macroafricaintel Weekly | 1 Oct

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Click here for PDF version

Date Data / Event Period Forecast Previous
4 Oct Uganda Policy Rate, % 9.0 9.0
5 Oct South Africa FX Reserves, $bn Sep 2018 49.7 49.9
Seychelles CPI, % yy (mm) Sep 2018 3.0 (-0.1) 2.8 (-0.2)
Tanzania CPI, % yy (mm) Sep 2018 3.1 (-0.1) 3.3 (-0.4)
Botswana CPI, % yy (mm) Sep 2018 3.0 (0.1) 3.0 (0.0)
Namibia CPI, % yy (mm) Sep 2018 4.3 (0.3) 4.4 (0.0)
Nigeria CPI, % yy (mm) Sep 2018 11.5 (1.1) 11.2 (1.1)
Ghana CPI, % yy (mm) Sep 2018 10.3 (0.4) 9.9 (0.0)
South Africa CPI, % yy (mm) Sep 2018 4.8 (0.4) 4.9 (-0.1)
Mauritius CPI, % yy (mm) Sep 2018 1.4 (-0.4) 0.9 (-0.4)

macroafricaintel | Africa FX Monthly – Oct 2018

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Click here for PDF version

Currency   1 month

(31 Oct 2018)

3 month

(31 Dec 2018)

6 month

(29 Mar 2018)

12 month

(30 Sep 2019)

South African Rand (USD:ZAR) 14.3 14.1 13.5 13.3
Nigerian Naira (USD:NGN) 364.0 367.0 366.0 370.0
Ghanaian Cedi (USD:GHS) 5.0 4.8 4.9 5.1
Kenyan Shilling (USD:KES) 101.0 101.3 101.1 100.7
Ugandan Shilling (USD:UGX) 3,831.0 3,827.0 3,830.0 3,829.0
Tanzanian Shilling (USD:TZS) 2,285.0 2,289.0 2,285.0 2,281.0
Ethiopian Birr (USD:ETB) 28.1 28.3 28.5 29.0
Mauritian Rupee (USD:MUR) 34.3 34.5 34.9 35.0
Namibian Dollar (USD:NAD) 14.3 14.1 13.5 13.3
Botswanan Pula (USD:BWP) 10.5 10.3 9.9 10.1
Zambian Kwacha (USD:ZMW) 12.3 12.1 11.8 11.5
US Dollar Index (DXY) 95.0 94.5 94.7 93.5

macroafricaintel | Africa FX Monthly – Sep 2018

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Click here for PDF version

Currency   1 month

(28 Sep 2018)

3 month

(30 Nov 2018)

6 month

(28 Feb 2019)

12 month

(30 Aug 2019)

South African Rand (USD:ZAR) 14.3 14.1 13.5 13.3
Nigerian Naira (USD:NGN) 362.0 364.0 367.0 366.0
Ghanaian Cedi (USD:GHS) 4.8 4.6 4.5 4.3
Kenyan Shilling (USD:KES) 100.3 100.5 100.1 100.0
Ugandan Shilling (USD:UGX) 3,770.0 3,750.0 3,780.0 3,786.0
Tanzanian Shilling (USD:TZS) 2,281.0 2,280.0 2,283.0 2,285.0
Ethiopian Birr (USD:ETB) 27.7 28.1 28.3 28.5
Mauritian Rupee (USD:MUR) 34.3 34.5 34.9 35.0
Namibian Dollar (USD:NAD) 14.3 14.1 13.5 13.3
Botswanan Pula (USD:BWP) 10.5 10.3 9.9 10.1
Zambian Kwacha (USD:ZMW) 10.3 10.1 9.8 9.5
US Dollar Index (DXY) 95.0 94.5 94.7 93.5

