Senegal's capital is hoping to become the first city to sell a bond in Sub-Sahara Africa, outside of South Africa.

This week, Dakar was all ready to celebrate a financial achievement that hardly gets noticed in today’s world when it happens in New York, Frankfurt or Tokyo. But it represented a first for cities in Senegal, as well as the great majority of Africa's nations.

Dakar was about to sell a municipal bond.

A launch ceremony followed by a cocktail reception for locals and international observers was planned for Thursday afternoon at Dakar's City Hall. But before it could begin, celebration turned into confusion: The national government of Senegal said the $40 million bond issue could not proceed.

The last-minute decision came as a shock to city officials and Mayor Khalifa Sall. They had been working for years to prepare Dakar’s finances and fiscal management to make the city, as a "sub-sovereign" borrower, creditworthy. They had already achieved an investment-grade credit rating. They were also sure that they had the legal authority under Senegal law to go to the bond market on their own.


Whatever the outcome in Senegal, other cities in Africa are sure to want to try and sell their own bonds. Gorelick is cautious about other cities rushing too fast in that direction. Dakar showed that it takes time to put in place a methodical process of fiscal management. "This is not something you can accomplish in six months," he says. "Cities shouldn't look to go straight to the bond markets. They should start with setting up a loan with one other counterparty, whether it's a multilateral or bilateral development institution. There should be that type of borrowing to start with. Then move to municipal bonds."

Babacar Mbaye, finance program officer for the Dakar Municipal Finance Program, agrees. "When we present our project at international meetings, others cities are amazed at what Dakar, a city in West Africa, was able to imagine," Mbaye says. "Many say they would like to come and see, discuss and learn from what we were able to do. We tell them they must be careful to plan before committing."

Franck Daphnis says there are now perhaps eight or ten cities in Africa where a reasonable investor might want to buy a bond because the cities are solvent and the political situation is stable. But generally, the legal authority, stable revenue streams or sound fiscal management — or all of the above — are missing. He thinks some of those cities will be able to overcome the hurdles.

"I wouldn't be surprised if in the next five years, four more cities in West Africa either have been successful in going to market or would be very close," he says. "Ten years from now, I would not say it will be routine. But it won't be something worth writing an article that a city is going to market. Now, it's a big deal."