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Oxford Economics: Cheap finance is “a thing of the past” in Africa

The consultancy Oxford Economics considered this Sunday that "cheap financing is a thing of the past", especially for border markets, among which is the African continent, which will face fewer financiers and more inflation.


In a note sent to investors, which Lusa had access to, analysts write that "the world has changed and cheap financing of budgets in border markets is a thing of the past, in the current environment, African nations will face a more complex small number of investors in a context of rampant inflation and currency risks".

The report on the financing conditions of African countries notes that despite the difficulties, African countries have "avenues of financing" that are available and that should be used to offset rising financing costs.

"We believe that there are avenues of financing that can be explored, including greater use of concessional financing options, preferably supported by a World Bank or International Monetary Fund initiative, and environmental, social and governance (ESG, in acronym in English) also offer a competitive price and support governance and accountability", read in the report.

Oxford Economics analysts draw attention to the possibility of a funding deficit due to the reduction of available liquidity in international markets, in a context that, they warn, "is not favorable to good funding conditions for fragile African issuers, which forces nations that want to get into debt to explore alternative financing options".

One of these options, they note, is domestic indebtedness, as Angola is trying to do, taking advantage of the launch of the stock exchange and the interest of foreign investors in the local economy due to the good moment of macroeconomic conditions.

"Appetite for debt issued in local currency is increasing, in a context in which high inflation and exchange rate risks, such as uncontrolled depreciations, undermine attractiveness, on the contrary, investors anticipate a more restrictive monetary policy on the part of national authorities, which benefits bond prices," the analysts write.

Oxford Economics, in its report on the financing conditions of African countries, also recommends that countries avoid taking on more commercial debt because it "puts sustainability at risk" and argues, instead, that "African debt issuers need to explore options cheaper, including the concessional debt market or more targeted and growth-enhancing instruments such as 'green debt' bonds".

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