Rwanda’s debut in the Eurobond market will offer investors the rare opportunity to buy into one of the fastest growing economies in Sub-Saharan Africa – but don’t expect the country to get carried away.
The sub-benchmark size of the trade, combined with the country’s strong dependence on foreign aid and volatile sectors of the economy, will see some buyers take a step back and demand a reasonable premium to get involved.
The East African sovereign, rated B/B, will wrap up investor meetings for its planned US$400m 10-year bond sale next Wednesday, after conducting a one-week roadshow in Asia, Europe and the US through BNP Paribas and Citigroup.
The last Eurobond issue from the continent, Zambia’s 5.375% US$750m 10-year note offering, generated an order book of US$12bn when it was issued in September, pricing through the curves of the country’s regional peers.
While Rwanda is unlikely to replicate that success, a shortage of African paper in the market will generate strong interest among yield-starved investors.
Despite a US$50m increase from the originally targeted US$350m, Rwanda’s transaction will fall short of the US$500m minimum required for inclusion in global emerging market indices, reducing the notes’ potential buyer base and limiting their liquidity in the secondary market.
“The sub-benchmark size is a problem because it means there is no automatic demand from index followers,” said Graham Stock, chief strategist at Insparo Asset Management. “It is a market distortion created by the importance of the index, but it can’t be ignored.”
Borrowing more for the sole purpose of joining the index league, however, would make little sense for a country with annual GDP of US$6.4bn. “It would be risky for the government of a small economy to borrow more than it needs and thereby increase debt service costs and refinancing risks just to qualify for the benchmark,” said Stock.
While Rwanda’s growth story is compelling – real GDP growth averaged 7.4% between 2003 and 2011 – the country relies on foreign aid to finance almost 40% of its budget. Subsistence agriculture accounts for one-third of annual GDP, employing 73% of the labour force.
Eyeing a 7% yield
In light of these challenges, a syndicate official away from the deal reckons investors are likely to demand a yield of around 7% to buy the new notes. “I see a definite floor of 6%, on top of which you need to add a new issue premium and [an additional concession for] non-index eligibility,” said the banker.
“I think the premium for the size will be significant. A pricing [of] circa 7% is not far-fetched,” said a London-based portfolio manager who specialises in African markets.
He suggested, however, that the rarity value of the name could push the yield even lower. “I would go tighter, between 6.5% and 6.75%, mainly because of the appetite for Eurobonds from the region and current yield levels for SSA names,” he added.
Proceeds from the sale will be used to repay outstanding loans and finance the completion of the Kigali Convention Centre and the Nyabarongo hydro power plant.
Rwandan President Paul Kagame said Thursday his country will aim for average annual economic growth of 11.5 percent for the next five years.
“We have set ourselves a target of promoting this country’s economic development. We want economic growth to average 11.5 percent” for the period 2013-2017, Kagame told a government retreat.
“It’s a feasible target,” he went on, saying that the fact that Rwanda managed 8 percent growth in 2012 despite suspensions of foreign budget support was “a miracle”.
The 8 percent growth figure is according to the government. The International Monetary Fund put Rwanda’s 2012 growth at 7.7%.
In 2012 several donor countries suspended their budget support to Rwanda following accusations from the United Nations that Kigali was backing rebels in eastern Democratic Republic of Congo.
Rwanda has always denied the claims.
Nearly two decades after the 1994 genocide, 40% of Rwanda’s budget still comes from aid.
In February Germany unfroze some 7 million euros of aid and reallocated it for professional training.
When Agnes Binagwaho began her career as a doctor in the slums of Kigali, Rwanda, in 1996, she worked in one of the most precarious health environments in the world.
“We could do nothing for them,” she remembers. “We didn’t have drugs even for ordinary diseases.”
19 years later, however, Rwanda is on pace to become the only country in sub-Saharan Africa to meet all of its health-related Millennium Development Goals, and the tiny pocket of Central Africa has posted some of the world’s most staggering health gains in the past decade, outpacing nations that spend far more per capita on healthcare.
And Dr. Binagwaho, who once stuffed her suitcases full of basic medicinal supplies to take home to Kigali whenever she traveled abroad, is now leading that charge as minister of health.
In an article published earlier this year in the British Medical Journal (BMI), a team of doctors and researchers working in Rwanda laid out the country’s swift rise.
Between 1994 and 2012, they wrote, the country’s life expectancy climbed from 28 years to 56 and the percentage of the population living in poverty dropped from 77.8 percent to 44.9 percent.
