Experts call for lower interest rates to boost African markets
THE Head of Ghana Fixed Income Markets at the Ghana Stock Exchange (GSE), Augustine Simons, has stressed the need for concerted effort to reduce interest rate and stabilise the forex market for businesses to thrive and invest.
He argued that despite facing significant external and domestic challenges, Ghana’s capital market is well positioned for growth due to the substantial progress in transparency, liquidity and market infrastructure over the years.
However, he said key hurdles such as interest rates and foreign exchange volatility and global economic disruptions continue to pose challenges to the sustained growth.
At a breakfast seminar in Accra last Friday, Mr Simons said: “With the depreciation of the cedi combined with high interest rates, businesses face increased difficulty in securing affordable credit.
As a country, we must be deliberate about bringing down interest rates and FX to impact the real economy and enable businesses to raise money and grow the economy.”
Following its expansion into the Ghanaian market earlier in the year, Agusto and Company Limited organised its first seminar on the theme: “The Impact of Credit Ratings on the Debt Capital Market in Ghana.”
It brought together bankers, market players and regulators to discuss the need to deepen and broaden the funding options available to financial institutions and real sector companies to boost liquidity in the system while promoting growth and development in a sustainable manner.
Bond success
The Executive Director for African Subsidiaries at Access Bank Plc, Seyi Kumapayi, described the strong demand for early 2024 sovereign bond issuance as a key indicator of global investor confidence, despite persistent challenges facing the continent’s financial markets.
He said Côte d'Ivoire led the charge by issuing $2.6 billion in bonds, which were oversubscribed by more than three times, with total demand soaring to $8 billion, adding that “Benin raised $750 million at a yield just under 9%, while Kenya managed to secure $1.5 billion through its own bond sale.”
These figures, he said, suggest renewed demand for borrowers returning to sub-Saharan Africa.
He said the translation of this renewed demand into African Banks is yet to be determined, with elevated borrowing costs and challenging external financing conditions continuing to limit bank interest in raising funding from international markets.
“Appetite for African Debt and Funding will largely be determined by the trajectory of the global environment. Should inflation continue to decrease in the U.S. and elsewhere and the Federal Reserve move to lower interest rates, financing conditions for emerging markets could improve, providing an opportunity for banks to diversify their funding sources and tap the foreign markets for funding. Alternative funding sources also present promise for banks looking for Innovative solutions to funding gaps,” he said.
However, Mr Kumapayi said sustained improvement in Africa's access to funding particularly from foreign markets will require improvement of sovereign ratings from credit rating agencies and a change in risk perception from potential investors on investing in African countries and banks.
Raising funds locally
For her part, the Managing Director of Agusto & Co, Yinka Adelekan, called on African countries to focus on raising funds locally to drive economic growth.
“There's a lot of funding internally, in terms of pension money that can be invested in corporate debt insurances and we believe that's the way to go.
So that companies in Africa are insulated to an extent, from Fixed Capital Investment (FCI) risk, from going to get offshore loans, which is quite critical, and because of the depreciation that has occurred in many countries, we believe that they should focus internally and raise the money domestically,” she stated.