Category Archives: News
By Henry Mukasa
Posted Friday, July 4 2014 at 01:00
Priority. Mr Kagame says personalising succession other than institutions devalues the debate on the future of democracy in Rwanda and Africa.
Rwandan President Paul Kagame has declined to say whether he will retire when his second elective term in office ends in 2017, saying personalising succession other than institutions devalues the debate on the future of democracy in Rwanda and Africa.
“The exercising of power seen as governance process, seen as tokens given by individual, is about what you do when you are there rather than leaving the scene,” Mr Kagame said. “It’s like when I go, I am likely to be rewarded for that, than for what I have done when I am there. Rights and processes should not be zeroed to an individual,” he added.
The Rwandan leader was addressing a pan African Youth conference in Kigali as part of the activities to commemorate the 20th anniversary for the Rwanda liberation.
Mr Kagame was responding, during an interactive session, to a question put to him by a youth from Uganda, Mr Victor Ochieng, whether he would be the African leader to emulate global icon Nelson Mandela and hand over power without difficulty. Mr Ochieng also wondered why elderly African leaders were afraid of the youth taking over from them.
The president asked the youth from 44 countries that the pre-occupation of Africans should be on creation of situations, systems and institutions where things happen and not a decision of one individual.
Mr Kagame dismissed the notion that there was a divide between the youth and the old in the body-politic of Africa. “It shouldn’t sound ‘it’s the young versus the old.’ If we don’t unite and there is a seamless relationship, then there is a problem”.
Earlier, Mr Kagame said democracy did not have a scientific formula applicable to all nations. He said each country must come up with a mechanism that works best for its citizens “even with trial and error.”
“This is what builds democracy and sustains peace. But if we lack in confidence, we will always fall back in the mountain, again and again,” he said as the youth applauded.
Mr Kagame said it was time for African countries to shake off the yoke of low expectations attached to Africans and their governments by the so called developed nations.
Citing Kigali, he said some Western and African visitors are usually surprised by the lawfulness, cleanliness and orderliness of the capital, Kigali, run down by genocide only 20 years ago.
He said the low expectations of the Africans had been exhibited even at the World Cup where all the four nations from the continent were eliminated.
“I watch the World Cup in my free time. But I feel like punching the screen. You have these African players… as individuals they are the best but as a team….,” he said, without completing a statement. “I wish I was their coach.”
Kenya President Uhuru Kenyatta proudly addressed media to announce the successful insurance of $2 billion Eurobonds. Kenyatta commended the team that worked of the flotation of the Eurobonds which is now in the Kenya’s central back.
Attracted by the prevailing low interest rates, cash-strapped African countries, including Zambia, looking to borrow money on international private markets are increasingly turning to Eurobonds as the instrument of choice.
In 2006, Seychelles became the first country in sub-Saharan Africa, other than South Africa, to issue bonds.
A year later Ghana followed, raising $750 million in Eurobonds. Since then they have been joined by Gabon, Senegal, Côte d’Ivoire, the Democratic Republic of Congo, Nigeria, Namibia and Zambia.
In September 2012, Zambia made a splash on the international private market, launching a 10-year bond at $750 million.
The issue was oversubscribed by $11 million and became a model for other African nations. Rwanda followed suit in 2013 with a $400 million Eurobond issued on the Irish Stock Exchange.
Zambia went back in April 2014 to issue a $1 billion Eurobond to finance its budget deficit. It intends to spend over $600 million on developing power, road and rail infrastructure.
Sub-Saharan Africa’s second-largest economy, Nigeria, first entered the markets in 2011 with a 10-year Eurobond. “We look to come [to the market] regularly, every two years,” Finance Minister Ngozi Okonjo-Iweala told the Financial Times.
In 2012, African countries raised about $8.1 billion from issuing bonds, says Moody’s, a global credit rating agency. In total, more than 20% of the 48 countries in sub-Saharan Africa have sold Eurobonds, according to the International Monetary Fund (IMF).
For certain governments in sub-Saharan Africa, Eurobonds are a means of diversifying sources of investment finance and moving away from traditional foreign aid.
Not only do these bonds allow such governments to raise money for development projects when domestic resources are wanting, they also help reduce budgetary deficits in an environment in which donors are not willing to increase their overseas development assistance.
