Any lingering doubts about Rwanda’s future economic prospects were dealt a hefty blow by investors last week.
The Rwanda $400 million Eurobond offer was oversubscribed, meaning that investors had no worries about lending money to the country.
This was a brave move by Rwanda, because there is always a risk in issuing an international bond. Investors can decline to buy into it.
In Rwanda’s case there were some hostile feelings from several quarters of the so-called International Community.
This had much to do with the fall-out from the sporadic violence in eastern Democratic Republic of Congo.
However investors showed they had absolute faith in the country’s business prospects and management of the economy despite an unstable neighbour.
The geographical breakdown of the investors was very telling.
About 40% of the buyers came from the United States, 33% from Britain, eight per cent from Switzerland, six per cent from Asia, five per cent from Belgium and Luxemburg and four per cent from Germany. The Kigali government wants to use this money for vital infrastructure development as well as pay off some urgent debts.
All this will help shore up its credentials as a truly business-friendly country skewed to developing a bustling knowledge-based economy.
Official Development Aid is very useful and should not be sneered at. However there are times when governments believe certain useful projects do not get enough attention.
Bond issuances come with few conditions attached, allowing governments to channel funds into areas that they view as a priority.
The other benefit of international bonds, is that they give a country access to long-term finance at relatively cheap rates of interest.
For the investors, bonds can reap a higher yield compared to investing in shares, banks and the money market.
Most important of all, bonds must be paid back. It is a risk-free investment in the sense that the full value of the bond will be repaid when the bond matures.
The one major problem is the fluctuation of the foreign exchange market, but that can also work both ways.
The main thing is to sustain economic growth.
According to the East African Business Council, the region needs more than $3.4 billion in the next four years to upgrade a creaky infrastructure, let alone build new roads and railways. Donor money cannot pay for all this.
Powered by WPeMatico