Africa Credit: Senegal Mixing Oil With GDP Rewards Bondholders

Africa Credit: Senegal Mixing Oil With GDP Rewards Bondholders

By Moses Mozart Dzawu and Colin Baker | From Bloomberg News

Senegal is offering investors Africa’s best bond returns this year as oil-import costs plunge and the economy powers toward what’s predicted to be its best growth in eight years.

With the economy projected to expand 4.6 percent this year, the fastest pace since 2007, an inflation rate among the lowest on the continent and government plans to ease poverty, Senegalese debt earned 5.4 percent this year, compared with an average 1.1 percent gain for emerging markets, according to Bloomberg indexes. The extra yield investors demand to hold the nation’s July 2024 dollar bonds instead of Treasuries fell to a two-month low on Feb. 17.

The West African nation, whose exports include fish, peanuts and gold, may see growth reach 7 percent by 2019 under the government’s development plan. Senegal has escaped the economic havoc that has gripped oil-producing countries on the continent amid a 46 percent plunge in prices since June.

“It’s not facing the same dire financial and fiscal problems that Ghana, Nigeria and Zambia are struggling with,” Nicholas Spiro, managing director at London-based Spiro Sovereign Strategy, said in response to e-mailed questions on Wednesday. “Underlying fundamentals are stronger.”

Lower Coupon

Yields on Senegal’s 2024 debt fell 58 basis points this year to 6.27 percent by 4:18 p.m. Wednesday in London. The $500 million of securities were sold last year with a coupon of 6.25 percent. The spread on the Senegalese notes over similarly dated Treasuries fell to 408 basis points this week, the lowest since Dec. 8.

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The Emerging Senegal Plan, which started last year and runs through 2018, targets cutting the fiscal deficit to 3.9 percent of gross domestic product from 5.4 percent in 2013. It also seeks to lower the gap on the current account, the broadest measure of trade in goods and services, to under 6 percent by the final year of the program, according to documents on the Finance Ministry’s website. Inflation was 1.4 percent last year, compared with the sub-Saharan African average of 7.3 percent, according to the International Monetary Fund.

Investors have confidence in “the reform agenda of the government,” said Jerome Cretegny, senior country officer with the World Bank’s International Finance Corp. Infrastructure projects show the government has “a clear strategy on where they want to spend” Eurobond proceeds, he said. Senegal is building roads, an airport for the capital, Dakar, and is expanding the city’s port, according to the prospectus from last year’s bond sale.

Power Plants

With a population of about 14 million people, Senegal’s $14.7 billion economy has struggled to create jobs as businesses battle with chronic power shortages. Government plans to invest in lower-cost electricity generation have been delayed, according to the IMF. While Senegal is building power plants, a failure to secure more investment could curb growth, according to the prospectus.

Senegal, the furthest western point on mainland Africa and is the birthplace of Grammy-award-winning singer Youssou N’Dour and filmmaker Ousmane Sembene. President Macky Sall was elected in 2012 as voters rejected an attempt by former leader Abdoulaye Wade to extend his 12-year rule in office.

“Senegal is very stable,” Toussaint Houeninvo, an economist at the Abidjan-based African Development Bank, said by phone on Feb. 11. “Politically and macroeconomically, it is stable and the debt is well-managed. That must give confidence to investors.”