Coup contagion fears threaten new investment, ratchet up interest rates in Africa — experts
The apparent coup trend in Africa, creating a belt of countries that now stretches from the Atlantic Ocean to the Indian Ocean, is adding to other major concerns deterring many investors from the continent — a wave of debt crises, tense geopolitics, and an extreme vulnerability to climate change.
There have been nine coups in sub-Saharan Africa in the past three years, making experts, like Paul Collier, a professor of economics and public policy at Oxford’s Blavatnik School of Government, “very worried that Sahelian Africa is going to melt down.” The growing number of military takeovers in Africa is raising concerns about stability and jeopardizing investment inflows into the continent, the Lagos-based Africa Finance Corp. (AFC) said. For example, the recent military takeover in Gabon not only sent the central African country’s bonds tumbling 10%, but also hit those issued by a number of other countries in the region, including neighboring Cameroon, as nervous investors are on the lookout for who might be next. “Nearly all markets in that region are paying some price in terms of rising cost of debt,” said Sergey Dergachev, portfolio manager at Union Investment.
The AFC has suspended a project in one state that it has invested in, and may delay the planned listing of its African projects because of the retrenchment of democratic rule, CEO Samaila Zubairu said, adding that the rise of the juntas in Africa is “very worrying, especially with seeming appeal of the changes to the mass populace.” According to a recent UNDP study, the Guinea’s 2008 coup and one in Mali in 2012 demonstrated how the costs add up: both wiped a combined $12-$13.5 billion off the two countries’ economies over a 5-year period, representing 76% of Guinea’s 2008 GDP and about 50% of Mali’s 2012 GDP. Gabon’s coup not only hurt its bonds, it also ratcheted up the ‘spread’ or the interest rate premium. Cameroon has been particularly sensitive, as its bonds have lost more ground than Gabon’s since the coup.