Citigroup: Africa must get its finances in order ahead of full QE withdrawal
African governments must use the current golden opportunity to get their finances in order ahead of the withdrawal of quantitative easing (QE).
This was the view of Samad Sirohey, the head of debt capital markets for Central and Eastern Europe, Middle East and Africa at Citigroup, who was speaking at the bank’s media and community summit in Dubai.
"At some point soon, QE is going to be unwound. When it does, the world of easy money we have become accustomed to is going to end and the competition for capital will increase," said Sirohey.
Evidently, these concerns weighed on the mind of Reserve Bank deputy governor Daniel Mminele, who spoke at a seminar hosted by the Federal Reserve Bank of New York on Tuesday. In a speech titled "The impact of a changing global environment on African economies", Mminele described "downside risks" to the local economy and the broader emerging-market spectrum flowing from "escalating trade tensions" and a "tightening of global financial conditions".
"One factor of uncertainty is the future path of risk-free, ‘neutral’ real interest rates in coming years, and how this will continue to affect global investors’ appetite for risk and, in turn, the cost and accessibility of foreign funds for emerging economies," Mminele said.
Sirohey said that in 2017, emerging-market governments raised $200bn in debt by way of bond issuance, 40% of which was raised in Africa and the Middle East.
"We have seen bids worth $430bn made for the sovereign debt of countries in the Middle East and Africa over the past three years. Typically the issues are oversubscribed by, on average, three to four times.
"As we see a reversal of QE, creditors will be more discerning and will put their money to work in countries they feel are safest and less likely to lose them money.
"So there is going to be greater divergence between individual credits and this will have an effect on the cost of raising finance," Sirohey said.
African governments have seen debt levels rise in response to lower economic growth.