Corporate entities in sub-Saharan Africa, like Guaranty Trust Bank in Nigeria and Vodafone Ghana, have also successfully issued Eurobonds.
Global investors have been eager to purchase these bonds for higher yields amid low returns in mature markets. It is a sign of the investors’ endorsement of the region’s buoyant economic prospects, observes Mthuli Ncube, chief economist and vice-president of the African Development Bank (AfDB).
The developed world has been rocked by a series of economic and financial crises while Africa has displayed steady growth over recent years, averaging about 5% per annum. Analysts believe the incentive for investors is solely the prospect of higher gains.
Eurobonds have also given African countries an opportunity to integrate into global financial markets. Up until recently, according to the AfDB, access was limited for African countries apart from Morocco, South Africa and Tunisia, which entered the markets in the 1990s.
In addition, bond issuances come with fewer strings attached than money from multilateral institutions. Governments also have more control over where they channel the money.
Other reasons behind the recent surge in borrowing by African countries, according to the IMF, are changes in the institutional environment, such as more flexibility for low-income countries with access to non-concessional borrowing, reduced debt burdens, large borrowing needs and historically low borrowing costs. But there are serious challenges to Africa’s future in international markets, analysts warn.
Buyers of African bonds raise concerns about the countries’ vulnerability to commodity prices, political instability, fiscal irresponsibility, lack of reliable statistics and transparency, and poor histories of debt management. Therefore, sovereign bonds issued by resource-rich African countries are deemed risky assets by some investors.
Recent speculation that the U.S. Federal Reserve bond-buying programme would end in 2014, along with rising U.S. treasury yields, sparked a sell-off in emerging markets, Angus Downie, the head of economic research at Ecobank, a pan-African bank, told Business Daily of Kenya.
“Investors will want higher yields,” he says. Since the beginning of 2014, the Federal Reserve has started cutting back on its bond-buying programme, leading to speculation that this might spark an increase in interest rates. Higher interest rates raise the cost of servicing the national debt.
In a recent article, the Wall Street Journal showed Nigeria’s Eurobond trading at a yield of 6.375%, up from 4% in late April, because of waning investor interest, adding that Rwanda is now trading north of 8%.
Zambia’s bolds were sold at a yield of 5.625 percent and carried a coupon of 5.375 percent. The total order book was $11.9 billion.
This is not only the largest order book for sub-Saharan Africa, but also at 5.375 percent the lowest coupon, meaning the most favourable price.
The yield fell to 5.2 percent, bringing it close to Ghana’s 2017 Eurobond, currently yielding 4.8 percent, and analysts said it could decline further.
Zambia and Ghana are rated B+ by Fitch. However, Zambia has a B+ rating from Standard and Poor’s, compared to B for the west African gold, cocoa and oil producer.
On the flip side, these bonds have not been the saving grace that African countries thought they would be. In an article entitled “First Borrow,” Amadou Sy, deputy division chief of the IMF’s Monetary and Capital Markets Department, points to some recent sovereign defaults in sub-Saharan Africa.
The Seychelles defaulted on a $230 million Eurobond in 2008, after a sharp plunge in tourism revenues and years of excessive government spending.
Côte d’Ivoire missed a $29 million interest payment after its 2011 election disputes forced it to default on a bond issued in 2010. Ghana and Gabon are struggling to find money for a $750 million and $1 billion bond, respectively, on 10-year Eurobonds that will reach maturity in 2017.
But this has not deterred African countries from issuing bonds, although they are borrowing at high interest rates.
Joseph Stiglitz, a Nobel laureate in economics and Columbia University professor, questions in a blog for the Guardian this new trend for “private sector borrowing” by developing countries. The sovereign Eurobonds carry significantly higher borrowing costs than concessional debt, Stiglitz notes.
He worries about “excessive borrowing” over the long term, which benefits only the banks because they “take their fees up front.” African countries, Stiglitz believes, should have in place a “comprehensive debt-management structure”; they should also invest wisely and refrain from borrowing further in order to repay their debts.
Whether the “rash of borrowing by sub-Saharan African governments is sustainable over the medium-to-long term is open to question,” echoes IMF’s Sy.
If the low-interest-rate environment changes, it could reduce investors’ appetite for the bonds and “economic growth may not continue, making it harder for countries to service their loans,” he adds.