African local-currency debt is making a strong comeback in global markets, as investors search for higher returns and diversify beyond traditional assets.
The renewed interest is part of a much broader recovery in emerging-market debt. Foreign investors poured $214.4 billion into emerging-market debt between January and July 2026, according to Institute of International Finance data reported by Reuters the strongest performance for the first seven months of a year in more than two decades.
For Africa, the shift is particularly significant because investors are increasingly looking beyond the continent’s international dollar bonds and towards local-currency government securities.
Zambia emerges as a major winner
Zambia has become one of the clearest examples of the renewed appetite. Data from MCB Investment Management showed that Zambian local-currency government debt generated a 32.3% total return in US-dollar terms between the beginning of 2026 and August 10.
The return came from two sources: a 14.1% gain on the bonds themselves and an 18.2% gain from the strengthening Zambian kwacha. Nigeria also recorded a strong 14.7% dollar return over the same period. The performance is striking because Zambia only recently emerged from one of Africa’s most serious sovereign debt crises.
The country defaulted on its external debt in 2020 and subsequently went through a lengthy restructuring process supported by an IMF programme. President Hakainde Hichilema’s re-election this month has now given investors greater policy continuity, although markets are waiting to see whether the government can translate economic stabilisation into stronger growth.
Zambia is also seeking a new IMF programme after its previous $1.7 billion arrangement ended in January, while the government has indicated that it is not yet ready to return immediately to international bond markets.
That caution matters. Investors may be returning, but Zambia still has to demonstrate that its recovery can survive beyond the debt-restructuring phase.
Uganda attracts offshore money
Uganda provides another example of how investor interest in African local debt is influencing financial markets.
In August, Reuters reported expectations of strong offshore participation in a Ugandan government bond auction worth 990 billion Ugandan shillings, about $266 million. The anticipated inflows were expected to provide support for the Ugandan shilling, demonstrating how foreign demand for government securities can also affect a country’s currency.
Uganda’s local debt market has also been gradually opening to international investors. Government data show that offshore investors’ share of domestic debt increased from 6.3% in June 2023 to 7.07% in June 2024, as global financial conditions improved.
For investors, Uganda’s attraction is straightforward: relatively high yields combined with expectations of currency stability and economic growth.
Across Africa, local-currency bonds have delivered impressive returns this year. The African Local Currency Bond Index was up 5.9% in dollar terms by August 10, while African local-currency government debt has generated approximately 65% in cumulative dollar returns since December 2017.
That compares with roughly 23% for emerging-market local-currency government debt over the same period. The attraction is also visible in bond yields.
Ten-year government bond yields in August stood at approximately:
- Egypt — 21.4%
- Nigeria — 17.2%
- Zambia — 16.2%
- Ghana — 15.3%
- Kenya — 13.4%
These yields are far above those available in many developed markets, although they also reflect the greater risks investors take in African markets.
Africa’s debt market is changing
The current rally is part of a much bigger transformation. African governments are increasingly borrowing in their own currencies rather than relying entirely on foreign-currency loans and international bonds.
Annual domestic debt issuance across Africa increased from roughly $150 billion in 2010 to nearly $500 billion in 2024, according to data cited by Africa Briefing. That development matters because borrowing in local currency can reduce governments’ exposure to sudden movements in the US dollar.
It also gives African pension funds, banks, insurance companies and other domestic investors a larger role in financing their own governments. But the change comes with a trade-off.
High returns come with high risks
The strong performance of African debt should not be mistaken for the disappearance of risk. Investors remain exposed to currency depreciation, inflation, political uncertainty, fiscal pressures and changes in interest rates. A strengthening currency can dramatically increase dollar returns, as seen in Zambia. But the opposite can happen just as quickly if a local currency weakens.
Governments also face the problem of high domestic borrowing costs. Expensive local debt can increase debt-service obligations and potentially reduce the amount of credit available to private businesses. That is particularly important for African economies trying to finance infrastructure, manufacturing and job creation.
A selective return, not an African-wide boom
The most important point is that investors are not returning to every African debt market equally.
They are becoming more selective, looking for countries with improving economic fundamentals, credible monetary policy, stronger foreign-exchange positions and clearer fiscal strategies. This helps explain why countries such as Zambia, Uganda and Nigeria are attracting attention while investors continue to scrutinise the risks across the continent.
The global environment is also helping. Investors are searching for diversification as concerns over concentration in US assets grow, while emerging-market currencies and local debt have benefited from improved investor confidence. The renewed appetite for African debt offers governments an important opportunity but also a responsibility.
If countries use the inflows to strengthen domestic capital markets, finance productive investment and maintain fiscal discipline, the current investor interest could become a longer-term source of development finance. For Zambia, the challenge is to turn its post-default stabilisation into sustainable growth. For Uganda, it is to deepen its domestic market while managing borrowing costs. And for the wider continent, the objective is to build financial markets capable of attracting international capital without becoming excessively dependent on it.
The continent is no longer simply being viewed as a collection of high-risk borrowers. Selected African markets are increasingly being treated by global investors as opportunities for yield, diversification and long-term growth.
TNAM
By Egwu Patience Nnennaya
