Angola’s Residual Oil Anguish Angles
2012 May 2 by admin
As Angola completed its IMF standby arrangement centered on better oil revenue management and transparency and again broached the possibility of sovereign bond entry, the US Justice Department circulated findings of a foreign corrupt practices investigation showing both past and sitting officials with hidden joint venture ownership stakes and payments. Election preparation is underway as the ruling party tries to chart succession and allow greater opposition, and to prevent resurgence of state arrears to domestic contractors and suppliers after several rounds of clearance with administrative streamlining and tighter fiscal policy. A formal stabilization fund may be created to handle petroleum export proceeds as Sonangol looks to document the “unexplained residual” of large outflows and murky accounts which may total one-quarter of GDP according to the Fund. Government budget transfers are to proceed in timely and verifiable fashion to prevent another 2009-type liquidity crisis under the provisions of a new fiscal responsibility law. Priorities since then have been to rebuild international reserves and ensure social and infrastructure spending, as banks adapt to construction slowdown and gradual foreign exchange liberalization. Only 40 percent of loans are in kwacha, and institutions face further currency and counterparty risk from relationships with entities in Portugal, itself the recipient of both bilateral and multilateral assistance. With reduced monetary expansion inflation could go to single digits as non-oil GDP growth stays around 7 percent. The T-bill market is active out to one-year and authorities plan to develop the segment alongside a nascent stock exchange. Financial market scope badly lags rival energy powerhouse Nigeria, where foreign investors have poured into high-yield local debt on the back of naira strength and banking sector cleanup. The sovereign wealth fund there will soon be launched and was championed by Finance Minister Okonjo-Iweala, who lost her bid to become World Bank President but has promised to redouble subsidy and power industry reform efforts despite initial setbacks and insertion of the Boko Haram terror threat on the pressing political and economic agenda.
In Zambia, which was also seen as a near-term maiden issuer, the ratings outlook went to negative as the new administration pledged to renegotiate copper mining projects and withdrew opposition party certification. Both gestures may moderate over time, as the president’s team seeks to reinforce democratic credentials in continental and global circles and maintain mainland China partner interest as industrial conditions at home deteriorate under the latest PMI readings and forecasts. A $500 million-range Eurobond is still in the works as the budget deficit has doubled from 2011 and electricity shortages plague both agriculture and metals production which previously sparked direct and portfolio investor excitement.
Mauritius’ Offshore Center Vertigo
2012 April 18 by admin
Mauritian stocks continued lethargic as the global business corporation sector absorbed the implications of the Indian budget which seemed to herald further offshore-registered investor tax scrutiny for both current and past allocation. Tourism has already slowed on Europe’s troubles, putting the 4 percent economic growth forecast in jeopardy on inflation around the same level, with inflows also needed to bridge the 10 percent of GDP current account deficit and keep international reserves at just 4 months’ imports above the danger zone. Good share performance last year brought portfolio infusions spurred as well by capital gains levy removal, although the budget gap swelled toward 5 percent of output. With private credit demand slumping, special state loan facilities for small business could be activated, adding to the fiscal weight of numerous government-run enterprises which represent 15 percent of GDP. Interest rates are marginally positive, and rupee appreciation against the euro and pound has eased. Officials have unveiled an infrastructure upgrade program consistent with reducing public debt to 50 percent of national income by end-decade, and are considering pension revamp and steps to regain lost standing in the World Bank’s Doing Business rankings. Banks are well-capitalized and profitable, boosted by the recent advent of deposit insurance but ties to non-resident borrowers and related insurers remain murky, the IMF finds in its latest Article IV review. The central bank and securities market regulator should better pool risk information given lenders’ large government debt holdings and their status as big exchange listings, it suggests.
