Strengths
- Key regional economies, notably across Francophone and West Africa, are benefitting from a credit cycle reversal, new ratings allocations and upgrades
- The local ZAR market is liquid and has proven robust in the face of economic headwinds
- South African banks are fairly well regulated and liquid
- The external perception of ANC’s election win is that political stability in South Africa will persist
- Nigerian post-election market activity is picking up with a number of issuances successfully closed in recent months and a strong pipeline of upcoming deals
- The role of DFIs across East Africa is growing and they have an increasing amount of capital at their disposal to fund large-scale projects
Weaknesses
- Policy reform efforts across the continent have led to little meaningful change and clarity
- The development of local capital markets (excl. South Africa) has been slow, resulting in limited access to additional market liquidity
- Bond issuance processes are admin-heavy and surrounded by red tape, with the new JSE directives increasing the complexity of procedures
- Mismanagement stories about South African SOEs are attracting local and international media attention, raising questions around institutional corporate governance
Opportunities
- Despite political risk continuing to be a deterrent for foreign investment into the continent, South Africa’s economic headwinds are expected to create an opportunity for increased investor appetite for the rest of Africa
- The increasing focus on ESG and impact investing, not only has the potential to unlock new funding avenues, but improve accountability and debt sustainability
- Africa’s Free Trade agreement is expected to boost intra-regional cooperation and reduce the continent’s dependence on foreign exports and investment
- The recent first green bond issued by a commercial bank will lead to more activity off the back of the issuance
- The launch of the infrastructure PPP model will provide a much-needed capital injection for the continents’ vast project needs
- South Africa’s local currency sukuk is setting the benchmark for developing the market and opening it up for parastatals and private companies
- MNCs across the continent are looking to optimise their cash positions and decrease their leverage
- Digital transition and alternative payment mechanisms are already visible on the continent, particularly in East Africa
Threats
- US-China deteriorating relations and escalating trade tensions will have a negative impact on African commodity exporters selling into China
- Hydro carbon economies and resource-rich countries are vulnerable to oil and commodity cycles shocks
- With debt to GDP and servicing ratios back to HIPIC levels, concerns are being raised about debt sustainability across the continent
- There are rising concerns over Asian investment in Africa given the opaqueness of the terms and conditions attached to the funding agreements
- An unravelling of Eskom’s situation will lead to systemic shocks across South Africa’s banking system