Capital Markets Economy Eurobonds

In 6 Months, Benin Has Raised Over 10% of its GDP in Eurobonds

Benin remains one of Africa’s fastest-growing economies with GDP growth projected at 5% by the IMF this year.

By

In January, Benin had kicked off Africa’s financial year with a historic €1bn Eurobond issuance split in two tranches. In July, it continued to tap global capital markets and became Africa’s first nation to issue an SDG-link Eurobond that raised another €500m. In total, the small country of 12m people, often overshadowed by its big neighbour Nigeria, managed to raise a historic €1.5bn, representing over 10% of its GDP.

A Well Executed Fundraising Programme

At the start of the year, Benin already made headlines with its double issuance of €700m (11-year tenor) and €300m (31-year tenor), which it raised at rates of only 4.875% and 6.875% respectively. Both issuances were massively oversubscribed by 300% and mobilized a total of €3bn, demonstrating significant appetite from global investors for Africa’s debt, even that of smaller and often under-estimated nations.

While smaller, the €500m issuance of July is nonetheless historic because it represents Africa’s first Eurobond dedicated to the financing of projects linked to the Sustainable Development Goals (SDGs). Once again, it was massively oversubscribed and mobilized a total of €1.2bn. The bond has a very good rate of 5.25% and a tenor of 12.5 years.

Benin Builds Investors’ Confidence

Shortly after the January issuance, Fitch Ratings revised the outlook on Benin’s long-term foreign-currency Issuer Default Rating (IDR) from stable to positive and affirmed the IDR at ‘B’. Moody’s Investor Service followed in March by upgrading the Government of Benin’s long-term issuer and senior unsecured debt ratings from B2 to B1.

Both upgrades were made on the back of strong fiscal consolidation track record, recognized efforts in debt restructuring and rising economic resilience. Benin remains one of Africa’s fastest-growing economies with GDP growth projected at 5% by the IMF this year, and at 5.6% by Fitch Ratings. The medium-term growth prospects are event better with a projected GDP growth rate of over 6% a year over the 2022-2026 period (IMF).

What are the Pitfalls?

Benin’s latest issuance shows a growing recognition of the benefits of sustainable borrowing from African governments. While Nigeria had been the first African market to issue a sovereign green bond back in 2017, no African nation had yet issued an SDG-link Eurobond. But overall, the country’s Eurobond borrowing strategy also reflects Africa’s growing appetite for external and foreign-currency debt, supported by interest rates often more attractive than on the domestic market.

While several countries have seen the debt-to-GDP ratios soar in recent years, Benin’s outstanding public debt is only at about 46.1% of GDP according to 2020 data from the African Development Bank (AfDB). It is expected to average 40.9% of GDP over 2021–22, well below the 70% threshold set by the West African Economic and Monetary Union. As a result, the risk of debt distress remains moderate in the short-term, providing Benin continues to strengthen its domestic resources mobilization, broaden its tax base and diversify its sources of revenue.

African markets have raised a significant amount of foreign-currency debt this year. Beside Benin, Côte d’Ivoire notably issued a €850m Eurobond in February (4.3%, 12-year) while Kenya raised $1bn in June by issuing a 12-year Eurobond at 6.3%. All these issuances were massively oversubscribed, further signaling investors’ confidence in the continent’s growth prospects. The last few months of the year will tell if other countries are able to surf on the same wave or not: on October 11th, Nigeria is notably tapping global markets with a Eurobond issuance expected to raise up to $3bn.

Read more

Despite Lack of Natural Resources, Djibouti Attracts Major Investments in Infrastructure

Djibouti has no natural resources, a land area of only 23,200 km2 and a population of 1m. Yet, the country has attracted billions of dollars of investments over the past decade, making some of Africa’s biggest economies look up to it with envy. Foreign investors from China, the Middle East and the United States are injecting billions into the country’s ports, oil & gas terminals, free trade zones and a 750km rail line that serves Ethiopia’s population of over 110m. That railway line alone can carry 2,600 tonnes of wheat and fertilisers and 110 containers per trip.  At a time when African countries continue to decry the lack of investment into the continent’s infrastructure, Djibouti is forging ahead and using its geographical location to build the trade and services infrastructure of tomorrow. Geography is the country’s biggest asset: Djibouti is located on the strait of Bab-el-Mandeb on the north-east edge of Africa, where 30% of the world’s shipping passes on its way to the Suez Canal. Coupled with political and economic stability, Djibouti offers investors a safe haven to tap into the world’s most dynamic globalization routes while serving Africa’s growing population. It also helps that its neighbours Eritrea and Somalia continue to be plagued with insecurity and instability. Djibouti’s ports and container terminals remain amongst the most productive in the world. According to a new global container port performance index compiled by the World Bank and IHS Markit, its port is even the most efficient in Africa measured by minutes per container move. With such efficiency, Djibouti’s goal of emulating Singapore as a leading maritime trading hub is within reach. To cement its position as the world’s future big trading hub, Djibouti recently set up a sovereign wealth fund with a view to finance about $1.5bn of domestic business activity over the next decade. In parallel, the country has embarked on significant infrastructure expansion with the Djibouti Damerjog Industrial Development Free Zone, echoing Singapore’s own Jurong petroleum and petrochemicals hub. The industrial park represents a 15-year undertaking and is expected to house integrated energy and petrochemicals facilities and further position the country as a strategic energy and industrial hub meeting the needs of the East African sub-region. While the complex was initially conceptualised to export South Sudanese oil, it eventually developed into a mega industrial and petrochemicals scheme. The ultimate oil complex will cover 80ha, starting with the development of 32ha comprising of 300 000 m3 storage tanks, an oil jetty and railway infrastructure connected to the Nagad Station, and from there to the Djibouti-Addis Abebe railway line. It will also include the construction of a 6 million tonnes refinery by the China Marine Bunker Co. Ltd (CHIMBUSCO) that will refine Saudi and Sudanese crude into marine fuels with a sulphur content of no more than 0.50%S, along with diesel, naphtha and LPG. The facility would primarily meet demand for Djibouti and Ethiopia and be followed by the construction of an onshore refinery. The industrial park will also benefit from a 150MW gas-to-power plant, starting with a 20MW hybrid power station expected to be commissioned in 2022. Such power supply will be key for all upcoming manufacturing units in the park built by Chinese investors and including steel, metal mesh, PVC pipes and glass. The anchor project for the whole complex is the Damerjog Liquid Bulk Port, Djibouti’s seventh port, built by Moroccon contractor SOMAGEC. President of Djibouti Ismaïl Omar Guelleh laid the foundation stone there in September 2020. Details on the Damerjog industrial park and liquid bulk terminal can be found in the “Projects” section within your Hawilti+ research terminal.