South Asian entities concerned about Gulf exposure during the Arab spring have looked at relocation to the island, but Dubai, with UAE stocks up double-digits, has offered reassurance of political and financial stability despite on-line petitions against the ruling family and debt rollover concerns still focused on the shipping unit of DW and other shaky issuers. The DIFC is seeking a loan to cover upcoming $1 billion bond redemption and the free trade zone is likewise in talks with a bank consortium to repay a $2 billion sukuk due at year end. Emirates NBD, the chief domestic creditor, has itself just floated $1 billion in 5-year dollar bonds after placing a smaller debut note in the yuan-denominated Hong Kong dim sum market. They were priced at 350 basis points over mid-swaps, reflecting an investment-grade rating and contrasting fortunes with Bahrain, where CDS rates are higher and an investment firm has just defaulted as violent demonstrations recur. Offshore banking operations have diverted to safer regional jurisdictions, and without oil the fiscal deficit on a bevy of social spending promises will hit 8 percent of GDP as the center tries to hold.
Nigeria’s Wistful World Bank Wallop
2012 March 30 by admin
Nigerian stocks were unmoved from their modest upturn as Finance Minister Okonjo-Iweala, a former senior World Bank executive, was nominated by African representatives as a candidate for president of the organization as incumbent Robert Zoellick departs at end-June. She was grateful for the support but did not actively campaign as her team strives to regain momentum from the petroleum subsidy removal backlash. Under a companion adjustment, power rates will also rise, as anti-corruption crusader Nuhu Ribadu will lead a task force investigating oil revenue leakage. A landmark bill to split the commercial and regulatory functions of the National Petroleum Corporation and clarify the regime for foreign and private participation is a top economic agenda item to be passed this year, officials insist. Inflation has eased with less drastic subsidy reductions than originally proposed, and with buoyant world prices one-third of the budget deficit will be covered by the excess crude account. The naira has calmed in the 155 to the dollar range on $35 billion in international reserves. Institutional investors are creeping back to equities with big listed banks slowly disengaging from previous peril, but retail players, burned on margin loan overextension, remain shy. A congressional investigation into the stock market’s post-crisis collapse degenerated into a shouting match between the committee chair and enforcement head over alleged malfeasance in their respective capacities. The exchange chair at the time was forced to resign over fraud and mismanagement charges, and related criminal and civil cases are still in course. Politicians were widely accused of condoning and profiting from improper broker behavior and in a rare guilty plea a state governor who fled the country admitted to $250 million in illicit funds that may have come partially from such involvement to avoid a UK jury trial.
With last year’s lifting of restrictions, foreign investors have returned to the high-yield Treasury market, especially as worries increase over next-door Ghana heading into elections. The presidential contenders who have faced off before are relatively tied in voter surveys, and spending is expected to repeat a 5 percent of GDP budget deficit even with new offshore oil revenue. Yields have jumped 100 basis points with the central bank hiking rates to keep inflation in single digits and the cedi firm. Nerves have also frayed in the West African Franc zone closely tied to Europe with regular devaluation rumors and increased domestic debt placement on the regional bourse to bridge fiscal gaps. The interbank market is undeveloped and non-performing loans are at 15 percent, according to the IMF’s latest check. GDP growth and inflation were set to improve with Cote D’Ivoire’s reconstitution, but a military coup in Mali has again upset the mix and the World Bank, regardless of prospective heads, has cut ties in another blow.
Francophone Africa’s Stung Barracudas
2012 March 23 by admin
Senegal’s external bond and main regional bourse share Sonatel sputtered as President Wade, after receiving judicial clearance to run for a third term, was forced into a second-round runoff with a former prime minister. He had previously assured backers of easy victory as the “barracuda among little fish” following the popular singer Youssou N’Dour’s ballot rejection for insufficient voter signatures. The incumbent’s insistence on prolonging his tenure in defiance of constitutional provisions has angered donors in Europe and the US, which has awarded a large grant under the Millennium Challenge Corporation that emphasizes good governance standards. He has assigned power to his banker son in a potential succession move as economic management strives to diversify from traditional commodities and tourism into high-tech services. State spending has been criticized by the business community and development lenders alike, with a showpiece independence monument in the capital a visible illustration of fiscal overreach. Before the decision to allow re-election, street demonstrations had mounted against power shortages and food costs, as immigrants returned home from Europe’s crisis facing slim employment prospects. After a record 2011 for Sub-Saharan international issuance at $12.5 billion another bond placement was contemplated under peaceful transition and rising agricultural export prices which both may now prove elusive. Oil giant Gabon, with a BB- credit rating, in contrast just completed its own disputed parliamentary contest with $1 billion available to park in a sovereign wealth fund for infrastructure and other purposes. President Bongo’s party got all but 5 of 120 seats despite a 75 percent abstention rate. Ample budget and balance of payments surpluses will underwrite the premier African football event, which has generated near-term outlays to quell popular discontent.
