Niger and beyond: Francophone credit delivers coup de grâce

Niger and beyond: Francophone credit delivers coup de grâce
Nigerien soldiers receive a counter-IED class as part of Exercise Flintlock 2017. / Staff Sgt. Kulani Lakanaria/U.S. Army
By Gary Kleiman of Kleiman International Consultants August 13, 2023

Headlines surrounding Niger’s coup have focused on Sahel anti-Islamic rebel military power grabs alongside abject poverty, with a geopolitical overlay pitting former colonial power France against mercenary and food/fuel provider Russia. Lost in the diplomatic and development debate is the sense of underlying debt crisis and commodity export overreliance that have long plagued the larger neighbourhood encompassing 15 counties in separate West and Central Africa CFA Franc monetary and regional financial market zones, with respective dominant economies Cote d’Ivoire, Senegal, Cameroon, and Gabon.

This predicament has been aggravated by climate change on dramatic display in Niger, already at the very bottom of the UN’s Human Development Index on an array of social and health indicators, including family size, with an average fertility rate of seven children. Years of drought and encroachment of the Sahara desert have limited arable land to 15% of the total, and grain prices were already up 15% before the Russia-Ukraine war and putsch shocks.

Niger received $2bn in annual bilateral and multilateral aid recently and was under a $275mn IMF program with a $125mn climate facility just agreed when President Mohamed Bazoum, a vocal Western military and investment partner, was overthrown and detained on July 26. Budget and balance of payments support has since been halted, and the generals in charge in turn have stopped exports of uranium, a top ten global source to Europe in particular.

The Anglophone-Francophone regional body ECOWAS has followed a familiar pattern last seen with Mali by imposing commercial sanctions and closing borders, where trade with main market Nigeria was $225mn last year. China, which was scouting mining locations in June, has not joined the boycott as the longest oil pipeline through Benin owned by the China National Petroleum Corporation (CNPC) is due to open in the last quarter. Projections have it contributing one-quarter of Niger’s $25bn GDP over the medium term, and this year 5% growth was anticipated before the political chaos.

The West African central bank cancelled a $50mn bond auction in the immediate aftermath, but authorities under the IMF arrangement were already signalling the urgency of domestic rescheduling as yields doubled to 7.5%, and debt/GDP reached 55% the past year. Nigeria’s fuel subsidy rollback as President Bola Tinubu took office was another blow even before the coup with border smuggling rampant, as local prices doubled overnight.

Without market access, Niger will replicate Mali’s path into technical default. It ran up $200mn in arrears until ECOWAS curbs were finally lifted last year, after military rulers outlined a vague future election timetable. The newly named prime minister, Ali Mahaman Lamine Zeine, a former Finance Minister and African Development Bank (AfDB) economist, will have debt management along with attempted official lender reconciliation as a pressing agenda, and zone counterparts face their own credit predicaments across a range of political risk, sovereign downgrade, and environment/sustainable parameters.  

ECOWAS has its own monetary institute and eventual plans for a joint currency and capital market, which could add $150bn to the current collective $800bn GDP in promoters’ view. Ghana as an advanced member has taken the lead in transferring expertise and infrastructure to startup platforms in Gambia, Liberia, Sierra Leone, and French-speaking Guinea, where generals previously took over and backed the Niger action.

In that cohort, a half dozen countries have Eurobonds outstanding, with the following face value amounts and GDP portions as of end June: Cote d’Ivoire $8.5bn (11%); Senegal $4bn (13.5%); Gabon $2.5 bn (13%); Benin $2 bn (10%); Cameroon $1bn (2%), and the Republic of Congo $200mn (1.5%). Mali has not issued sovereign bonds and was only readmitted to West Africa’s monetary union in July after clearing arrears.

Meanwhile, the junta has put in place a new constitution with the army as arbiter and is overhauling the gold mining law so that state interests could have a maximum one-third stake in ventures from the current 20%. Russia’s Wagner Group reportedly has a retainer of $200mn/month from the budget, in addition to undisclosed commodity concessions.

