Kenya and Congo emerge as Africa's top debt winners as Iran war trade unwinds

A sharp decline in global oil prices is reshaping investor sentiment across Africa's sovereign debt markets, with Kenya and the Democratic Republic of Congo (DRC) emerging among the continent's strongest-performing eurobond issuers as investors rotate away from oil-exporting economies.

• Falling global oil prices have made African oil-importing countries like Kenya and the DRC more attractive to sovereign debt investors.
• Kenya and the DRC outperformed other African eurobond issuers in June, while Senegal led with the highest returns due to fiscal reforms.
• Lower oil prices benefit importers by easing FX reserve pressures, reducing import costs, and improving fiscal balances.
• African oil exporters like Nigeria, Angola, Gabon, and the Republic of Congo have seen their eurobonds underperform as declining revenue hurts government finances.

A sharp decline in global oil prices is reshaping investor sentiment across Africa's sovereign debt markets, with Kenya and the Democratic Republic of Congo (DRC) emerging among the continent's strongest-performing eurobond issuers as investors rotate away from oil-exporting economies.

According to Bloomberg data, Kenya and the DRC delivered returns of 2.04% and 1.95%, respectively, in June, outperforming the broader emerging-market debt average. Senegal led the continent with a 2.83% return, driven by fiscal reform efforts rather than commodity price movements.

The shift comes as Brent crude has fallen below $73 per barrel, down more than 20% this month. Lower oil prices have weakened the appeal of bonds issued by Africa's oil-exporting nations, while improving the outlook for net oil importers whose economies benefit from lower energy costs.

For countries like Kenya and the DRC, cheaper crude eases pressure on foreign exchange reserves, reduces import costs, and improves fiscal balances. The DRC, despite being one of the world's largest producers of copper and cobalt, imports virtually all of its refined petroleum products.

Lower fuel prices therefore help reduce subsidy costs and ease inflationary pressures, providing relief for government finances and supporting broader economic stability.

Kenya, East Africa's largest economy, has also benefited from improved investor confidence following the implementation of fiscal reforms aimed at narrowing its budget deficit and stabilising public finances. The country's eurobonds have steadily recovered from the volatility experienced earlier this year, reflecting renewed optimism among international investors.

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Oil exporters lose ground

The trend marks a reversal from previous years, when higher crude prices boosted the fortunes of oil-exporting African economies such as Nigeria, Angola, Gabon, and the Republic of Congo.

Now, those markets are losing favour. According to Bloomberg, investors are trimming exposure to oil exporters with weaker fiscal positions as declining petroleum revenues threaten government finances.

The Republic of Congo has been among the hardest hit, with its eurobonds delivering a 2.6% loss in June after posting gains of nearly 5% the previous month. Gabon, Angola, and Nigeria have also underperformed compared with their oil-importing peers.

Senegal remains something of an exception. While the West African country's bonds have returned 2.83% this month, analysts attribute the rally largely to confidence in the government's efforts to restore fiscal discipline and secure a new International Monetary Fund (IMF) programme after previously undisclosed public debt led to the suspension of a $1.8 billion IMF facility in 2024.

Despite the rebound, analysts remain cautious. Matthew Vogel, Head of Global Emerging Markets at Marex, warned that investors should avoid reading too much into Senegal's recent gains, noting that negotiations with the IMF remain challenging.

As global commodity markets continue to fluctuate, Africa's debt markets are increasingly reflecting a simple reality: in today's environment, countries that import oil are becoming more attractive to investors than those that depend on exporting it.