In Cote d’Ivoire legislative polls were completed about the same time with the Outtara coalition gaining a clear majority, but the ICC in the Hague has stepped up its investigation of civil war crimes which may target administration allies and members. Defaulted bonds had rallied toward 60 cents to the dollar but corrected on the likelihood of indictments and delays in resuming symbolic coupon payments. Finance Minister Diby informed investors that an installment is seen toward mid-year on the $90 million already accumulated in arrears. Full normalization is not expected until attainment of the HIPC completion point, which requires good performance under the new IMF program including cocoa and coffee sector overhaul. According to official presentations, the primary fiscal balance will remain negative through mid-decade, with shortfalls to be partially bridged by commercial borrowing on the West African securities market where pricing may sharply sting.
Sub-Sahara Bonds’ Reluctant Candidates
2012 March 19 by admin
Despite the launch of tracking indices and donor and legislative authorization, new African sovereign external debt issuers remain on the sidelines as plans encounter regular hitches. Kenya has previewed a flotation for years and the latest complications include upcoming elections, the Finance Minister’s resignation after indictment for fomenting tribal violence, and the central bank governor’s defense of monetary policy conduct in a parliamentary inquiry probing potential dereliction of duty. Inflation is stuck above 15 percent as the shilling heads toward a record low 90 to the dollar. The B-plus rating obtained in 2010 is in jeopardy with international reserves only sufficient for 3 months’ imports after a 50 percent boost in an initial $500 million IMF emergency credit line. The 5 percent GDP growth forecast will be difficult under drought conditions, and energy and transport infrastructure are in urgent need of modernization, according to the latest review despite additional funding through tax-exempt dedicated bonds aimed at both local institutional and retail buyers. Bank credit risk has heightened with dramatic interest rate swings and VAT application will be vital to a better fiscal position. The state’s stake in the stock exchange will be reduced with demutualization, but self-regulation still lags after a series of broker scandals and closures that continue to dent investor confidence. Private equity firms have decried the lack of exit through public listing under this cloud and preferred to concentrate elsewhere on the continent. Next-door Tanzania too had been in line to debut after “graduation” from Fund lending, but recently signaled desire for a precautionary facility after a period of severe weather and power outages. GDP growth is in the 6 percent range but electricity prices drove inflation to 20 percent last year. The budget deficit is at 5 percent of GDP and tight trade and tourism ties with Europe could combine with the energy crisis to deliver further economic blows.
Zambia’s copper-oriented output is up at the same clip and inflation is in single digits, but the current account surplus is down on heavy imports and FDI may be in danger with a shift in mining royalty provisions by the new administration. European-owned banks have cut export credit as “traditional concessional financing phases out,” according to the Fund. High poverty and limited formal intermediary access for small and midsize firms are lingering obstacles that could be addressed with prudent management of debt proceeds, it stresses. In a cautionary tale the lender carried out its regular review for Seychelles which sought a program after defaulting on an inaugural placement. A floating exchange rate shock was administered in its wake and economic growth is just 3 percent as the government struggles to unload the airline and other assets to meet rescheduled commercial payments absorbing island daydreams.