Air Senegal’s Ambition to Rival Ethiopian Airlines Unshaken Despite Covid19 Crisis

The Covid-19 pandemic was an opportunity for President Macky Sall to set the tone for Senegal’s ambitions in the air transport sector. Last year, he set up an economic and social resilience fund of CFAF 50 billion to support Air Senegal and all the aeronautical structures affected by the pandemic and its subsequent lockdown. Thanks to strong state backing, the airline was able to weather the storm better than other regional competitors, and even opened a brand-new connection with the United States in September. An airline that lives up to Senegal’s ambitions For Macky Sall, Air Senegal is an essential pillar of the Plan Senegal Emergent (PSE), an ambitious development strategy supporting key projects and infrastructure development over the 2014-2023 period. Launched with an initial capital of 40 billion FCFA (61 million euros) mobilised by the State of Senegal, the flagship company started its commercial operations on May 14, 2018, with the ambition of becoming an enabler for tourism an economic development while further opening up Senegal to the world. “I dream of a company which will be in 20 years the alter ego of Ethiopian Airlines which is a success for Ethiopia”, Macky Sall declared last August, recognising the strong resilience of the Ethiopian company since the start of the global health crisis. Born from the ashes of the defunct Senegal Airlines (2016), the launch of Air Senegal responds to a rigorous and coherent approach based on rational strategic planning by Senegal, its President suggested. “I personally and particularly monitor the development of Air Senegal, one or two days do not go by without me calling the Director General or the Minister […] because I want it to be a success and it is possible. “ Only 3 years after its launch, Air Senegal is obviously well on its way to supporting President Macky Sall’s ambition to make Dakar a hub. The company is staying the course and does not hide its ambitions for growth. Amid the health crisis, Air Senegal continues to expand its service network. It is in fact one of the fastest growing African companies in recent years. Since February, the carrier has opened six new routes: Lyon, Milan, Douala, Libreville, Cotonou and Freetown. Its service map now includes around fifteen cities in fourteen countries in Africa and Europe. But Air Senegal has not stopped there. On September 2nd, the company opened its first trans-Atlantic route to New York and Washington in the United States. It estimates that approximately 42,224 passengers will be carried in the first year of service. To support its growth plan, the government has relied on a modern fleet. Air Senegal expects the first of its eight Airbus A220-300s on order by the end of the year. These are flexible and responsive carrier that will allow operation “with 25% less fuel costs and 17% less maintenance costs,” said Managing Director Ibrahima Kane. The company currently operates 8 aircraft, including two Airbus A330-900neo. It is the first operator of such a carrier in Africa. Brand new infrastructure But the creation of the national company is not an isolated venture. It fits into a broader scheme seeking to democratize air transport across the country, in accordance with the objectives of the PES. Such vision supported the commissioning in December 2017 of Dakar Blaise Diagne International Airport (AIBD), an ultra-modern platform that become the main gateway to Senegal. It has a handling capacity of 3 million passengers, expandable to 10 million. In 2019, it handled a record 2.5 million passengers, making it into the top 5 busiest hubs in West Africa. AIBD is based on a large land reserve offering the possibility of building a second airstrip when needed. But the success of Air Senegal and of Senegal’s aviation hub plan inevitably depends on the local training of human resources and the domestication of maintenance tasks. “Whenever a company is forced to look for expatriates, pilots or mechanics, a maintenance center elsewhere than at home, it has little chance of being profitable”, Ibrahima Kane insisted, stressing that Air Senegal needs 120 pilots within 3 years. In December, the company signed a memorandum of understanding with AIBD SA for the establishment of a partnership and cooperation framework for the construction of an aeronautical maintenance center at a cost of around 56 billion FCFA (85 million euros). Earlier this month, Air Senegal launched the recruitment campaign for its very first class of cadet pilots and aircraft maintenance technicians. Successful candidates will be trained at the International Academy of Civil Aviation Trades (AIMAC), the new benchmark school set up by Air Senegal in collaboration with the Senegalese Air Force. At the end of a 2-year training course, they will join the airline as airline pilot officers and aeronautical maintenance technicians. Ultimately, Senegal is also aware that the attractiveness of the country – which targets 3 million tourists per year – depends on the development of poles around the seaside, cultural, eco-tourism, ad business sectors. One of the key target of the PSE, in its “infrastructure” section includes the modernization of 13 regional airports for a budget of over 210 million euros.