Kenya tops Africa in paying high interest rates on bonds

John Otini

Kenya is paying one of the highest interest rates in Africa on various debt instruments due to heavy government appetite for loans amid fiscal concerns.

Bloomberg data stream shows Kenya’s yields on 10-year government bonds are among the highest after Uganda and Egypt in reference to German bonds also called bund.

Kenya’s yields on 10-year government bonds is 12.8 per cent well above Nigeria and South Africa whose economies are struggling.

South Africa’s 10-year bond is accruing interest at eight per cent while Nigeria’s attracts 12.6 per cent. Ghana is paying yields of 10.5 per cent.

Germany has one of the lowest yields on government bonds and is normally used as a yardstick for other countries.

Interbank rate

Central Bank of Kenya (CBK) data shows a tightening of the market with the average interbank rate rising from 4.2 per cent on November 6, to 6.1 per cent on December 6.

Government securities yield curve has risen sharply with two-year maturities attracting double digit returns for investors.

Kenya’s public debt, however, edged lower to Sh5.9 trillion in September compared to Sh6 trillion in August and July with bond turnover continuing to drop in the run up to December holidays.

Analyst say the high yields were expected after the government repealed the cap on interest rates.

“There will be upward pressure on yields in the short to medium term,” said Michael Mwakio of Suntra Investment Bank.

Parliament last month allowed Treasury to borrow above the Sh6 trillion ceiling pushing the country to move towards the 60 per cent debt to gross domestic product (GDP) ratio psychological level.

Despite Kenya’s low debt to GDP ratio, the country is struggling with serious cashflow problems raising questions in relation to the structure of the economy which is consumer-driven.

This means that banks, which are the main government bondholders, will enjoy attractive returns.

Commercial banks hold 54 per cent of government bonds with pension funds holding 28 per cent.

Mauritius is paying the least by borrowing the 10-year bond at 4.4 per cent while Namibia, Egypt and Uganda have some of the highest rates on the continent.

Countries such as Germany, Netherlands, Switzerland are paying people to borrow since they are booking negative yields. Kenya’s yield on the Eurobond, however, is still below six per cent according to CBK data.

Bilateral lenders have started to avoid African countries and have since pivoted to lending to companies and startups.

Scramble for Africa

China, Japan and America are now encouraging their companies and banks to target startups in the renewed scramble for Africa with heavy inflows coming into companies after debts among African countries turned red.

Japanese prime minister Shinzo Abe last month urged companies to tie up with Africa startup in a countermove against China’s Road and Belt Initiative.