By AGENCIES, NAIROBI.
EAST Africa's economies have long nurtured ambitions to issue Eurobonds to tap foreign interest in their economic growth, yet in reality they are no closer to matching west African issuers, all of which have sucked in more than $4.5 billion since 2007.
On the face of it new launches from east Africa should do well because of recent oil and gas finds and relatively low debt-to-GDP ratios. Young, growing populations, and heavy investment in infrastructure are an added appeal.
In the case of Kenya and Uganda, where yields on domestic debt rose to higher than 20 percent in the last quarter of 2011 and early this year there has been solid foreign interest in the local bond market.
So what is stopping them from launching the Eurobonds they have been promising for years -- in Kenya's case, since 2008?
Aly Khan Satchu, an independent Nairobi-based analyst, says it all boils down to their over-reliance on donor funding and, until recently, lack of hard resources like oil.
"In east Africa, we have exhibited a higher interdependence with multilateral institutions like the IMF and the World Bank," said Satchu.
West Africa boasts vast resources of oil, gold and cocoa, which boost hard currency reserves and keep investors interested in the region despite upheavals including a disrupted election in Ivory Coast, and conflict in the Niger delta in Nigeria.
"Nigeria has always had well known hard assets," said Satchu. "Ghana was able to call on the market once its assets started to come on stream. I think east Africa is a later comer to the party because its hard resources have only recently popped over the radar."
Under-developed domestic debt markets, with the exception of Kenya, and relatively weak revenue collection systems also make it difficult for most east African countries to fund their fiscal budgets, putting in doubt their ability to service international debt.
"It may not be the most sound decision for countries with uncertain revenue streams, or a very narrow domestic tax base, to be thinking of borrowing externally just yet," said Razia Khan, head of research for Africa at Standard Chartered.
RISK AND OPPORTUNITY
Kenya doubled its planned debut sovereign bond to $1 billion after postponing it to the 2013/14 fiscal year (July-June) from the 2011/12 fiscal year.
East Africa's largest economy, rated 'B+' by Fitch, has postponed its a plans for a Eurobond twice.
In 2008, it cancelled its financing plan after the global financial crisis tightened financial markets and last year it shelved a $500 million bond plan, opting instead for a $600 million syndicated loan that was faster to process.
Uncertainty over Kenya's next general election set for March 2013 remains a significant stumbling block in its bid to tap a Eurobond. Tribal fighting following a disputed presidential election in 2007 killed more than 1,220 people and displaced hundred of thousands.
"Kenya would arguably have been part of the Eurobond universe already if it had not been for the political unrest following the 2007 elections," Mark Bohlund, senior economist for sub-Saharan Africa at IHS Global Insight.
Uganda, Tanzania and Rwanda are also planning to sell a total of $800 million in Eurobonds in the next two years.
Tanzania's may be the least likely to materialise since the country, which has no credit rating, bars foreigners from investing in its domestic debt market.
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