Earn 8% per annum in US Dollars on Tanzanian government bonds, via a European investment vehicle
As I’ve written before, one of the core attractions of investing in less developed markets around the world is that they still inhabit a normal universe where interest rates are positive, and it’s possible to earn excellent real rates of return on plain vanilla investments, such as government bonds and bank deposits.
In Tanzania, for example, you can currently get as much as a 15.85% yield on 20-year local currency (Tanzanian shilling) government bonds. What’s more, inflation has been trending lower since 2012 and is currently running at just 3.3%. So, it’s a 12.5% real rate of return.
Tanzania CPI (% year on year change) 10-year chart
Factor in some exchange rate depreciation, and I’d estimate that even in a worst-case scenario you’d get better than a 7% real rate of return per annum in US dollar terms over the 15-year duration of this bond.
I don’t think there are many other relatively safe investments, where your principal is all but guaranteed to be paid back, which offer that kind of projected real rate of return anywhere in the world. If you know of any, I’d love to hear about them.
What’s also very interesting is that Tanzania’s government debt-to-GDP ratio is only 37.8%… compared to 106.7% in the USA.
Tanzania Government Debt-GDP (%) 25-year Chart
Last time US Government Debt to GDP was as low as Tanzania’s is now, was way back in the early 1980s.
US Government Debt to GDP (%) 50-year chart
Trouble is, the Tanzanian government bond market is not generally open to foreign investors. So, I previously suggested investing via a proxy – by buying shares in the Dar es Salaam Stock Exchange (DSE). It owns a huge portfolio of Tanzanian government debt (on which it pocketed an 11.4% yield last year). Partly as a result of those healthy interest earnings, DSE shares paid out a big dividend themselves and trade on a current yield of 8.4%. Not too shabby.Another way to get exposure to the high rates of interest on Tanzanian government bonds, which a non-Tanzanian friend of mine living in Dar Es Salaam has done, is to buy into a Tanzanian government bond fund.
This is apparently open to anyone who has an account with a Tanzanian custodian bank. I have just opened such an account myself with NMB Bank, partly for this purpose.
I will be testing out this specific investment myself in coming weeks and months. You could follow along if you wish. Drop me a note at firstname.lastname@example.org for more details.
But what if you could make 8% p.a. in USD, and eliminate currency risk,
investing via an investment in a European company?
I’ve just learned of an exciting new investment that gives you another way to make a 2-year investment in US dollars and earn 8% per annum on a Tanzanian government bond-backed investment.
Clearly that beats the meagre 0.194% current yield on comparable US 2-year US Treasury notes hands down, with little or no extra risk.
As I’ve shown you above, Tanzania’s government finances are in much better shape than those of the USA right now.
The investment is structured by a UK firm. The local counter-parties in Tanzania are a leading local investment bank and broker, and the country’s largest bank, CRDB, which will act as custodian.
CRDB is a blue-chip institution. I’ve visited CRDB Bank and interviewed management. I own shares in it. Its biggest shareholder is the Danish government’s development aid organization, Danida.
The best part is, you can make the investment via a company based in the UK. And it is much easier than opening a custodian bank account in Tanzania. In fact, there are only two main requirements:
- You qualify as a “Sophisticated” or “High-net-worth investor” under UK rules (see here for definitions); and
- You invest at least US$100,000
Please email me if you qualify, and you are interested. I cannot put the full Information Memorandum (IM) in the public domain as it is subject to legal restrictions that I have no interest in running afoul of.
I look forward to hearing from you.
Just to be crystal clear, I earn no commissions or kick-backs, or even so much as a free lunch for referring you.
I’m only interested in providing you, as one of my loyal readers, with the best possible impartial investment ideas and information, based on my view of the world.
Whether through this investment, or via opening a custody account at a Tanzanian bank to invest in a local bond fund, I have the information and am happy to share it with you.
Western governments and central banks are treating productive individuals like you and me, who work hard and save our money with utter contempt. I’m sick and tired of the financial repression. I long ago voted with my feet and left.
I’m now investing my capital in Africa. I think you’d do well to consider joining me.
Until next time,
Global Value Hunter