In the past decade, deaths from HIV have fallen 78 percent – the single largest decline in the world during that time frame – while tuberculosis mortality has dropped 77 percent, the most significant decrease in Africa.
Of course, the starting point in Rwanda’s climb was a harrowing one: In 1994, between 500,000 and 1 million people — up to 20 percent of its total population — were killed in an ethnic genocide, and some 2 million more fled. Many doctors were among the dead and exiled, and the country, including its healthcare system, was left in tatters.
That year, less than a quarter of Rwandan children received immunizations and more than 1 in 4 children were dead by their fifth birthday.
But in the years that followed, Rwanda became the darling of the international development community, a case study for how a country could use a trans-formative post-conflict period to effectively rebuild its core institutions.
As aid poured in, Rwanda’s new government channeled it into a wide variety of social programs, including healthcare. It rolled out a system of universal health insurance, doled out vaccinations and mosquito nets, and put nearly every AIDS patient on antiretrovirals.
And it did all of this in a place that still faces what the BMI article called “one of the greatest shortages of human resources for health in the world.”
Indeed, the country of 11 million has only 625 doctors in its public hospitals nationwide. But there are also now more than 45,000 “community health workers,” trained to treat basic health issues and help ensure adherence to drug regimens in rural areas far from hospitals and clinics.
As a result of these efforts, the probability that a child will die before the age of five has fallen by 70 percent and is now half the regional average. Some 108,000 people now receive antiretroviral treatment for AIDS – a figure approaching universal access.
But as the healthcare system has lurched forward, it has also come under attack for its heavy reliance on foreign aid: Nearly half of the government’s health budget comes from external funders.
Unlike many other countries, however, Rwanda has used these cash infusions to build institutions, not merely fund programs, says Peter Drobac, the Rwanda director for Partners in Health, a public health nonprofit, and one of the authors of the BMI paper.
Indeed, Rwanda spends no more on health than many of its neighbors, ranking 22nd among 49 sub-Saharan African countries in per capita health spending. That comes to about $55.50 per person each year, which Drobac says is a “tremendous value for money.”
But Rwanda’s government has ambitiously called for the country to be aid-free by 2020, an undertaking that would require a massive pivot away from its current healthcare funding model. In reality, that goal may be decades off, but in the meantime, officials have built the scaffolding for a sturdy healthcare system, Drobac says.
“The lesson we have learned is that you cannot solve every [health] problem at once,” Binagwaho says. “So you do the best with what you have, and you don’t leave anyone out.”
“Rwanda, our beautiful and dear country / Adorned of hills, lakes and volcanoes / Motherland, would be always filled of happiness…”
Prime Minister Pierre Damien Habumuremyi recently told parliament that studies done so far have shown that there are very high prospects of oil deposits in East Kivu Graben region of Rwanda.
This is the first ever solid confirmation from government on the stretched exploration activity by the Canadaian exploration firm, Vanoil Energy Limited.
Habumuremyi said: “Exploratory studies will continue. The first phase showed that there are many signs indicating that it is there. The second phase which will begin at the start of 2013 will be able to show the quantity and nature of the oil Rwanda has.”
The area covers parts of Nyungwe and Gishwati forests, and Lake Kivu.
Vanoil Energy Ltd, which was previously known as Vangold Resources Ltd, has explored for oil in the area for over five years.
Earlier this year, government entered into an agreement with Vanoil to embark on airborne magnetic and gravity survey as an initial step.
Requests for details were not fully answered as the Premier did not appear inclined to elaborate further. But he promised that the House will be kept in the know, as more findings come out.
The announcement comes on the back of an article published in the Arabic Oil and Gas Journal that indicated that, Vanoil saw Sudan-like features on Rwandan seismic, indicating the possibility of oil discovery in Rwanda.
Jacqueline Mukakanyamugenge said: “I wish to know more about this pleasing development relating to findings from studies indicating that in Rwanda, we have oil. When will these studies wrap up so that we know, conclusively, the amount of oil in Rwanda and when it starts getting exploited so that it benefits Rwandans?”
“I don’t want to go into theoretical details which are technical, but I am assuring lawmakers that the second phase which will follow, of digging deeply, in depth and width begins soon; the contractor is here and as studies reveal new findings, we shall update you,” he said.
On April 18, 2008, the explorer [then called Vangold Resources Ltd] had announced the completion of the first exploration phase which involved the use of satellite imagery.
At the time, images showed “signs of seepage” but this did not “really tell much,” Vangold’s Country Manager, Joseph Katarebe, told The New Times, confirming that other thorough phases would then commence.
