…The price of the 2025 Gabon Eurobond has been marked down by traders by 10%
…African Union needs to step up and take some responsibility for what’s happening on the continent
By Charlie Robertson
WED, AUGUST 30 2023-theGBJournal |At last a coup has happened which financial markets actually care about – because Gabon has outstanding Eurobonds whose prices have dived this morning.
The price of the 2025 Gabon Eurobond has been marked down by traders by 10%, from 93 cents to 84 cents (up slightly from 79-82 cent range two hours ago)
Until now – Africa’s recent spate of coups have all been driven the same structural theme – which is illiteracy.
Countries with less than 40% adult literacy can’t grow sustainably, so political leaders cannot remain popular, which means they are always vulnerable to coups.
Which (as mentioned in the Time Travelling Economist) is what I told US Africa Command in 2018 – coups and instability are inevitable across the Sahel region.
Even 40-60% literacy is not great (the darker brown in the map below) – as it’s too low to industrialise – so low education here also helps explain the conflict in Ethiopia, Sudan, as well as the coup in Burkina Faso. Low literacy countries tend not to borrow from international markets.
Gabon’s coup is strikingly different because it’s in a high literacy country, which is relatively wealthy in per capita GDP terms, at $9,000 in 2023, 10 times that of more coup-vulnerable countries like Mali.
Of course that wealth is not spread equally – but if coups were driven by inequality, we’d be saying hello to the new president Colonel “I know best” in South Africa and Brazil too.
The best case scenario is that this coup really is driven by frustration with a flawed election and a desire to allow the people a chance to vote in a free and fair election. Such things have happened before.
Former president Obasanjo in Nigeria first led the country as a military junta appointee in the 1970s – and returned Nigeria to democracy.
But if instead this is a more typical coup – then the global community and the African Union in particular have a big problem on their hands. The ineffective African Union has sat back and watched regime after regime topple in Africa and failed to reverse any of the coups in recent years.
If you can take power and suffer no consequences, why not do it? You’ll be replacing a leader who’s not done a great job (no-one can, when adult literacy is sub-40%) and if you burn a French flag or two, you will be praised as a hero.
This is a dangerous theme – because military leaders in Africa today, like Latin American dictators in the 20th century (and demographic and education figures bear out that similarity) – are not likely to do a better job.
At least in some countries there’s been a chance to kick out a leader who does not deliver education for your children, but who’s going to argue with the policy choices of a man holding a gun.
So the African Union needs to step up and take some responsibility for what’s happening on the continent, before the coup contagion spreads further.
What could be done ? Sanctions on Gabon would make paying the interest on its Eurobonds more complicated – and perhaps sanctioned Gabonese officers would not want to repay those bonds. Suspending aid – as has been done with Niger? The problem here is that it prolongs the decades of illiteracy and poverty that make coups more likely (and Gabon is probably not a big recipient of aid relative to others).
If the global community wants to stop coups – they need to start sending more aid to support education. Threatening to cut off Gabon’s oil exports is another option, with again negative repercussions for bond holders .. although China and some others may be happy to buy the oil anyway.
If the African Union does not act, they’re giving carte blanche (please excuse the French) to military officers to topple more regimes.
Charlie Robertson, Head of Macro Strategy, FIM Partners UK Ltd
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