macroafricaintel Weekly | 3 Sep

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Click here for PDF version

Date Data / Event Period Forecast Previous
4 Sep South Africa GDP, % qq saa Q2 2018 2.0 -2.2
6 Sep South Africa Current Account Balance, % GDP Q2 2018 -3.1 -4.8
Seychelles CPI, % yy (mm) Aug 2018 3.2 (0.2) 3.1 (0.4)
Tanzania CPI, % yy (mm) Aug 2018 3.5 (-0.1) 3.3 (-0.3)
Botswana CPI, % yy (mm) Aug 2018 3.1 (0.1) 3.1 (0.1)
Namibia CPI, % yy (mm) Aug 2018 4.7 (0.4) 4.5 (0.5)
Nigeria CPI, % yy (mm) Aug 2018 11.2 (1.0) 11.1 (1.1)
Ghana CPI, % yy (mm) Aug 2018 10.1 (0.3) 9.6 (0.3)
South Africa CPI, % yy (mm) Aug 2018 5.6 (0.6) 5.1 (0.8)
Ethiopia CPI, % yy (mm) Aug 2018 12.7 (0.4) 14.1 (0.4)
Mauritius CPI, % yy (mm) Aug 2018 1.4 (0.1) 1.7 (-0.2)

macroafricaintel | Hope rises as GERD tensions ease

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

In about mid-June, Ethiopia’s new youthful prime minsister Abiy Ahmed and host, Egyptian president, Abdel Fattah al-Sisi, came out of a meeting in Cairo with unusual optimism and mutual confidence that suggested erstwhile tensions on the $4 billion 6,000MW Grand Ethiopian Renaissance Dam (GERD) being built on the River Nile would perhaps no longer be a source of concern to investors and all. What changed? Mr Ahmed. In the little time that he has had in office thus far, he has done quite a bit to ease tensions in the restive Oromia region, the part of Ethiopia he hails from, released political prisoners, extended an olive branch to neighbouring Eritrea, relations with which have been sour for ages, and so on. There is certainly huge optimism about Ethiopia at the moment. The country’s banking and telecommunications sector, sought after for years by international investors, if liberalised as increasingly expected, could easily put to rest perennial troubles with foreign exchange supply and much needed jobs. In this regard, Lemma Senbet, chief executive of Nairobi-based African Economic Research Consortium is “cautiously optimistic.” That is probably the current Egyptian sentiment to statements by Mr Ahmed at the press conference after his meeting with Mr Sisi in Cairo such as this: “We will take care of the Nile and we will preserve your share and we will work to increase this quota and President Sisi and I will work on this”. With the River Nile flowing downstream to Egypt from Ethiopia via Sudan, the land of the pharaohs – which also has a big dam of its own on the Nile, the 2,100 MW Aswan High Dam – could potentially lose more from the likely reduced flow of the river that the GERD would cause. And with water increasingly scarce, Egyptian authorities could hardly afford even the slightest threat to what has been a source of livelihood for their people for millennia. Even as “Egypt [was] increasingly being compelled to accept the reality of the GERD, and thus [likely already focusing] on negotiating to limit the dam’s downstream impacts rather than opposing its existence outright”, like Jordan Anderson, sub-Saharan Africa risk analyst at London-based IHS Markit, a research firm, suggests, mistrust between the two sides made progress difficult hitherto.

One-man risk necessitate international mediation
Egyptian authorities were becoming increasingly frustrated in fact: “There is a need to accelerate the pace of negotiations after some three years or more have passed since the signing of the preliminary agreement in Khartoum and things have remained frozen,” Egyptian foreign minister Sameh Shoukry told reporters in late April (according to Reuters). The Egyptian view was that Ethiopia was deliberately dragging its feet in what had become longwinded talks that seemed to achieve little else but buy Ethiopia time. Its fears were not unfounded. In addition to the advantages Ethiopia clearly enjoys already, once the dam is completed, it would be in an even stronger negotiating position. Sudan, on the other hand, seemed more agreeable to the Ethiopian side early on. This is not surprising. There are more benefits for it from the dam than are troubles. Sudanese authorities are excited about the power that would be transmitted to its grid from the dam, for instance. Naturally, both countries have found it easier to cooperate; agreeing to develop the Port Sudan in early May and establish a joint military force to protect the GERD. Understandably, warmer relations between Ethiopia and Sudan became increasingly worrying for Egypt. With the recent rapprochement between the Ethiopian and Egyptian sides, however, that would no longer be the case, it is hoped.

