African Eurobonds

Subtitle:opportunities and challenges for sustainable economic growth after the HIPC initiative

This research investigates the sustainability and economic impact of SSA countries resort to international capital markets as well as its subsequent incentives for the quality of macroeconomic management in the borrowing countries. Taking stock of the economic distortions and negative incentives attributed to international aid, and the lessons of the ravaging pre-HIPC debt crisis, it builds on the concerns among the general public about the risk of the resurgence of a debt crisis in SSA and endeavors to tackle this issue in four specific chapters. Chapter 2 analyzes how SSA eurobonds’ secondary market yields are affected by global, country specific and bond-specific factors. We perform a pooled mean group (PMG) estimation to grasp the short and long-run dynamic between these yields and the global and country-specific factors, and apply the dominance analysis (DA) to assess the importance of the global, country-specific and bond-specific factors in the explanation of these yields’ evolution. We find evidences of the influence of both the global and country-specific factors in the determination of SSA eurobond yields. The DA results indicate the dominance of country-specific factors over both global and bond-specific factors in the explanation of yields evolutions unlike the general perception of paramount influence of global factors in SSA eurobonds performance. Chapter 3 complements the analysis of the previous chapter by investigating the possibility of spillover effects among SSA eurobonds. We compute both the overall and time-varying total spillover index, and the directional spillovers using these eurobonds’ secondary market daily yields. Ours results indicate significant contagion effects among these bonds and suggest that less resilient economies transmit more to and receive less spillovers from their peers. This total v spillover index has proved sensitive to major economic events and news announcements over this period such as the Angola’s request for IMF bailout in April 2016 and the Trump tantrum of November 2016. In chapter 4, an investor’s perspective is taken to evaluate the contribution of African securities to the risk-return profile of internationally diversified portfolios. The chapter explores the avenue of the international portfolio theory to investigate the extent to which the risk-return profile of a domestically-diversified portfolio can gain from the diversification over investment opportunities on the African continent in comparison with other international investment opportunity sets from the perspective of a US investor. Using a variety of mean-variance spanning tests, we find that African investment opportunity sets offer statistically significant diversification benefits to the benchmark US domestically-diversified minimum-variance and tangency portfolios. These diversification benefits can also justify the ongoing high appetite of international investors for SSA eurobonds. Chapter 5 investigates the influence of government borrowing through international capital markets on investment dynamics in Sub-Saharan Africa (SSA). We use the synthetic control method to selected SSA market access countries to evaluate whether and how this kind of international borrowing affects private, public and FDI in these countries. Our results suggest that government and private investment dynamics have not been affected by governments borrowing through international capital markets, but that this move might have boosted these countries capacity to attract FDI as indicates the experience of Gabon and Ghana. This post-treatment increase in FDI lends support to the hypothesis that the resort to international capital markets constitutes as well an opportunity for these countries to register on the investors radar. However, the inconclusiveness of the SC method results regarding private investment cast doubt on the potential of this move to boost the domestic private sector as hypothesized by its proponents. We conclude this dissertation by highlighting some policy lessons from our findings and setting out avenues for future research.

ISBN:978-90-8994-192-3

Publication year:2019

Keywords:Doctoral thesis

Accessibility:Open