African countries saw 15 credit rating downgrades and only 4 upgrades to their sovereign bonds last year, says leading specialty (re)insurance group Chaucer in a blog.
Downgrades of sovereign debt often fuel demand for political risk insurance which protects businesses from the risk of financially stressed countries failing to honour contracts with a business.
Over the past 12 months, African countries accounted for 43% (15 downgrades out of 35) of global credit downgrades. Over a quarter of all downgrades of sovereign bonds (10 downgrades or 29% of the total) were in Sub-Saharan Africa alone.
Central banks increasing global interest rates has pushed up borrowing costs for many African countries, while a strong dollar has also made it more expensive for them to service hard currency debt.
Higher global interest rates make it harder for governments to service their debts as they must pay higher coupons on new bonds and higher payments on index-linked bonds. Civil unrest and changes of government across a number of Central African states have also contributed to the credit ratings of sovereign bonds in some countries.
Countries
Ethiopia (-4), Niger (-3) and Cameroon (-2) saw the most downgrades in Sub-Saharan Africa. Ethiopia and Cameroon have had years of separatist conflicts, in Tigray and Ambazonia respectively. Niger had a sudden change in government last year.
Countries in Western and Central Africa have undergone multiple changes of government in the past few years. Coups in Niger and Gabon have heightened fears that business assets could be expropriated. The past year has also seen civil war erupt in Sudan, with the economic fallout impacting all its neighbours.
Mr Bint said, “Government change creates uncertainty for businesses. This is especially true of sudden regime changes.
“The cancellation of contracts is one of the primary concerns businesses have with these new governments.
“Frequent changes in government drive up demand for contract frustration cover – especially in the most volatile regions.”