Next Africa: Virus Exposes Distressed Debt Across Africa

[Deeq A.]

When it comes to debt, much of Africa is at a tipping point.

For years, countries have done little to tackle surging debt burdens. Now, with the world economy slammed by the coronavirus outbreak and the price of the commodities they export plunging, lockdowns are disrupting businesses both at home and in the markets they sell to. No-one knows when the supply chains will return to normal.

In the past week that was brought home to South Africa and Zambia.

South Africa lost its last investment-grade rating when Moody’s Investors Service cut the country’s debt to junk. That should mean higher borrowing costs and an exodus of several billions of dollars as the country falls out of a key bond index. 

Zambia has asked banks for proposals on how to reorganize its external debt, which amounts to $11.2 billion.

South African 100 rand banknotes.
Photographer: Waldo Swiegers/Bloomberg

They are not alone.

Angola had its credit ratings slashed and the struggling oil producer’s dollar Eurobonds are now trading at a yield of over 30%. That will likely see proposals for a $3 billion Eurobond waiting until calmer times.

Nigeria, Ghana, Gabon and Cameroon all have Eurobonds now trading at a spread of more than 1,000 basis points over U.S. Treasuries, the point above which the securities are considered to be distressed debt.

With the coronavirus outbreak raging in Europe and the U.S. and in its infancy in Africa, there’s little relief on the horizon. All the indebted nations can do is rue not heeding warnings against over borrowing during better times.

Coronavirus Roundup 

Weeks Away | With almost all the nations in sub-Saharan Africa now shut off from the rest of the world and their neighbors, and many in lockdowns, the United Nations warned the region may be two to three weeks away from the worst of the pandemic storm. The UN’s Economic Commission for Africa said the countries need $100 billion in emergency stimulus to battle the virus and to support fragile healthcare systems.

Lockdown Effect | The world’s poorest nations, many of them in Africa, are the least prepared for the lockdowns seen as crucial to contain the disease. In Benin, the government is reluctant to put in place measures that may spur hunger and force citizens to defy restrictions. Lockdowns in other areas are raising the specter of abuses by those enforcing the laws.

Mass Screening | South Africa plans to roll out a mass screening program, sending out 10,000 field workers to check on people in their homes as it ramps up its efforts to halt the spread of Covid-19. The country with the most confirmed cases in sub-Saharan Africa — and that’s carried out the most tests — is in the second week of a 21-day lockdown. While new infections have slowed over the past few days, officials warn that may not be a trend yet.

Source: Bloomberg 

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