Africa loan markets in 2024

Africa Loan markets in 2024 – opportunity for collaboration and innovation for strategic borrowers and investors

By Helen Mkhize, Solutions Head for Loans Capital Markets at RMB

 

The past several years have been challenging from an economic perspective, but as we move into 2024, we are finally starting to see a shift away from this and toward increased opportunity. In the African context, looking ahead to the coming year, we see the landscape of the loan market shaping up to be extraordinarily dynamic, catalysed by significant geopolitical shifts and evolving macroeconomic conditions across the continent and its global counterparts. The early momentum observed in the debt capital markets is undeniably promising. For proactive borrowers and investors, this year is shaping up to offer significant opportunity, especially those who can stay abreast of market insights and leverage these developments for sustainable growth.

 

Casting a wider net for liquidity

In the last few years, there has been a strong reliance on the loan market from a broad spectrum of borrowers, including sovereign entities. This has fundamentally been due to the slowness within the bond market space. However, the narrative for the year ahead anticipates a more nuanced equilibrium. The Eurobond market, which was largely inactive in Sub-Saharan Africa in 2023, has seen a resurgence in 2024, with successful issuances by Côte d'Ivoire, Benin, and Kenya, all of which were oversubscribed. This is a clear indication that the debt markets are open for business across the African continent.

 

This new activity means opportunities have expanded for both borrowers and investors. Borrowers are now poised to optimise their financial strategies by tapping into both bonds and loans, which offers them greater choice when it comes to securing liquidity at favourable costs and for appropriate durations. Looking at the movements and evolutions, there are a few trends that emerge that we expect to shape the loan market in 2024.

 

Strategic collaboration will be key

Continued strategic and mutually beneficial partnerships between commercial banks, Development Finance Institutions (DFIs), and multilaterals will provide a collaborative springboard for enhancing the availability of long-term financing solutions for sovereign and state-owned enterprises.

While these symbiotic relationships are essential in bridging the gap between capital requirements and financial resources, they are also important for providing banks with solid backing through guarantees for their borrowers. Leveraging the expertise and resources of each partner not only enhances the accessibility of funding, but also facilitates the implementation of impactful projects and initiatives aimed at driving sustainable development and economic growth.

 

Risk management is essential

Given the volatile and fluctuating nature of currency values across African markets, it becomes imperative for borrowers to undertake meticulous risk evaluations regarding their exposure to foreign exchange fluctuations. Ideally, borrowing activities should be closely aligned with revenue sources, ushering in an uptick in local currency loans and bonds as businesses seek to minimise currency risk.

 

Increased local currency financing not only serves as a means for businesses to mitigate currency risks, but also encourages stability and resilience within the regional financial ecosystem. This helps to bolster confidence among investors and stakeholders, fostering a more sustainable and robust economic environment across the continent.

 

Diversifying institutional investment

As the appetite for portfolio diversification among institutional investors continues to grow, we anticipate heightened interest and engagement within the loan market. This trend is particularly noticeable in Southern African markets, where a surge in infrastructure development projects has captured the attention of institutional investors seeking long-term, stable returns. This signals a robust appetite for long-tenured financing opportunities along with recognition for the region’s potential for sustained growth and investment returns.

 

Bridge to bond financing

As borrowers position themselves to take advantage of opportune entry points into the debt capital market, there is also an inclination toward 'bridge to bond' financings. This mechanism serves as a pivotal strategy that underscores the agility and foresight of savvy borrowers looking to capitalise on market windows to refinance their shorter-term bridge loans with longer-term bond issuances.

 

By initially securing shorter-term bridge loans to meet immediate funding needs, borrowers position themselves to leverage favourable market conditions and investor sentiment. Subsequently, as market dynamics evolve and stabilise, these borrowers seamlessly transition towards longer-term bond issuances, leveraging the increased flexibility and cost-effectiveness afforded by the bond market.

 

This strategic shift not only enables borrowers to lock in more favourable terms and extend their debt maturity profiles, but also underscores their ability to proactively manage their capital raising activities in alignment with market dynamics and investor preferences.

 

Sustainability comes to the fore

Against a backdrop of mounting environmental concerns, we anticipate continued emphasis on sustainability-linked loans, in particular nature-based financing solutions. Such financing mechanisms not only prioritise projects and initiatives that promote environmental conservation and biodiversity preservation, but also align financial incentives with measurable sustainability targets, incentivising borrowers to adopt practices that generate positive environmental outcomes. By channelling capital towards nature-based solutions, the financial industry not only contributes to the preservation of natural capital but also catalyses innovation and collaboration towards a more sustainable and resilient future.

In conclusion

Loan markets in 2024 offer numerous opportunities for proactive borrowers and investors, and as these trends evolve and take shape, staying abreast of market insights is key. Embracing innovation, fostering collaboration, and prioritising sustainability will be key drivers in shaping the future of the loan markets and unlocking Africa’s economic potential.

 

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