South Africa’s Mooted Mandela Moment
2012 February 20 by admin
South African shares pared their double-digit gain on anxiety over a weekend “nationally important” announcement inviting rumors of new capital controls or mine nationalization, despite the ANC’s rejection of such policy at its latest gathering in favor of gradually higher taxes or state control. President Zuma, after unveiling record infrastructure spending despite the 5 percent of GDP budget deficit to combat 25 percent unemployment, instead revealed a fresh currency design that will replace game animals with portraits from the life of apartheid opponent and former two-time president Mandela. While the change was popularly applauded in honor of the nonagenarian hero, the inconsistency and secrecy surrounding it repeated a frequent business community criticism of the government at a time when the rand in particular now around 7.5 to the dollar is regularly buffeted by both domestic and global risk sentiment. The ruling party tried to strike a compromise with militants over commodities expropriation, but industry leaders remain wary especially after the launch of a public exploration company last year and labor union insistence that pension funds take more activist controlling stakes in big private multinationals. FDI is lackluster in the sector, where the country ranks just a few notches above neighbor Zimbabwe in international attractiveness comparisons. The macro-economy for engagement is likewise ambivalent with GDP growth due to fall under 3 percent this year and inflation currently at twice that figure leaving the central bank 5.5 percent benchmark rate intact. With close Eurozone links and a recent sovereign downgrade external commercial borrowing will be kept to a minimum, as contingent liability stress from the state power utility also mounts. At the ANC’s founding centenary officials again embraced the causes of anti-corruption amid headline scandals and of education reform after an applicant stampede to get a university place, but participants also widely noted the vast unfinished agenda to attain better living standards.
Namibia, which has a rand peg and was recently reclassified as an upper middle-income country, is also under harsher investor scrutiny after its maiden sovereign debt issue in 2011. Mining earnings from diamonds, uranium and other endowments will bring 4 percent GDP growth, but international reserves are below the minimum threshold three months’ import cover and the jobless rate is 40 percent. Fiscal stimulus may be too expansionary according to the IMF, and housing prices which were up 20 percent last year mainly from cross-border capital flows may place the South African-dominated banking system under pressure. Although the securities market is tiny, non-banks have proliferated and a consolidated supervisory agency awaits additional enforcement powers to display its own metal bearing.
Kenya’s Pesky Performance Indictments
2012 February 2 by admin
Kenyan shares seeking to break from 2011’s abysmal African frontier showing were again trounced by Hague tribunal indictments of Finance Minister Kenyatta and other prominent figures for inciting hatred during the last elections as political and tribal groupings prepare for the 2013 rematch. The writs follow lengthy maneuvering which had considered domestic human rights panel alternatives before allowing international prosecutors to press their investigations. According to the findings, thousands died in ethnic fighting and lands were seized and never returned as subsequent resettlement slowly occurred. Security forces were deployed to pre-empt further unrest after the announcement, which reactivated popular outcry over the tragedy as economic pain bites. Food and fuel-driven inflation is 20 percent, and the shilling in recent months plunged below 100/dollar as emergency IMF credit was obtained to forestall a balance of payment crisis. With heavy domestic borrowing as T-bill rates quintupled over the past year the public debt ratio approaches 60 percent of GDP. The benchmark central bank rate is 18 percent as listed lenders struggle with volatility in the government securities portfolio and mounting bad consumer and corporate credit provisions. Treasury paper tops the sub-region in amount outstanding at one-quarter of GDP and maturities out to 30 years, although corporate instruments trading on the Nairobi exchange remain at a “nascent stage,” according to recent IMF analysis. Capital markets are overly confined to state issuers and the investor base is comprised disproportionately of banks and pension funds which prefer to buy and hold, cramping liquidity. An East African Common Market is slated for mid-decade which will allow cross-listings and align regulation, infrastructure and taxation. Burundi and Tanzania still must liberalize the capital account, and supervisors have a joint body which has forged uniform registration criteria for the larger exchanges. Plans call for demutualization and eventual integration, although debt and equity price changes are largely uncorrelated, according to empirical data.
