Is Africa the next frontier for capital markets? Those who believe so will have been cheered by the success of Ghana’s debut Eurobond issue in late September. Where Ghana has led before, the rest of sub-Saharan Africa has tended to follow.

The republic was the first African colony to gain its independence (1957) and, from the 1980s onwards, it pushed through some of the continent’s earliest economic reforms. Ghana’s football team was the first from Africa to win an Olympic medal (1992), a fact that may not have carried much weight with international investors. However, its issue of the first Eurobond from sub-Saharan Africa (excluding South Africa) will have made a lasting impression on them.


In late September, Ghana launched a $750m, 10-year Eurobond transaction, led by UBS and Citigroup. Its entry to the offshore marketplace was also the first such deal from a graduate of the International Monetary Fund and World Bank-supported Heavily Indebted Poor Countries (HIPC) initiative.

Ghana has benefited from a long, occasionally sporadic process of economic reform and, as it has worked its way through the HIPC programme, relief has slashed its external debt from nearly $6bn to closer to $2bn. The story it tells investors is one of impressive improvement. Targeting has reduced inflation from about 40% in 2001 to nearly 10%. The fiscal deficit has been cut from 9% of GDP to below 3% in 2005, with a ‘temporary blip’ back to 7.8% in 2006 due to non-recurring expenditure. Structural reforms include privatisation and, importantly, deregulation of domestic oil pricing.

The ratio of domestic public debt to GDP has fallen from 24% in 2000 to a current 13.5% and the ratio of external debt servicing to exports has narrowed from 15% to 3%. “We believe the economy has improved significantly in terms of its capacity to absorb shocks,” maintains Paul Acquah, governor of the Central Bank of Ghana. “Our analysis shows that, given the present economic growth rate of 6%, even with significant borrowing, our external debt is well within the sustainability threshold.”

While social investment has been high on the agenda, investment in infrastructure has been somewhat neglected, most noticeably in the energy sector. Power cuts, a longstanding feature of Ghanaian life, have worsened over the past year and greater generating capacity is required.

The government has drawn up a portfolio of renewal projects in the energy, road and rail sectors, predicated on access to the capital markets. With this in mind, preparation for the recent issue had been going on for more than a year. Everyone was ready to go after the summer break, but by then the market was in a state of crisis. Not knowing when normality would return, they decided to launch the deal anyway, in the wake of the US Federal Reserve’s September 18 rate cut.

Massive take-up

Some said $750m would be too big. But despite market conditions, investors came flocking. The issue was four times oversubscribed, quickly attracting $3.2bn of orders, and the size was set at the maximum approval limit. Distribution was almost wholly to the US (41%), the UK (36%) and Europe (19%).

While Ghana has promised not to return to market before the end of 2008, other African nations – including Kenya, Zambia, Gabon and Senegal – are considering following its lead into the Eurobond market. What other sub-Saharan firsts does the country have in mind?

“We would like to be the first to achieve middle income status,” says Mr Acquah. Presumably, the bondholders would like that too.