Despite better relations, Egypt likely still desires some international mediation. When it first mooted the idea, it suggested the World Bank. Hailemariam Desalegn, the Ethiopian prime minister at the time, would have none of it. Not that he minded getting technical help from the Bretton Woods institution. But with the negotiation advantages Ethiopia clearly enjoyed, it probably did not seem rational to him for his country to cede control to any external institution, even the World Bank. Still, despite the uneasy relations at the time, Egypt and Ethiopia did manage to be as constructive as possible. To this end, both countries signed a political and diplomatic consultation agreement in January. And fears hitherto that Egypt might have a contigency military solution have certainly now receded. IHS Markit’s Anderson explains why it is highly unlikely it would go to such lengths: “The Egyptian government is unlikely to isolate itself internationally by taking any kind of unilateral military action against the GERD, and it also lacks the military capacity to make such an operation probably successful.”

The immediate priority is to agree modalities for filling the dam’s reservoir – which could start as early as July during the Nile flood season – and how to ensure dams downstream in Sudan and Egypt would not be overly constrained. Both downstream countries also want water from the river to be amply available for irrigation and myriad other uses during any filling period on the one hand, and when once filled, water would be released from the reservoir, unconditionally and as needed, for their benefit during difficult periods; a prolonged drought, say. A resolution between the parties at their meeting in mid-May suggests they are likely to agree more than than they disagree from now on. They plan to meet more regularly, at least; every six months in fact. A joint fund to build infrastructure in the three countries is also planned. A compromise has also been reached on differences over the introductory technical report by BRL Group, a French water consultancy, on the potential downstream impact of the GERD: a new one by a team consisting of members from the three countries has been contracted. This is not ideal, of course. A scientific evaluation hardly needs the distraction of the politics around its deliverable. It certainly highlights the necessity of a neutral international arbiter in the process to ensure even decisions as supposedly straightforward as appointing an independent scientific team would not be enmeshed in needless politics. Refreshingly, the Egyptian government has begun to take confidence-building measures of its own. As a goodwill gesture to Mr Ahmed, thirty Ethiopian prisoners were released from Egyptian jails in June. The deep-seated emotions of Egyptians to the Nile remain nonetheless. Take the unprecedented move by Mr Sisi of asking Mr Ahmed to swear before the Egyptian people during his visit in June that he would protect their interests. Mr Ahmed did not hesitate: “I swear to God, we will never harm you”. He probably meant every word. But is it a promise he can keep? Already, he faces resistance from the erstwhile ruling Tigray elite. To free Andargachew Tsige, a prominent opposition figure on death row for about four years hitherto, Mr Ahmed threatened to resign in response to resistance by them. He has also been ruffling feathers within the military establishment; members of which enjoy wideranging influence over the Ethiopian economy. With fast-paced reforms by Mr Ahmed already chipping away their fabled tight grip, it is probably only a matter of time before their currently restrained grumblings boil over; especially as the security establishment is believed to have entered into a tacit agreement with Mr Ahmed for the maintenance of certain rigidities – one of which is likely to be the GERD negotiations – in exchange for supporting his candidacy for prime minister. The importance of international mediation cannot be overemphasized.

An edited version was published by African Business magazine in July 2018

macroafricaintel | [#StopTheKillings] Would foreign banks be beneficial for Ethiopia? (4)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Do foreign banks help?
What has been the actual experiences of countries that allow foreign banks to participate in their financial services sector, African ones especially? International banks have been pulling out of Africa lately. Some of the reasons include a realisation that local banks have a greater edge. Another is how shallow most African markets still are. Trade finance was the main draw for the increased interest of foreign banks up until the global financial crisis in 2007-08. When commodity prices slumped, however, it became writ large how susceptible most African economies remain to the volatile commodity markets. With problems of their own, international banks began to roll back their African operations to what they deemed to be more realistic levels. And quite frankly, foreign banks were a little surprised by how hard it was to beat local ones.

