As global financial conditions tighten and borrowing costs rise, African nations are increasingly looking inward – to local currency markets. While this move functions as a means to fund development goals and minimise exposure to foreign exchange risks, the shift also represents a major pivot in how the continent approaches debt management, resilience and access to markets.
According to OMFIF’s Absa Africa Financial Markets Index 2025, market depth across Africa weakened in more than half of the 29 surveyed economies, due to tighter global liquidity and reduced secondary bond trading. Yet, the index also highlights that reform-driven countries such as Namibia, Rwanda and Malawi have made tangible progress via improving primary dealer systems, launching central securities depositories and diversifying instruments. The development of local markets is no longer a passive response to global headwinds but a deliberate policy hedge against them.
Over the last 10 years, we have seen a notable increase in local currency bond issuance across various African markets. Countries like Kenya, Ghana, Nigeria and South Africa have bolstered their primary market infrastructure and even launched digital retail platforms to encourage broader participation. While local markets’ depth and liquidity can differ greatly, a clear trend is emerging where domestic funding evolves from a temporary solution initially and then to a strategic approach to safeguard against market fluctuations.
Exploiting vulnerabilities
The tightening of global monetary policy since 2022 exposed African nations’ vulnerabilities to changes in risk sentiment and a stronger dollar. With Eurobond spreads remaining high and refinancing opportunities limited, relying on external issuance has become more expensive and uncertain. On the other hand, developing credible and liquid local markets enables governments to extend maturities, enhance debt sustainability and broaden their investor base.
This evolution has been supported by institutional reforms. Many central banks have improved their monetary frameworks and enhanced coordination with debt management offices. Pension fund reforms in countries like Nigeria and Kenya have created pools of long-term domestic capital that can absorb sovereign debt, aiding in the development of the yield curve. Additionally, regional initiatives – such as the African Development Bank’s African Domestic Bond Fund and the African Union’s efforts to standardise issuance practices – are working to boost transparency and comparability.
However, progress is still uneven. In many places, the secondary market liquidity is quite limited, with buy-and-hold investors still holding the majority. The onus must be on investing in data-sharing, benchmark-pricing and settlement infrastructure.
For foreign investors, dealing with local currency exposure comes with its own set of risks, like convertibility issues and sudden drops in currency value. Tackling these challenges requires stronger market-making strategies, regional clearing systems and clear communication from monetary authorities.
Progress despite headwinds
The 2025 AFMI report reveals that despite liquidity challenges, innovation and diversification are expanding rapidly across Africa’s domestic markets. Tanzania’s oversubscribed Samia infrastructure bond – which raised over 115% of its target – and its first sovereign sukuk, mark milestones in mobilising Shariah-compliant capital for infrastructure. Kenya’s debut asset-backed security showcases how structured finance can support public projects beyond conventional borrowing. Meanwhile, Namibia’s national CSD, launched in 2025, is improving settlement efficiency and transparency – a model for peer markets.
The potential benefits are significant. Well-developed and liquid domestic debt markets can act as buffers when external financing gets tight and help mitigate the ‘original sin’ of borrowing in foreign currencies. For investors, local markets’ growth present exciting new opportunities for diversification, allowing them to tap into economies that are improving their policy credibility and offering positive real yields.
Some of Africa’s frontier issuers are already paving the way. For instance, Kenya’s Treasury bonds have drawn interest from both local pension funds and a few global frontier debt managers. The West African Economic and Monetary Union regional market stands out as an example of cross-border local issuance with shared infrastructure. South Africa, with its robust domestic market and diverse investor base, continues to set the standard for others looking to mature.
The path ahead
Looking forward, it will be crucial for sovereign debt offices, central banks and regional institutions to work together to build on this progress. For international partners, providing technical assistance focused on developing the secondary market and improving data transparency would be a game-changer.
Building on AFMI 2025’s policy recommendations, deepening repo markets, expanding pension and insurance participation and enhancing regional trading standards could transform local bond markets into reliable buffers against global volatility. As OMFIF and its Sovereign Debt Institute continues to engage with issuers and investors, these trends point towards an Africa that increasingly finances its future in its own currencies.
In a time when global uncertainty is on the rise, Africa’s capacity to fund its own development through reliable local markets might just be its best defence against outside shocks.
Vimal Parmar is a Special Adviser at OMFIF.
Download the Absa Africa Financial Markets Index 2025.
