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Kenya’s Treasury exploring potential yen, yuan borrowing

The Kenyan government may look to tap the yen and yuan markets to enable to country to access new pools of investors. Although China is likely to remain the dominant lender to the country, its relatively strong fundamentals versus its peers mean it will likely be one of the more preferred investment destinations across Africa for investors globally.

Oct 19, 2016 // 5:02PM

The Kenyan Treasury is actively exploring how it could issue debt in both the renminbi and samurai markets as it looks to open up new pockets of investors, according to sources speaking to Bonds & Loans. The Treasury is currently in the very early stages of exploring these instruments, and has no immediate plans to issue in yen or yuan.

According to Michael Musau, lending officer, East Africa at Shared Interest, funding to Kenya has shifted away from Western lenders due to a failure to sustain prudent macroeconomic policies by the government.

Internal funding alone was not sufficient, and so the majority of funding shifted to the East, Musau continued, noting that China alone accounts for nearly 60% of the country’s external debt, which as of June 2016 stood at around 27% of GDP.

Kenya’s shift towards China is largely due to the funding packages that are on offer, which include affordable raw materials, labour, and technology. Chinese firms often bring their own workforce, and there is usually very little transfer of technology.

Nevertheless, China is likely to retain its crown as the dominant Asian lender to Kenya going forward.

“Although India has shown interest in some key sectors of the Kenyan economy, such as healthcare, the long-term impact of Indian influence will not be particularly large as there are no major incentives for the country,” Musau stated.

However, the low interest rate environment across EMs – negative in the case of Japan – with the 10-year government bond yielding -0.06% according to Bloomberg – has pushed investors globally in search of higher yields.

This, combined with the fact that Kenya – despite a failure to sustain prudent macroeconomic policies – is one of the better performing economies across Africa, could lead to an increase in foreign lending to the country, not just from Asia.

The performance of African nations tends to be split between East and West. Although West Africa, being more commodity dependent, has suffered with the collapse in commodity prices, East Africa, which generally imports such goods, offers a relatively positive story.

Jonty Levin, partner at Alkebulan stated that the East African region’s economies were well diversified as a result of the absence of dominant mineral resources, and this has enabled these countries to continue growing against an environment of low demand for commodities.  

“While sentiment has turned sour on a broad range of countries – from Nigeria as a result of weak oil prices and currency woes, to South Africa as a result of anaemic growth and political risks – it remains positive regarding Kenya and the East African community,” he said.

East African growth is expected to be over 6%, whilst that of Kenya’s was recorded at 6.2% year-on-year as of Q2 2016 according to Trading Economics.

Kenya’s fundamentals also reinforce its stronger position versus its neighbours. Although the country’s total government debt to GDP has increased steadily from 40.70% in June 2012 to 54.50% in June this year, it remains much less than Ghana’s, at 72.8%.

Furthermore, the country’s current account deficit remains relatively low in comparison to its peers at -6.5%.

Africa Currencies Policy & Government

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