Vangold started exploration in February 2007. Officials have in the past told The New Times that government is taking precautions, to get a good deal.
When contacted for the latest, on Friday, Katarebe said the line ministry is best placed to give an update or any other comments.
In 2010, the oil exploration programme was transferred from the Ministry of Infrastructure to the Ministry of Natural Resources.
Minister Stanislas Kamanzi could not be reached, for comment, by press time.
Whereas oil exploration in Rwanda began later, Uganda, Rwanda’s neighbour to the north, began exploring oil as early as 1920s and it was not until 2006 that the first oil discovery was made in the Albertine Graben, a region on the Uganda-DRC border.
Over Rwf130 million was raised during separate fund raising drives for the Agaciro Development Fund (AgDF) in Belgium and Uganda, at the weekend.
The Rwandan Diaspora in Belgium raised Rwf110m at a function held at the Rwandan embassy in Brussels.
Meanwhile, the Rwandan community in Uganda and friends of Rwanda raised 100 million Ugandan shillings (about Rwf24.4m) in cash and pledges at the launching ceremony that took place at the Kampala International University (KIU).
Participants in Belgium promised to organise similar functions in various towns in the country.
And the Ugandan ceremony also paved way for a planned grand AgDF event scheduled for November this year in Kampala expected to draw thousands of members of the Banyarwanda community, friends and well wishers.
Rwanda’s High Commissioner to Uganda Frank Mugambage said the AgDF is just one of the many other home grown solutions that Rwandans have chosen as a way of preserving their dignity and promoting development.
“It should be stressed that Rwandans have gained strength and determination from the achievements and progress made out of their collective efforts,” he said.
Mugambage observed that the momentum generated for the Fund since its launch is further proof and a vote of confidence that Rwandans have in their leadership and vision.
The event was marked by Rwandan cultural performances with several speakers promising to mobilise others to be part of the initiative.
“I call on the young generation to take the initiative forward. We should promote our culture of being self dependent in whatever we do,” said Urayeneza Bagakunde, an elder of the Banyarwanda community in Uganda.
Mark Karemera, a resident of Mukono district, said he didn’t have the money to contribute right away, but that he would tell others about the idea and make his contribution in the future.
Olive Kigongo, the Chairperson of the Uganda National Chamber of Commerce and Industry (UNCCI), commended the idea of the fund, saying it is a sure way of reducing dependency on foreign aid.
Donat Kananura, the Chairman of the Banyarwanda community in Uganda, noted that dignity is derived from self respect and called on all Rwandans to be proud of their culture.
For the KIU Vice Chancellor, Mohammed Ndaula, the AgDF is a timely initiative because the African continent only gained political independence and still lacks economic independence.
The Ministry of Finance, which is the custodian of the money contributed towards the Agaciro Development Fund (AgDF), has announced the contributions for the fund are now above Rwf10 billion.
Residents of the Eastern Province, which concluded the fundraising in all districts constituting the region on Wednesday, gathered in excess of Rwf3 billion.
The last drive in the east was held in Nyagatare district where residents raised Rwf 880 million in support of the Fund, which was established with an aim of financing development projects that will be determined by Rwandans at a later stage.
Kayonza district that contributed over Rwf 565 million.
The Governor of the Eastern Province, Odette Uwamariya, said the fundraising would continue, even after the official launch was completed.
“As we announce the figures now, money is still trickling in…I am really humbled by people’s commitment. I thank every individual who supported the programme,” she said.
Senator Joseph Karemera, who presided over the event in Nyagatare, said the people of Rwanda were primarily responsible for developing their country.
He said that gone are the days when people sat back waiting for others to feed them, adding that Agaciro Fund was a way of ensuring that Rwandans play a central role in their country’s development.
“We managed to eradicate thatched houses (Nyakatsi), we promoted agriculture and farming…let’s not tire. We have to build our country, and I am sure with the maturity you are exhibiting, we shall,” he said.
Meanwhile, on Wednesday, staff members of the Integrated Polytechnic Regional Centre (IPRC) of Kigali contributed Rwf 100 million towards the Fund.
Each of the employees contributed a month’s salary.
Engineer Diogene Mulindahabi, the Principal, applauded his staff for understanding the value of the Agaciro Fund.
“This money will be channeled into the national treasury. Thanks to all those who are contributing with enthusiasm to the country’s development,” said the official.
Agaciro Development Fund is an initiative that was set up to raise more domestic resources to help accelerate economic development.