trump administration might implement fiscal policies that could keep global borrowing costs elevated, posing a significant challenge for high-yield borrowers such as those in Sub-Saharan Africa.
Historically, the months preceding US elections have been challenging for bond issuances from emerging markets. In 2019, only three sales came from Sub-Saharan Africa between August and year-end. Similarly, in the 2020 US election year, which featured Donald Trump seeking a second term, there was just one such sale.
The anticipated slowdown in new bond sales is expected to be driven by both demand and supply factors. For investors, the US election complicates the landscape for high-yield debt. The recent political shift, with Kamala Harris replacing President Joe Biden as the Democratic nominee just months before the November election, adds to the uncertainty. Harris faces significant challenges, with polls showing mixed support and questions about her ability to consolidate the anti-Trump vote.
For African governments, the high borrowing costs and existing heavy debt burdens reduce the appeal of issuing new bonds. Many nations find alternative funding sources, such as international aid, concessional loans from multilateral institutions, and domestic debt markets, more attractive. These sources typically offer more favorable terms and lower interest rates compared to eurobonds.
Advisors likely recommended that African governments complete their bond issuances before August as Trump’s prospects in the election improved. This strategy aligns with historical trends, where bond sales from the region decrease significantly in US election years.
Despite some easing in global interest rates, they remain high in Africa due to persistent inflation caused by weakening currencies. This has compelled many nations to maintain tight monetary policies, further complicating the bond issuance landscape.
Some investors had already expected a subdued issuance from Africa this year, even before the current US political developments. According to strategists from Goldman Sachs Group Inc., including Kamakshya Trivedi, the outlook for riskier assets is not as favorable as it was at the beginning of the year. As the year progresses, even a benign macroeconomic outlook is likely to be overshadowed by the US elections, potentially altering the policy landscape in a manner that is unfavorable to emerging market assets.
Sub-Saharan Africa’s attempt to re-enter the primary bond markets is being hampered by the uncertainty surrounding the US presidential election. The combination of high borrowing costs, alternative funding sources, and political risks associated with a potential Trump victory are making it difficult for the region to draw in foreign capital. As historical trends indicate, bond sales from the region may significantly decline as the election nears, further complicating the financial outlook for these nations.
