Current account

“Nigeria, Ghana, SA account for more than 40% of SSA Eurobonds Issuance”

  • Pressure on SSA assets has intensified due to COVID-19 related shocks
  • In this note, we analyze the composition of external flows to the region
  • SSA has become more globally integrated and reliant on portfolio flows
  • This makes the region more exposed to swings in investor sentiment.

Nigeria, Ghana and South Africa accounts for more than 40% of Sub-Saharan Africa total Eurobonds issuance, the Institute of International Finance has revealed.

The Institute revealed that frontier market asset prices, particularly in SSA, have come under substantial pressure in recent months.

In its macroeconomic note, IIF recognised the region’s sensitivity to swings in capital flows, thus observed increasing reliant in portfolio flow by SSA countries.

According to the Institute, non-resident capital flows to SSA have grown dramatically over the last decade and increasingly consist of short-term instruments.

It stated that the region is now more integrated into global financial markets than ever before, and less reliant on concessionary funding.


IIF explained that SSA is also more exposed to swings in global risk sentiment, commodity prices, currencies, and interest rates.

Portfolio investment accounted for roughly 30% of total non-resident flows to the region in 2018, largely consisting of flows into debt, IIF remarked.

The Institute explained that Eurobond issuance in SSA has increased dramatically over the last five years, as countries took advantage of low global rates.

As a result, amortization is set to rise in coming years, IIF stated.

It explained that growing remittances also play a key role and are masking some of the underlying current account deterioration.

For example in Nigeria, where a surplus of 0.9% of GDP in 2018 turned into a deficit of 3.6% in 2019.

“While foreign direct investment generally tends to be a less volatile funding source, the majority of such flows to SSA goes to the energy and mining sectors.

“Thus, is sensitive to the kind of swings in commodity prices that we see right now”, the Institute remarked.

Portfolio flows to Sub-Saharan Africa are still highly concentrated in a small number of countries.

Ghana, Nigeria and South Africa led the pack

The Institute relate that Ghana, Nigeria, and South Africa together accounting for more than 40% of the region’s total Eurobond issuance.

IIF stated that while South Africa has benefited from highly developed markets for some time, Ghana and Nigeria have increasingly attracted investors to domestically issued debt instruments in recent years.

In the case of Nigeria, short-term CBN bills dominate non-resident participation. The Institute said current dynamics differ considerably between countries.

While outflows appear to have stabilized in Ghana, the situation in Nigeria is more precarious, IIF explained.

The Institute stated that foreign investors began to withdraw in second half of 2019 due to policy uncertainty, and outflows are now likely exacerbated by the sharp drop in oil prices.

“Côte d’Ivoire, Senegal, and Zambia are also disproportionately exposed to swings in portfolio flows.

“Poor local revenue mobilization is a key issue across the region.

“As repayments increase, with growing Eurobond repayments looming in 2021 and beyond, countries that are not experiencing debt sustainability concerns may still find it hard to raise sufficient revenue.

“Especially as commodity revenues are likely to decline sharply”, IIF projected.

On the positive side, the Institute said FDI remains an important source of funding for many countries.

It is, however, largely concentrated in extractive sectors such as energy and mining, making it volatile and sensitive to swings in commodity prices.

In recent years, more than 50% of Greenfield investments in SSA have gone to manufacturing and services, a welcome development, IIF noted.

The institute added that the retail, financial services, telecommunications, and technology sectors are increasingly attracting foreign investor interest.

“It is notable that FDI inflows are now more evenly distributed geographically, while they were heavily concentrated in Nigeria and South Africa just ten years ago.

“This is likely the result of high growth and policy improvements in many countries, as well as increasing regional integration”, the Institute highlighted.

IIF further explained that Ethiopia and Kenya, both non-commodity exporters, have recently attracted significant FDI inflows.

At the same time, IIF stated both Nigeria and South Africa increasingly struggled to generate robust growth.

“The United States, the UK, and France have traditionally been important investors in the region.

“Over the last decade, however, the role of others, including China, has risen considerably”, IIF stated in the macroeconomic note.

Of the total FDI liabilities, IIF revealed that around 60% are made up of equity investments and 40% by debt.

Remittances, while formally recorded in the current account, have become an important source of external funding, reaching $40 billion in 2019, it stated.

IIF stressed that increasing migration has contributed to rising remittances, together with the pickup in global growth.

“While remittances generally represent a more stable source of funding, the global recession induced by COVID-19 will likely result in a sharp reduction in 2020.

“This is a challenge particularly for countries such as Gambia where remittances account for 14% of GDP, Senegal 10%, Nigeria 5.7% and Ghana 5.5%”, the Institute stated.

Nigeria, SA and Angola sluggish performance slowdown Sub-Saharan Africa economy

“Nigeria, Ghana, SA account for more than 40% of SSA Eurobonds Issuance” by Julius Alagbe


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