Africa - a resilient frontier amid euro turmoil As global financial markets have been roiled by the eurozone's worsening debt crisis, Africa has proved a rare bright spot. Debt issuance by African sand companies outside the northern Arab states hit a record $12.4bn in 2011, up 17 per cent on the previous year, according to Dealogic. Global debt issuance, by contrast, fell 6 per cent. Namibia was among the maiden issuers, and Zambia is expected to sell euro­bonds for the first time this year. IN Emerging Markets "It's still a small base, but it's growing rapidly," says Florian von Hartig, global head of debt capital markets at Standard Bank, the South Africa-based lender. The recent issues have whetted international appetite for African credit, and help develop the local markets. Apart from the generous yields often on offer, some investors say part of the attraction of debt sold by sub-Saharan countries, and a smattering of companies, is the region's lower correlation with global markets. Aside from South Africa, a well-established emerging market, most of the continent is a "frontier market" by asset managers. The number of funds that can invest is therefore limited and liquidity is often poor. Yet, African debt often moves independently of international sentiment, an attractive trait for fund managers frustrated that EM debt has often moved in lock-step with the latest news from Greece or Italy. "We like frontier markets, which have proved to be relatively resilient to the turmoil elsewhere," says John Peta, a debt fund manager at Acadian Asset Management. They offer very attractive yields and are less affected by the global headwinds. There is little in the way of data on fund flows in and out of Africa, or even on asset managers that focus on frontier market debts, seen being on as the fringes of the financial system. Equity funds dedicated to frontier markets tracked by EPFR Global, a data provider, have suffered a five-month run of net outflows, reducing total assets under management to $7.5bn. Yet there are signs that demand for frontier market debt, and African debt in particular, is on the rise. The yield of JPMorgan's Nextgen Africa index has fallen 70 basis points to 8.4 per cent so far this year. The broader Nextgen frontier markets index currently yields 8 per cent, down 15bp this year. The JPMorgan EMBI emerging markets index yields 5.7 per cent, down about 20bp over the same period. Stuart Culverhouse, head of research at Exotix, says "African debt has partially benefited from the eurozone fallout, the continent's growth and the renewal of risk appetite." Nigeria is arguably one of the main beneficiaries. Despite recent strikes that threatened to derail the country's vital oil industry, and a terrorist attack that killed almost 200 people last month, the yield of its inaugural $500m bond maturing in 2021 has only edged up, to just under 6 per cent, comfortably below the 6.75 per cent coupon it paid on issuance in January 2011. Andreas Kolbe, a strategist at Barclays Capital, says the interest in Africa is partially driven by the eurozone crisis, and the blow it has dealt to the prospects of central and eastern European emerging economies. "We expect more maiden sovereign eurobond issuance in 2012, and this will likely set the stage for a further broadening of the market," he says. Still, the risks are significant. Ivory Coast defaulted on $2.3bn of eurobonds last year after violence across the country following elections. Many countries are also largely dependent on commodity exports, and any downturn in global demand for a wide variety of natural resources would dim the outlook. "African debt markets have a comparatively low correlation with global markets generally, but commodities still remain a major driver of the regional outlook," Mr Kolbe says. Moreover, the relative illiquidity that helps act as insulation from global market swings could become a disadvantage should funds be hit by redemptions. African markets are very illiquid. If you're a forced seller at the wrong time it can be dangerous," says Simon Lue-Fong, head of EM debt at Pictet. The recent rush of bond sales are encouraging, but few expect Africa to become a substantial component of global capital markets any time soon. "Some people think they are the next big thing, other people think they will always remain the next big thing," Mr Lue-Fong says.