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confidentially speaking

The Africa Confidential Blog

  • 12th May 2022

Debt, prices and airlines point to economic freefall

Blue Lines

A badly timed Eurobond issuance, interest rates chasing roaring fuel and food inflation and a treasured national carrier split in two then sold for three US dollars. Those are the alarming developments in three of Africa's most important economies.

Kenya's latest trip to the Eurobond market to raise another $1 billion will concern those already nervous about the country's rising debt burden. Yields on 10-year paper have almost doubled since January to 11.22%, comfortably above the 7% benchmark of what can be serviced sustainably. Three months out from an election that some fear could trigger clashes and instability, and with a yawning 8% budget deficit to finance, this is a particularly expensive time to issue debt.

And Ghana's economy is being battered by 26% inflation, driven by rising food prices, underscoring damage done by disrupted supply chains, worsened by Russia's invasion of Ukraine. The combination faced by Kenya and Ghana of rocketing food and fuel prices along with mounting debt service costs is mirrored across the region.

The terms of the sale of a 51% stake in South African Airways, for a mere $3 to the Takatso Consortium last year points to unprecedented financial pressures. The loss-making national airline may be off the Treasury's books, but the deal requires South Africa's state to provide continued financial support if needed in the future.