South Africa slips to second place in Africa

Ivory Coast, the world’s top cocoa producer, has overtaken South Africa to become the best-rated sovereign in sub-Saharan Africa with foreign debt outstanding.

While both countries were affirmed at BB- by S&P Global Ratings on Friday, Ivory Coast’s outlook was moved to positive on what the rating company said was an improving debt profile, while South Africa’s outlook was held at stable.

The yield on Ivory Coast’s debt maturing in 2028 fell 13 basis points to 7.09% as of 12 p.m. in London on Monday. That’s the lowest since April 15.

South Africa’s dollar debt due in 2030 was trading at a yield of 6.9%, down from levels above 8.5% as recently as October.

“The rating trajectory of Cote d’Ivoire over the past ten years has been impressive, reflecting the country’s economic turnaround over the period,” said Samir Gadio, head of Africa strategy at Standard Chartered. “Many other African sovereigns have been downgraded over that period.” 

Ivory Coast broke sub-Saharan Africa’s nearly two-year lockout from international capital markets this January by selling $2.6 billion in eurobonds.

The economy, one of the region’s fastest-growing, is projected by the International Monetary Fund to expand by 6.5% in 2024, up from 6.2% last year.

Despite shrinking cocoa production and downgraded forecasts, the government secured a $4.8 billion funding agreement with the IMF, bolstering its finances and reserves. S&P said it expects commodies exports to rise over the next two years.

“The positive outlook reflects our view that, over the next 24 months, rising commodity exports could lead to a more significant reduction in external and fiscal imbalances than in our base case,” said primary credit analyst Sebastien Boreux in S&P’s statement.

“This could be accompanied by high economic growth, benefiting from economic reforms, donor support, and monetary and political stability.”

In March, Moody’s raised Ivory Coast’s rating to Ba2, two levels below investment grade, putting it on par with South Africa.

Gadio said that while Ivory Coast and South Africa have similar ratings, the former’s bonds would likely continue to trade at a spread pick-up over the latter’s.

“Cote d’Ivoire has built a strong track record in global financial markets under the current administration,” he said, but “further fiscal consolidation will be needed to stabilize still-sustainable debt levels.”