Investors in West African countries are enjoying the best returns on the continent, and are shifting money flows to a region that’s performed well despite coups, radical economic overhauls and debt restructurings.

Over the past year, holders of dollar bonds have made 8.5% in Ivory Coast, 8.7% in Gabon, 11.4% in Senegal, 14.2% in Ghana and 28.2% in Nigeria, all beating the 8.3% average for sovereign emerging and frontier countries in a Bloomberg index.

The western region is now home to the fastest-growing economies in Africa, which have diversified their sources of funding and mostly have debt loads investors see as relatively well-managed. And while Nigeria’s currency has been devalued, many of its neighbors — particularly francophone countries which have pegged their currencies to the euro — offer lower currency risk and more stability to investors wary of being burned by steep depreciations and devaluations that have occurred elsewhere.

Economic reforms in countries such as Ivory Coast and Benin have made the region a magnet for support from international lending institutions like the International Monetary Fund. And while political upheaval has taken its toll — there have been seven military coups in West and Central Africa over the past four years, and Senegal’s president attempted to delay an election this year — stronger institutions have allayed some of investors’ worst fears, according to Søren Mørch, portfolio manager at Danske Bank Asset Management.

“I think some investors are underestimating the huge support from IMF, World Bank, African Development Bank and many other IFI’s,” Mørch said, referring to international financial institutions. The fact that lenders in the west are eager to help is “clearly a credit positive, and also the technical picture is very much in favor of these countries,” he said.

China has also taken note. In 2021 and 2022, it signed off on 16 loans worth a combined $2.22 billion to African countries, according to data compiled by Boston University’s Global Development Policy Center. Of that, $1.92 billion, or 86%, went into projects in West Africa, with Senegal, Benin, and the Ivory Coast receiving the largest amounts. Chinese investment had traditionally been concentrated in Southern and East Africa.

Investors are also looking to capitalize on geographic advantages, particularly as trade routes shift away from the Red Sea amid attacks related to the Israel-Hamas war, and as developed nations seek to near-shore supply chains.

Hubs in West Africa are “increasing their appeal” as “solid bases for manufacturing companies,” said Yvette Babb, a portfolio manager at William Blair Investment Management in The Hague. “Ivory Coast is an example as it has expressed a desire to move up the value chain of some of it’s agro-processing” and has seen some foreign direct investment related to that, she said.

Political Risks

For now, the promise has been enough to encourage many investors to overlook the risks.

Volatility surged in Gabon’s bonds after a coup last year, and Senegal’s took a hit from President Macky Sall’s short-lived bid to delay an election. Burkina Faso, Mali, and Niger are now junta-led and plan to withdraw from the regional economic bloc ECOWAS, adding potential risks, according to S&P Global Ratings. None of the three countries has eurobonds.

In Eastern Africa, Ethiopia was long the continent’s fastest-growing economy — and in 2019 the world’s fastest-growing, until a civil war broke out in 2020. It defaulted in December. The downgrade last year of the region’s largest economy, Kenya, “put a little bit of a damper” on interest in the east, according to Gerhard Zeelie, head of property finance Africa at Nedbank Group Ltd.

Interest in Southern Africa has also dimmed. According to the African Development Bank Group, the region is expected to to expand just 2.7% in 2024, dragged down by the performance of South Africa, the continent’s most industrialized economy.