US Fed hikes will drive capital market activity in Africa next year, says Citigroup head

As commodity prices pick up – due in part to a boost brought on by OPEC’s decision to cut global oil supply and a recent fiscal stimulus in China – Africa’s economic outlook is strengthening following a tough year, according to Miguel Azevedo, head of investment banking at Citigroup. However, capital market activity and investors interest in the continent is unlikely to return to the heady highs seen in 2014, he said. 

“With fed hikes in the US, typically we see a diversion of funds from emerging markets back to their developed counterparts and this will impact capital market activity in 2017,” said Azevedo. “At the same time, access to capital markets in the continent will be linked to strong fundamentals, a liberal stance on the movement of capital, goods and services and where the use of proceeds is clear.”

“People are increasingly beginning to differentiate between issuers out of Africa. Investors are delving deeper into individual stories and backing the countries and businesses that have strong fundamentals and track records,” he added. “And while capital markets on the whole have been somewhat subdued, there have been some bright spots.”

In October this year, IHS – a Nigerian provider of mobile telecommunications infrastructure – raised $800m in the international capital markets over five years with a yield of 9.5%. Access Bank, a tier one bank in Nigeria also went to the capital markets this year with $300m Eurobond over five years at 10.5%.  

And following an IMF bailout in Ghana which came to fruition in 2015, Ghana successfully issued a $750m Eurobond, marking a successful return to international capital markets.

“Yet despite some of the good stories coming out of Africa, and some of the good deals we have seen, in terms of general economic growth for next year, this will remain driven by what happens within the major economies in the region – Nigeria, Ivory Coast, Kenya, Egypt and South Africa because these account for more than 50% of the continent’s GDP,” said Azevedo. “This might be unfair, but it’s still the case.”

You can read more about African Business’ outlook for Africa 2017 in the January 2017 edition out in December