Gabon’s General Brice Oligui Nguema took the reins as interim president on September 4, 2023, following a coup that marked the eighth military takeover in Africa since 2020. What sets Gabon apart is its recent issuance of international bonds and a groundbreaking debt-for-nature swap in continental Africa.
The coup sent shockwaves through Gabon’s bonds, causing a 10% drop and impacting neighbouring Cameroon’s bonds as well. This coup trend, alongside debt crises, geopolitical tensions, and climate change vulnerabilities, is discouraging investors across the continent.
UNDP research highlights the staggering costs of coups, with Guinea and Mali losing $12-$13.5 billion collectively, amounting to a significant portion of their GDPs.
This coup climate is not exclusive to Africa, with coups and attempted coups occurring worldwide, prompting investors to react with caution.
Cameroon, in particular, felt the aftershocks of Gabon’s coup, with its bonds facing more significant losses. Concerns also surround Senegal and Congo Republic, where political unrest and prolonged leadership have raised eyebrows.
Investment firms are closely monitoring the coup theme, with concerns about the potential impact on debt investments if new governments reject previous debts.
Although Gabon’s new leadership hasn’t repudiated debt, bond payments have encountered issues elsewhere, like Niger. Credit ratings tend to suffer after coups, with agencies downgrading several African countries.
Sanctions and withheld international support can exacerbate debt repayment challenges following coups. Gabon, although not yet facing sanctions, has its International Monetary Fund program off track.
The rise in oil prices and membership in the Central African monetary union have temporarily shielded Gabon from a full downgrade, and its bond spreads could recover if it meets upcoming payment deadlines.
However, broader concerns about sovereign stability persist across Africa, with many countries categorized as at least somewhat unstable in the “Fragile States Index.” Even in solid democracies like Kenya, general risk aversion could increase the cost of issuing new bonds.
In summary, Africa is experiencing a season of coups, raising uncertainties for investors and emphasizing the importance of political stability and democracy in debt markets.