That said, some remain firmly in place; more agile operations are the norm, though. The few global banks, which seemed determined, are treading carefully nonetheless. In November 2011, JP Morgan, an American bank, started offering some services in South Africa and announced it planned to open representative offices in Nigeria and Kenya. That chief executive Jamie Dimon was still talking about JP Morgan’s plans for Kenya in January 2018, seven years after, speaks to the mixed case for international banks in Africa. Credit Suisse preceded JP Morgan in South Africa, setting up an office in Jan 2011. Barclays also moved its Africa headquarters to the continent from the United Arab Emirates in 2012, buying a controlling stake in ABSA, a South African bank; albeit its optimism was short-lived: it recently sold the African business. Another was China’s ICBC, opening an office in South Africa in November 2011.

What was the major attraction? Developed economies were either in recession or growing very slowly and yields were extremely low or negative. But here was a continent with more than 1 billion people, with millions unbanked and much more underbanked. Adding to that, it seemed Africans were beginning to prosper: a supposedly growing middle class was much vaunted. But the main driver for most global banks’ resilience about their African vision was a desire to hold on to all of their clients’ businesses in every part of the world. Why should a client be allowed to go to another bank for its African business and risk losing it in the process, it was reasoned. It proved to be dearer than planned: The clients did not necessarily do frequent transactions for and with their African subsidiaries. Or better put, the volume of transactions was not so much that they could not be undertaken from the banks’ hub branches, a central African location or both.

Research suggest foreign banks do not always help the financial development of poor countries. According to an IMF working paper in 2006, in countries with more foreign banks, credit to the private sector and access to credit in general tend to be lower. Consequently, there is also usually slower credit growth. The paper argued foreign banks tend to be more beneficial to advanced countries. Thus, the Ethiopian government’s caution is not entirely out of place.

However, there are documented benefits for poor countries as well. Arguments in favour range from better economies of scale and supervision, more advanced technology, greater perception of safety by depositors, and lower corruption. Of course, with regards to corruption, there have been cases lately about the susceptibility of foreign banks too. But in general, these are the exceptions and not the norm. “Several studies find that foreign banks in lower income countries (LICs) lend predominantly to the safer and more transparent customers, such as multinational corporations, large domestic firms, or the government.” This remains largely the case. And when the specific case of African countries is explored, other studies still find that to be the case. Still, it is argued local banks become more efficient from copying the practices of their foreign competitors; by the adoption of better technology and banking practices, for instance. So, the Ethiopian case, when opened up, is not likely to be any different.

The author, Dr Rafiq Raji, is an adjunct researcher of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. This article was specifically written for the NTU-SBF Centre for African Studies

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. https://www.businessdayonline.com/columnist/rafiq-raji/article/stopthekillings-foreign-banks-beneficial-ethiopia-4/

macroafricaintel | [#StopTheKillings] Would foreign banks be beneficial for Ethiopia? (3)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Expertise, capital and jobs
KCB Group, Kenya’s largest bank, which opened a representative office in Addis Ababa in 2015, and has branches across East Africa, is one of many African and indeed foreign banks likely to make a foray into the Ethiopian banking sector. Clearly banking on the new reformist prime minister, it announced in late June the country could open its banking sector in about two years’ time. There would certainly be a lot of opportunities for newcomers.

According to the central bank’s website, there are currently 19 local banks in Ethiopia. That is about 6 banks for every 1 million Ethiopians. This is clearly inadequate; albeit this is not necessarily an intelligent measure, especially when you consider that the Commercial Bank of Ethiopia has about $18 billion in assets and a customer base of about 16 million. A couple of foreign banks have representative offices in the country but are not licensed to conduct plain vanilla banking services; that is, collect deposits and issue loans. The reformist Ahmed government has raised hopes that this might change, however.

