macroafricaintel | MTN listing must be truly local

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

I participated in an interesting debate on Twitter this weekend past. In a sharp departure from my usual approach to using the micro blogging site, I reacted almost instinctively to a post by a well-respected business journalist about the upcoming MTN listing on the Nigerian Stock Exchange (NSE). He had it on good authority that all four financial advisers chosen by the South African telecoms firm for the transaction are South African companies. (Pardon the tautology; but you likely see the point.) My view was that the Securities and Exchange Commission (SEC) can and should intervene. Otherwise, what is the whole point of the exercise? (MTN was “advised” to list on the local exchange.) The opposing views, well-informed ones, I might add, were that such an intervention would be an anomaly. Even if the advisers are foreign-owned, are they not properly licensed to operate in Nigeria, one of the grandees in Nigerian (and indeed African) finance wondered. I took the point. But did MTN even ask for issuing house proposals from indigenous houses? Since the journalist relied on sources, I will leave that question in the air. But he did add that MTN “asked local houses to send proposals to bid for…stock brokerage only…” (Note my use of “indigenous” and not “local”. By the former, I mean an issuing house or advisory firm set up and operated by Nigerians. The journalist’s use of “local” means “indigenous”, though. So from here on, if you happen on “the grandee”, “the journalist”, “local” and “indigenous”, you know what I mean.)

Free market intervention
After mulling the issue a little bit, I came to the firm view that SEC should insist on a sizeable local content for the MTN issuance. And “local” must be truly local. Naturally, such an interventionist approach would not sit well with most market participants. Another well-informed participant in the debate reacted with wry humour if not sarcasm (not in a bad way): “I thought we operated…a free market? Perhaps government should also legislate how the book-running and roadshow [should be] conducted and proportional share allocations as well.” Yes, the globalist grandee agreed. But then I added that even as America and Europe are supposedly free markets, when a mergers and acquisitions (M&A) transaction borders on national security or involves strategic sectors or differential technologies, they do intervene or block it outrightly. I cited the recent example of American regulators blocking the US$580 million acquisition bid for a semiconductor company by a Chinese fund. Another example is the blocking of the US$1.2 billion sale of MoneyGram to Jack Ma of Alibaba by US regulators. France also recently blocked the takeover of the Toulouse airport by a Chinese firm.

Practice and law
A rebuttal to my point was that blocking a deal and choosing advisers are two different things. True. But I was not suggesting that the SEC choose the advisers but that the unique nature of the MTN transaction requires that indigenous firms be part of the “cream” (advisory and underwriting) and not just the “crumbs” (brokerage, placement agency, etc.) of the process. Relegating indigenous firms to just brokerage and placement agency was almost disdainful, I thought. (Of course, this is speaking hypothetically; since MTN has not revealed the full details of those it has mandated for the transaction.) Besides, shouldn’t a local content policy apply to all industries? Investment banking is an industry too. And even as the SEC may not necessarily have legal standing (as yet, at least) to compel MTN to include indigenous advisers in its proposed NSE listing, couldn’t it “advise” the firm to include them? My drift here, as I stated then, is that if indigenous advisory firms are not given due consideration on these mega deals, only the foreign-backed local firms would secure them. After all, they have better expertise, wider networks and deeper pockets. Even so, the rhetoric relevance of my examples could be stronger. (The grandee is a skilled debater.) So, I conceded the point. Not for long.

