AFRICA MONEY-Nigeria taking lead in African local debt

Thu Aug 18, 2011 4:10pm GMT

By Tosin Sulaiman

JOHANNESBURG Aug 18 (Reuters) - Nigeria looks set to overtake South Africa as the continent's biggest issuer of local government debt with a planned $650 million auction by one of its states in October, but sub-national bonds remain far off for much of Africa.

Capital markets can prove cheaper than bank loans -- and may be the only option -- for some governments seeking to fill budget gaps or fund big infrastructure projects, but in much of Africa the growth of local debt issuance has been slow to take off.

A planned 100 billion naira ($650 million) bond issue by Rivers State in Nigeria's oil-producing Niger Delta would take Nigeria's total local debt stock to more than $2.3 billion compared to South Africa's $1.9 billion in municipal bonds.

"Banks in Nigeria have only a small direct exposure to Nigerian sub-nationals, about 5-10 percent of their total loans," said Maciek Szymanski, an investment analyst at African Alliance, explaining why Nigerian states are keen to issue bonds.

"In South Africa, the banking sector is more consolidated and has more capacity to lend to municipalities."

South Africa's business centre Johannesburg became the first local authority to tap the bond markets in 2004 and has since been joined by neighbouring Ekurhuleni and the port and tourism capital of Cape Town.

But the outstanding issues still account for only about 1 percent of South Africa's bond market -- Africa's biggest by far.

In contrast, Nigerian state bonds have mushroomed since 2008 to 7 percent of the overall bond market. Nine of Nigeria's 36 states, including the commercial hub of Lagos, now have bonds.   Continued...

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