African countries are bad at issuing bonds, so debt costs more: what needs to change

NSE Market watch board during ringing of the bell ceremony at Nairobi Securities Exchange, on September 4, 2019. [File, Standard] Over the past two decades, African countries have increasingly turned to international capital markets to meet their development financing needs. Fo example, Kenya and Benin raised a combined $2.5 billion through bond issuances during the first half of 2025. Proceeds were used to repay maturing bonds. This means new bonds, with unfavourable terms, are being issued to pay previous lenders. Yet African bonds are substantially mispriced, resulting in excessively high yields that are not justified by fundamentals - based on economic, fiscal and institutional strengths. Mispricing occurs when a country has high economic growth, stable institutions that support government policy implementation, rule of law and accountability, yet its bonds trade at higher yields than those of its peers. In other words, there will be every reason for investors to trust that the country will repay what it owes, but they still expect a higher return. This is happening because of lack of information and biases perpetuated by global entities that are facilitating bond sells in Africa. Cote d'Ivoire and Senegal have strong growth (five to 6.5 per cent), yet they face high yields on their bonds (7.8 per cent to 8.2 per cent) compared to Namibia and Morocco, with approximately three per cent growth and bond interest of six per cent. This mispricing imposes a heavy debt servicing burden on already constrained public budgets. At the same time, African countries face a puzzling paradox: while they're paying more for the debt they're raising, the demand for these bonds is much higher (oversubscribed). All bond issuances in Africa are subscribed by as much as over five times. This has only been common in Africa. It is puzzling why governments are not leveraging on the high demand to bargain for lower interest rates. In my view, based on my bond pricing modelling expertise, I believe that mispricing of Eurobonds in Africa - debt instruments issued by a country in a currency different from its own - is not a market anomaly. It shows internal capacity failures in African countries, structural market biases and insufficient understanding of the complex mechanics of global debt markets. Oversubscription of Eurobonds should be a source of power for African governments, not a missed opportunity. African countries can move from being price takers to price negotiators. They should be able to reduce debt costs, freeing up resources for development. But to get there African countries need to address the power imbalance in the markets. Governments need to invest in bond pricing expertise to increase their negotiating power. The false success signal of oversubscription There are several reasons why African bonds remain mispriced at a higher interest despite the oversubscriptions. Firstly, a lack of technical expertise in primary bond issuance in the debt management offices of the majority of African governments. Very few on the continent have intelligence systems for gathering information on financial markets and formal investor relations programmes. Neither do they have in-house quantitative analysts or pricing specialists capable of engaging investment banks on an equal footing during roadshows and negotiations. The debt management offices are unable to engage confidently and critically with financial intermediaries to challenge assumptions, simulate pricing scenarios and conduct their own comparative market analysis. After initial public offers, most governments don't engage with holders of their bonds on the secondary market. Nor do they monitor bond post-issuance performance. The lack of interest in the secondary market has created a feedback loop where poor market intelligence has contributed to high coupons on new issuances. Secondly, advanced economies engage investors regularly through briefings, roadshows and timely reports. Communication by African governments is often ad hoc and usually limited to the period around a new bond issuance. This prevents investors from forming informed, long-term views. It leads to a default risk premium in pricing. Thirdly, debt issuance by African governments is often politically driven rather than strategically timed. Often this leads to rushed or ill-prepared entries. Sometimes it's done when the cost of debt is rising globally, close to election cycles, or because governments are facing a financial crunch caused by falling reserves. Fourth, African sovereigns often approach the Eurobond market with weak negotiating power. They are heavily reliant on a small pool of Western investment banks as technical advisors to manage the bond issuance. These banks tend to be more inclined towards their own global investment client networks. Their incentives are not aligned with achieving the lowest possible yield for the issuers. African issuers often accept the initial price guidance from advisors and agree to high yields even in oversubscribed situations. Even when demand could support a lower yield, African issuers fail to negotiate pricing downwards. Issuing syndicates have no incentive to push for optimal pricing for the issuer as they receive transaction-based fees. The role of bond-issuing syndicates is a major factor in the mispricing. In bond issuance, a syndicate is a group of financial institutions that structures the bond, price and market (also known as bookbuilding), underwrites the unsold portion of the bond, sell the bond to their investors, and ensures compliance and documentation. These syndicates set coupon rates higher than necessary as a conservative hedge against perceived investor scepticism. African governments have become passive participants rather than active price-setters. African-based bond syndicates are systematically bypassed despite growing regional capacity and distribution networks. Bond issues are also allocated to offshore buyers, sidelining local institutional investors. Breaking the cycle of mispricing To correct the systemic Eurobond mispricing and reduce debt servicing costs, African countries must undertake reforms. First, governments should invest in debt management capacity. Second, they must actively monitor secondary market trading to identify opportunities such as bond buybacks and exchanges that could improve the debt profile. Real-time analytics on bond trading performance should inform future issuance terms and investor communication strategies. Third, governments must build institutional routines for submitting data, and proactively engage investors and rating agencies. This will challenge and influence risk assumptions. Investors need consistent assurances, especially on the ability to easily exit positions. Fourth, African countries need to maintain and monitor up-to-date benchmarks from peers with comparable pricing data. Without accurate comparisons, it is difficult to know whether the proposed bond pricing by syndicates is fair and accurate. They must stop solely relying on what investment banks recommends. Lastly, African governments should involve at least one African-based syndicate member, prioritise allocation to African institutional investors and promote regional arrangements with international banks to ensure knowledge transfer and equitable participation.

African countries are bad at issuing bonds, so debt costs more: what needs to change

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