Kagame’s Singapore of Africa Economy Rewards Debt: Africa Credit

Fourteen years of Rwanda rule by Paul Kagame, whose forces ended the 1994 genocide that killed at least 800,000 people, is rewarding bond investors with record low yields amid the fastest economic growth in East Africa.

Growth in the landlocked nation will reach 7.5 percent this year, up from 5 percent in 2013 and versus 5.4 percent for all of sub-Saharan Africa, the International Monetary Fund said last month. Rwanda’s first dollar bonds, sold in April last year, returned 9.3 percent since Dec. 31, compared with 6.6 percent for emerging-market peers, according to Bloomberg indexes.

President Kagame, 56, who said in January he may return to markets this year to borrow about $1 billion, is building roads and Internet connections, tackling corruption and making it easier to start businesses. Foreign aid has resumed after some donors withheld funds in 2012 following allegations by the United Nations, denied by the government, that the country was backing rebels in neighboring Democratic Republic of Congo. Germany pledged 18 million euros ($25 million) in November.

“Rwanda is a sound macroeconomic story and that is why the bond has done so well,” Rune Hejrskov, who helps oversee $1.4 billion in emerging-market debt at Jyske Bank A/S, including the nation’s bonds, said by phone from Silkeborg, Denmark, May 13. Progress includes “government reforms, a reduction in crime, improving infrastructure,” he said. “In house, we call it the Singapore of Africa.”

IFC Bonds

Singapore’s gross domestic product per capita rose to $52,052 in 2012, up from $16,099 two decades earlier, according to the World Bank. The island of more than 5 million people, which became independent from Malaysia in 1965, tops the lender’s ranking for ease of doing business. Rwanda is the best in Africa after Mauritius.

The International Finance Corp. is offering as much as 15 billion Rwandan francs ($22 million) of five-year notes with so-called bookbuilding ending today, according to Standard Bank Group Ltd., one of the arrangers. The nation of 12 million people plans to tap international debt markets when the government has projects ready to absorb the financing, Finance Ministry Permanent Secretary Kampeta Pitchette Sayinzoga said April 25.

She didn’t respond to an e-mailed request for comment on May 13 and calls made to the ministry in Kigali didn’t connect. Foreign Minister Louise Mushikiwabo, who acts as government spokeswoman, didn’t answer a call to her mobile phone yesterday.

Aid Risk

Yields on Rwanda’s dollar bonds dropped 52 basis points since they were issued to 6.39 percent by 5:22 p.m. in Kigali. Rwanda plans to lessen its dependence on grants to 7.5 percent of GDP in the 2015-16 fiscal year from 9.5 percent in the prior period, Finance Minister Claver Gatete said April 30.

“The main risk still remains with aid partners,” Phumelele Mbiyo, the regional head of macroeconomic research at Standard Bank’s Kenyan unit, said by phone from Nairobi on May 13. “Their continued provision of aid remains crucial for the economy.”

Rwanda has made doing business easier in nation by streamlining bureaucracy and tackling public-sector corruption, Sarah Tzinieris, principal Africa analyst at Bath, U.K.-based risk analysis company Maplecroft, said in an e-mailed response to questions May 13.

“Rwanda’s economy is also more diversified than most others issuing Eurobonds in sub-Saharan Africa,” she said. “This enables investors to diversify their portfolios.”

The country is rated B by Standard & Poor’s and Fitch Ratings, or five levels below investment grade.

Rwanda would be able to sell a second bond “at a slightly lower coupon,” Christian Mejrup, a money manager at Global Evolution A/S, which oversees $2.1 billion, said by phone from Kolding, Denmark, on May 12. “It would be possible for Rwanda to issue a new Eurobond in the area of 6 percent to 6.25 percent.”

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