The Fund urges area authorities to incorporate strategies such as the supra-national one in the CFA Franc zone with a unified bourse or the Asia Bond Market Initiative-type cooperation among Asean members for better policy and practical outcomes. Multilateral institutions could be regular sponsors and issuers as the East African Development Bank and other parties become more active. The official resort could turn more compelling according to the response by African commercial banks to the IIF’s latest emerging market lending conditions assessment. It revealed a “sharp deterioration” in local and external funding availability amid still strong trade finance demand as commodity exporters face their own trials.
Nigeria’s Subsiding Subsidy Subordination
2012 January 19 by admin
Nigerian stocks shook off 2011’s lethargy of a near 20 percent MSCI drop as the government proposed elimination of $8 billion in yearly petrol subsidies which doubled the overnight station price and drew labor union and opposition party condemnation before partial backtracking. Violence erupted in Lagos and other cities on the announcement in the wake of northern religious attacks mounted by Muslim extremists which have also prompted a security crackdown. The cabinet convened in emergency session to reiterate its commitment to better fiscal discipline which will permit additional infrastructure and anti-poverty spending, and analysts commented that the program savings will be roughly equal to the annual budget amount diverted to corruption. Such reform scope was cited by S&P in a recent outlook upgrade and the subsidy removal, which still faces numerous parliamentary and administrative implementation hurdles, and complements broader oil industry overhaul designed to set participation and royalty terms for Western and Asian multinationals. Almost 8 percent GDP growth was registered last year on inflation just into single-digits. The central bank lifted the benchmark rate to 12 percent, and the central bad debt resolution agency AMCON went operational as a $1 billion sovereign wealth fund was established. Financials continued to be the biggest exchange losers with bellwethers like UBA off 75 percent while consumer staples were performance leaders. The Sub-Saharan frontier MSCI sub-index matched Nigeria’s fall with Kenya (-30 percent) and Botswana and Ghana, down each over 5 percent at the opposite result extremes. Zimbabwe, which just rejoined the investable universe, finished flat with a 1 percent decline. A year ago Nigeria launched its first external sovereign bond and with the relaxation of controls local-currency instruments have reappeared in global diversified portfolios.
Under the returning Finance Minister who championed the concept during her World Bank Managing Director stint, a dedicated international diaspora issue is foreseen in the new budget. Kenya targeted both expatriate and retail investors in its latest effort, and in West Africa neighboring Gabon and Senegal may be considering repeat Eurobond efforts. 2012 presidential elections are scheduled in both places and commodity-driven GDP growth is 4-5 percent on low inflation. Gabon’s hosting of the Africa cup and “green” initiatives are part of a $10 billion spending spree financed by fiscal surplus, although possible startup of a state airline has prompted ratings agency and multilateral lender criticism. Senegal’s octogenarian chief executive Wade is seeking another term and popular singer N’Dour has come forward to pose his candidacy without political experience he considers of questionable value. It is under a policy monitoring arrangement with the IMF which called for improved debt management as near-term strategy envisions large borrowing on the regional CFA franc market which may command a premium on fiscal and current account foibles.
Africa’s Creaky Fragile Poll Apparatus
2012 January 4 by admin
Thinly-traded secondary loans for Liberia and the Democratic Republic of Congo were buffeted by disputed presidential elections extending incumbents’ tenure amid allegations of widespread fraud and manipulation. Liberia’s contest returned Nobel prize winner and former Citibank and UN executive Johnson Sirleaf with only 40 percent turnout as the main opposition candidate, claiming unfairness, boycotted the second round, while son of the original post-Mobutu DRC leader Kabila won over a veteran political activist almost double his age. Both countries recently reached the HIPC completion point and received billions of dollars in external debt relief with Congolese negotiations continuing with non-Paris Club and commercial creditors. Its operation has been controversial with anti-poverty groups at one extreme calling for total forgiveness under the doctrine of “odious” obligations, while distressed specialist funds argue that claims can be honored in light of additional loans taken from Chinese state banks in exchange for copper and diamond mining access. The World Bank criticized a $6 billion commodities for infrastructure building and funding deal, and reported no employment growth from small and mid-sized firms the past five years due to corruption. The country is ranked last on the UN’s Human Development Index, with most of the population in abject poverty and less than 10 percent with electricity as criminal gangs and warlords continue to ravage outlying province, especially along the Rwanda border where residual rebel groups have been accused of egregious human rights violations. The minerals sector has come under scrutiny with provisions of the Dodd-Frank law in the US to certify conflict-free sourcing. Construction and services around the large foreign aid and peace-keeping presence are additional economic mainstays supporting 5-percent plus growth on double-digit inflation. Under official lending programs, the central bank is barred from budget deficit coverage, and last year a big bank was closed under agreed financial sector cleanup.