Senegal, on MSCI’s frontier stock index with a 15% gain through July, has been in the spotlight this year with the long controversy over President Macky Sall’s possible constitutionally dubious third term bid, another Francophone Africa peril. Sovereign bonds have seesawed and compressed to a 525-basis point spread over US treasuries when he formally declined re-election after a decade in office. Before the decision voter momentum had built with a $1.8bn, 3-year credit/climate agreement with the IMF, and growth humming at a 7% pace as gas pipeline exports to Europe were due to come on stream.

The Senegalese opposition also mounted as President Sall’s chief rival, Ousmane Sanko was arrested and charged with sexual assault, and then convicted of a lesser corrupting a minor offence and sentenced to jail, with his party disbanded. Sanko’s supporters have regularly clashed with security forces in violent spasms that shut down the capital and transport routes and raise tourism alerts.

In August, the 2048 bond reverted to a low 70s price with the Sanko standoff, and an Australian energy joint venture partner delay in the export timetable. Debt/GDP is 75%, and under IMF criteria the fiscal deficit is to be halved to 3% by mid-decade to meet West Africa zone convergence criteria. China and Gulf investors have displaced Western ones as FDI leaders, with the United Arab Emirates’ DP World shelling out $1bn for a port near Dakar. Remittances at $3bn, around 10% of GDP, remain the balance of payments mainstay, helping to curb the chronic 5% current account gap. The EU and G7 partners now emphasize a $2.5bn long-term clean energy pact through public-private finance.

The 2024 presidential race is underway with a ruling coalition candidate already declared, and President Sall’s prime minister and Economic Council head are expected to enter, while Sanko’s eligibility remains in limbo. Political observers are still suspicious about the incumbent’s demurral and believe he may cite a pretence to re-enter. They point to Cote d’Ivoire as a precedent, where President Alassane Ouattara returned to the ballot a third time after his designated successor died while campaigning.

Abidjan is the seat of the regional bourse, and the 2032 sovereign bond remains firm at an 80 price, 8.5% yield in the wake of Niger’s upheaval. It suffered from civil war two decades ago, but jihad activity has yet to be detected despite adjacent countries’ footprint. Fitch Ratings affirmed a BB-, stable outlook in August, and the Africa Union expects an upgrade in the second half. Cote d’Ivoire has recorded the fastest area GDP growth over time at 6%, and debt/GDP is manageable at 55% almost all fixed rate, although local bond repayment has lifted the service-budget ratio to 15% annually.

In contrast in the parallel Central Africa CFA Franc area, Cameroon was demoted from the B to C near-default category with delayed repayment of a Deutsche Bank loan. Oil exports are relatively flat as the continent’s longest-serving leader for four decades, President Paul Biya, grapples with security and social spending priorities to counter a 5-year insurgency in the Anglophone northwest. The 2025 US dollar bond is illiquid and barely budged at 95 with the downgrade, but Moody’s pointed to underlying poor debt management practice and governance, also reflected in a World Bank comprehensive audit into alleged Covid fund misuse. Before the rating switch, Cameroon had been forced to raise regional bond market yields above 6% to ensure bank and institutional investor demand, but fundraising efforts still fell short.

In Gabon, President Ali Bongo, who inherited the seat from his father, is running for re-election. In the waning days of his current term oil diversification, and an attempt to deflect international criticism of democratic space, has translated into a prominent deforestation and decarbonization agenda, with green and blue bond issuance on tap. Bank of America is underwriting a $500mn bond buyback in exchange for an A-rated marine protection instrument guaranteed by the US Development Finance Corporation, nudging the price of the $700mn 2025 outstanding issue.

Such ESG innovations are also at their core liability juggling exercises, as local and external costs skyrocket for both fundamental monetary policy and blocked civilian leadership handover reasons. Francophone bond buyers can be lured with more confidence when coups relate to breakthroughs in domestic debt market deepening, through actual secondary trading for example, rather than their Sahel proliferating version.

–  Gary Kleiman, senior partner, Kleiman International Consultants, Inc.