More than one hundred financiers met in Washington DC for the annual African Debt and Capital Markets Summit on the fringes of the IMF spring meetings a few weeks ago.

A decade ago, the number of attendees could have been counted on the fingers of one hand. In 2015, the interest reflects a market that is rapidly rising.

Led by Kenya’s $2 billion (Sh192.6 billion at current exchange rates) eurobond issue, sub-Saharan African countries issued over $9 billion (Sh866.7 billion) of sovereign debt last year. This is a far cry from the $1 billion (Sh96.3 billion) raised by the entire continent in 2000.

Market analysts are unsure if the eurobond issues planned by Côte d’Ivoire and Tanzania this year will be outliers or trigger a further increase in the African debt market. Or whether market and an uncertain outlook for commodities such as oil, copper and gold will intimidate African governments and companies thinking about taking on more debt.

Why the rush

So, why the rush to go to market?

The main reason is that markets are still relatively favourable and, crucially, countries are keen to cash in on low interest rates before, as expected, the US Federal Reserve increases its rates.

US interest rates currently stand at 0.25 per cent — where they have been since December 2008 in the wake of the financial crisis.

However, the growing strength of the US economy means that most economists expect them to be raised to 0.75 per cent by the end of 2015.

Yields for European and US government debt remain at near historic lows.

For instance, 10-year US government bonds are being sold at a 2.1 per cent interest rate. Most European debt — barring Greece — is being sold at similar levels.

As a result, African debt offers a higher profit margin — eurobonds issued by the continent’s nations went at an average yield of around 6.5 per cent last year — and the region’s economic performance means that investors see them as a relatively safe bet.

Meanwhile, the decision by the European Central Bank to pump an extra €1.1 trillion euro (Sh120.9 trillion) of new money into the system over the next 18 months gives investors plenty of spare cash to put into emerging and frontier market bonds.

As soon as US rates rise, so will the cost of servicing debt — the low-interest rate party could be over and nobody wants to miss out.

Fastest-growing regions

The nervousness about the Fed’s plans has been reflected, along with the oil price slump, in increasing pressure on the region’s currencies, including the shilling.

Indeed, in its annual financial stability report, the IMF warned about the prospect of investors being surprised by the timing of the rate hike and the consequent market tensions and liquidity risks.

Besides, economically, sub-Saharan Africa is one of the fastest-growing regions in the world, growing at an average clip of 5 per cent per year.

But while cheap money might be available for African governments on the markets, not everybody is convinced of the need to increase their debt burdens.

Last May, an IMF paper warned the region’s governments not to over-borrow. Few listened; at least, the governments of Côte d’Ivoire, Ethiopia, Ghana, Kenya and Senegal did not, and all had successful debt auctions.

Debt burden

Kenya’s climbing debt burden — now on the brink of hitting 50 per cent of the value of what the country produces, having grown from 40 per cent in 2010 — is mirrored elsewhere in the region,

So is the country’s higher-than-comfortable 6 per cent Budget deficit.

Currency market volatility also increases the risks of piling more debt on the national credit card.

The shilling has lost 8 per cent of its value against the dollar since January 2014, compared to a cross-region fall of 10 per cent.

Consequently, frontier-market governments that borrowed in dollars, but whose revenue is largely denominated in local currencies, are facing extra strain on their finances.

In Kenya’s case, the central bank only holds around $6 billion (Sh577.1 billion) in reserves — equivalent to around four months of imports.

Building up new debts in dollars and euros will not be viable without the currency to repay them.

Borrowing to fund investment, particularly in infrastructure, “is usually good,” said economist Paul Otung, adding that, in Kenya’s case, “concern due to the persistent current account deficits, though warranted, should not dampen the investment spirit.”

But other countries might not be such a robust economic position in terms of growth.

For the time being, however, such fears are probably overplayed. No African sovereign is in any immediate danger of default — that is the preserve of the likes of Argentina and Greece.

“I think you can say that the capital that has been raised by eurobond issuances has been well used in Africa,” Megan McDonald, the head of debt primary markets at Standard Bank, said on the eve of the Washington summit.

“One of the benefits of any issuer accessing the eurobond market is that it increases the scrutiny and focus from a global investor audience. This is in terms of government procedures, reporting and information disclosure, which imposes a discipline on the issuer to ensure the funds are used appropriately,” she added.

The African debt market is, in relative terms, still very small. The total issuance of African sovereign debt in 2014 is a fraction of a single 10-year US Treasury auction, and there are many companies in the US and Europe that issue more debt than entire African nations. One of the primary tests of a government’s strength is whether it can finance itself cheaply. So governments that can afford to should have no fear about testing the markets.