Liberia’s biggest bilateral donor is the US which gave $250 million in 2010, and the Indian steel giant Arcelor Mittal has been the biggest investor in a $15 billion project portfolio with iron ore exports launched in September. The IMF forecasts 8 percent-range GDP growth this year and next after getting over 95 percent in debt reduction amounting to almost $5 billion. Hydropower installation and Monrovia port improvement were identified as investment priorities needed to better living standards as well as support the flagship Firestone rubber plantation. A debt management agency has been established to oversee fresh infrastructure borrowing as the government budget has increased to $500 million with a tight lid on spending. President Johnson-Sirleaf reiterated upon victory an agenda to be weaned from aid over the coming decade and achieve middle-income status by 2030 despite her fragile state mandate.
South Africa’s Durban Grievance Airing
2011 December 27 by admin
South Africa’s post-Kyoto climate change gathering in Durban reflected a mood of recrimination both between and within developed and developing country blocs, mirroring splits in the host among competing political and economic interest groups that have saddled the stock exchange with a double digit loss. According to the UN, it ranks among the dozen worst emitters of greenhouse gases with heavy coal use, with 2010’s Integrated Resources Plan charting a path of one-quarter renewable energy operation over the next two decades. Wind, solar and hydropower, where neighboring facilities in the region could be tapped are core new sources envisioned alongside existing nuclear and oil-conversion technologies. An overriding imperative is to reduce funding and transmission burdens for state-owned monopoly Eskom, whose quasi-sovereign borrowing appetite has contributed to ratings caution and motivated the government to turn instead to multilateral lenders for softer terms. As with the Durban final compromise which aims to produce an undefined legally-binding environmental accord short of outright treaty by 2015, power company reform will be phased in as a gradual process limiting private ownership and participation. Sour local feelings were further fostered by paltry 1.5 percent Q3 GDP growth with mining output down, as 6 percent inflation breached the central bank’s target band due largely to rand depreciation as the worst-performing emerging market currency during the European crisis period. The budget deficit will exceed 5 percent of GDP, and has prompted Pretoria to tighten controls on provinces with runaway spending. With the fiscal squeeze, officials invited underwriting bids for an inaugural external Islamic bond as they seek to meet next year’s $30 billion public sector financing envelope. Gulf, Malaysian and Nigerian investors would be drawn to the structure, advocates believe, but the treasury will still tap domestic banks and institutional investors for the bulk of the sum as well as non-residents continuing net fixed-income inflows. The allocation serves to offset the 3 percent of GDP current account gap as yields outpace advanced economy instruments, despite the central bank holding benchmark rates and regular talk of productive asset nationalization and capital controls to spur business and job creation and exchange rate confidence.
The Zuma Administration has resisted calls in this direction by ANC proponents, with Planning Minister Manual describing mine appropriation as a “bad idea,” but such steps remain “options” and will be debated again at the party’s policy conference in six months. In adjacent Zimbabwe where stocks are up marginally on the MSCI frontier index with commodity capacity off historic lows, “indigenization” involving 51 percent ownership transfer has proceeded partially under threat of license revocation as President Mugabe campaigns on the slogan going into 2012 elections notwithstanding its dubious luster.