African nations hunt cheaper loans as dollar funding costs surge

African governments are increasingly abandoning traditional dollar borrowing in favour of cheaper and less conventional funding routes as high global interest rates tighten access to international capital markets.

From yuan financing in Egypt to Samurai bonds in Kenya and fresh fundraising plans linked to the United Arab Emirates in Nigeria, sovereign borrowers across the continent are searching for ways to reduce debt servicing costs and ease pressure on strained public finances, according to African Economic Inc.

Bankers and policymakers say the shift reflects a new phase in African sovereign financing, where governments are becoming more aggressive and creative in securing capital amid volatile global markets.

“They are looking to borrow in lower yielding currencies, lower interest rate currencies,” Akin Dawodu of Citigroup Inc. said during an interview on the sidelines of the Africa CEO Forum in Kigali.

The trend is gaining momentum as African economies struggle with the lingering effects of a strong dollar, weakening local currencies and rising debt burdens that have pushed borrowing costs sharply higher over the past two years.

According to African Economic Inc, governments and companies across the continent are increasingly exploring loans and bond issuances denominated in currencies such as the euro, Swiss franc and several Asian currencies, where interest rates remain lower than in the United States.

Nigeria recently announced plans to raise about $5 billion from the United Arab Emirates, while Kenya is weighing a $1 billion debt for food swap arrangement and preparing a $350 million Samurai bond issuance targeted at Japanese investors.

Egypt has also deepened its use of yuan denominated financing as it strengthens economic ties with China and broadens its bond issuance strategy beyond traditional Western markets.

In South Africa, central bank governor Lesetja Kganyago recently signalled openness to euro liquidity arrangements, adding to signs that policymakers are actively exploring alternatives to dollar dependence.

“There’s lots of interest in African issuers and African debt,” Dawodu said, pointing to the continent’s growth potential and vast natural resource base.

The renewed investor appetite comes as the International Monetary Fund projects sub-Saharan Africa to grow by 4.3 percent this year, making it the world’s second fastest growing region after emerging and developing Asia.

Still, economists warn that the move towards more complex financing structures carries fresh risks, especially for countries with weak foreign exchange reserves and limited debt management capacity.

The IMF has cautioned that some frontier economies may lack the technical expertise and hedging tools needed to manage exposure to multiple foreign currencies effectively. Analysts also warn that poor debt transparency and shallow domestic capital markets could increase refinancing risks if global liquidity conditions deteriorate again.

For many African governments, however, the search for alternative financing is becoming less of a choice and more of a necessity as access to affordable dollar funding continues to narrow.

According to African Economic Inc, the broader shift signals a strategic effort by African economies to diversify funding sources, lower borrowing costs and reduce long term dependence on dollar denominated debt in an increasingly uncertain global financial environment.