It begs the question, though, about whether such a move would be beneficial. The government, old and new, is particular about financial inclusion. Incidentally, even in African countries where there are more liberal policies, financial inclusion remains a challenge. According to the World Bank, financial inclusion “means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.

The key question then is whether allowing foreign banks to participate in a country’s financial services sector engenders financial inclusion. The evidence is mixed. In fact, there is probably not much that they do in this regard. There are a few good stories, of course. For instance, some foreign financial firms specialise in microfinancing. But they are usually a drop in the ocean and not necessarily cheaper or sophisticated than local ones. The Ethiopian government is right to prioritise financial inclusion. According to the World Bank, it is “an enabler for 7 of the 17 Sustainable Development Goals (SDGs)” and reckons it to be crucial to poverty alleviation and shared prosperity. To this end, it has set a global goal of Universal Financial Access (UFA) by 2020, just two years away. Would this goal be reached by then? Probably not. But much progress is being made. More relevant here is whether foreign commercial banks help with this goal.

Quite frankly, financial inclusion cannot be the main reason for allowing foreign banks in to a country. Their advantages relate to the new capital they bring for the use of local and foreign firms doing business in the country. They also allow for more seamless trade. It is much easier to do business with a bank in-country as well as abroad for international trade, for instance. But pushed rightly, foreign banks can help with such idealized goals as financial inclusion. They certainly are able to deplore the latest technologies in this regard. That is as far as most would go, though. Brick and mortar branches add on unnecessary weight. And increasingly, when foreign banks make a foray to another country, they rely on local deposits to fund local loans.

Their real advantage for a country are big ticket transactions. It is easier to get financing for mega projects by firms if foreign banks operate in the country. True, while foreign multilateral development financial institutions do provide some funding, commercial ones not backed by their country’s government rarely do. Besides, there is a need to differentiate between foreign banks that are from other African countries and those outside the continent. Although, it is the latter than tend to get all the attention, the former have their advantages too. For instance, if a Kenyan bank is able to do business in Ethiopia, the gesture is expectedly reciprocated for an Ethiopian one in Kenya. But since a Kenyan bank might have no more heft than an Ethiopian one, it is not surprising that the more capable western and eastern foreign banks are the ones much sought after.

In any case, South African banks remain dominant on the continent. The largest, Standard Bank, is excited about the Ethiopian opportunity, certainly. With a Chinese bank in its shareholding, it is increasingly the go-to-bank for transactions with the Asian nation. At least, it likes to portray itself as such. That is probably where the opportunity is. That is, pan-African banks looking to expand to Ethiopia.

Otherwise, Western banks have been cutting back on their African exposure. Barclays, a British bank, is a recent example. Curiously, even these Western types might be interested in an Ethiopian venture. Investment banks are certainly keen. A capital market is virtually non-existent. Technology and expertise would probably be the key benefits.

For these to be realised, the Ethiopian government would need to liberalise the sector as quickly and as widely as possible. For if there is any whiff of uncertainty or hesitation in whatever liberalisation policy is announced, there might not be many foreign banks willing to take the risk. Potential investors would also be looking to see a more institutionally-directed and sustainable shift towards reform.

Currently, it could be rightly said that there is a one-man risk. Were Prime Minister Abiy Ahmed to leave the scene, what then? And judging by the relative slow pace planned for banking sector reforms, Mr Ahmed may not be in office long enough to make a meaningful impact. Thankfully, there is an almost existential need to attract foreign capital. The perennial foreign exchange shortages would in due course spur even more protests as jobs become increasingly scarce and commodities more expensive. Nothing short of comprehensive reforms of the banking sector would do to resolve the problem.

The author, Dr Rafiq Raji, is an adjunct researcher of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. This article was specifically written for the NTU-SBF Centre for African Studies

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. https://www.businessdayonline.com/columnist/rafiq-raji/article/stopthekillingswould-foreign-banks-beneficial-ethiopia-3/