Local content is global
In China, a global law firm would not be able to do legal “work without partnering with a Chinese firm”, goes one article by the Financial Times in February (“Chinese M&A boom provides slim pickings for global law firms”); this was the closest example I could quickly find on how a local content policy could also be germane for the advisory business. What did the Chinese do? I will quote the FT article freely: “Non-Chinese lawyers are not allowed to practice mainland law, although they can provide informal advice. [And] recruiting Chinese lawyers into global firms does not solve the problem as they have to give up their local licenses.” Of course, financial advisory comes with some peculiarities; some mandates involve not just advice but underwriting as well, for instance. Even so, a local content policy is by its very nature interventionist. It is designed to ensure that compliance is not a choice but a necessity. In Nigeria, “local content” tends to be associated with the oil and gas industry. (I will leave the story about how foreign players in that industry circumvent local content requirments for another day; but maybe you should ask your friends there how much they really learn on those long stays at head office abroad.) I assert “local content” is relevant for the financial advisory business in Nigeria (and elsewhere) as well. We are all too quick to note China’s success. But surely, they did not achieve it by taking things easy. They persuaded, cajoled, and spied to get ahead. And when they had it in their power to force their will, they did not hesitate to wield it. Nigerian authorities asked MTN to list on the local exchange. They must also ensure that the process is truly local. (By the way, the debate is still on.)

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz.

macroafricaintel Weekly | 12 Mar

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Date Data / Event Period Forecast Previous
13 Mar South Africa Manufacturing Production, % yy Jan 2018 1.9 2.0
14 Mar Nigeria CPI, % yy (mm) Feb 2018 14.3 (0.8) 15.1 (0.8)
15 Mar South Africa Mining Production, % yy Jan 2018 1.1 0.1
Botswana CPI, % yy (mm) Feb 2018 3.1 (0.2) 3.1 (0.4)
Namibia CPI, % yy (mm) Feb 2018 3.7 (0.4) 3.6 (1.7)
Ghana CPI, % yy (mm) Feb 2018 10.5 (0.8) 10.3 (1.4)
South Africa CPI, % yy (mm) Feb 2018 3.5 (0.3) 4.4 (0.3)

macroafricaintel | Tillerson in Africa

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Hours before American secretary of state Rex Tillerson was scheduled to land in Nairobi, the Kenyan capital, President Uhuru Kenyatta and his main political rival, Raila Odinga, held a press conference in which they vowed to mend fences and work together. This was the first time they would meet since a bitter election dispute that started almost 7 months ago. Hitherto, Mr Tillerson’s 5-nation Africa trip, which started this week, was written off as one focused on security and not necessarily concerned with other cogent issues germane to helping Africa move ahead. The five countries Mr Tillerson is visiting, Ethiopia, Djibouti, Kenya, Chad and Nigeria, have been grappling with one security issue or the other. Even so, African countries would also be interested in knowing whether they need worry about a negative surprise from the Donald Trump administration in regard of American trade policy; in light of its recent import tariffs on aluminium and steel. How much of a factor Mr Tillerson’s imminent arrival in Kenya was in getting President Kenyatta and Mr Odinga together remains to be seen. But after their public reconciliation today, all the negative headlines about Kenya, most of which were related to their caustic political standoff, have become largely irrelevant. They said the right words. And their body language suggested they were being sincere. Needless to say, it is a very positive development. Of course, there remains the issue of the worrying indebtedness of the Kenyan fiscal authorities and so on.

Look beyond security
Mr Tillerson’s visit is also opportune for Ethiopia, currently in transition and under a suspect state of emergency, as prime minister Hailemariam Desalegn takes a bow. The American foreign minister did not pull his punches upon arrival there, asserting that what Ethiopia needed at this time was a freer society. How much of an impact his words would have also remains to be seen. But judging from recent political developments, the ruling Tigray elite have little choice but to allow for a more representative government. And considering Ethiopia is still largely aid-dependent, Mr Tillerson’s remarks could be differential. The American foreign minister is also expected in Abuja in a few days. It would be the most high profile visit by an American official to Nigeria in recent times. Nigerians, who were more than a tad disappointed that former American president Barack Obama did not deem it fit to stop by, would nonetheless be looking forward to Mr Tillerson’s visit. Incidentally, he would be arriving at a time when the recent abduction of more than hundred school girls in Dapchi, northeastern Nigeria, is still fresh in their memories. I suppose they would want to ask him if America made an offer of assistance to the Muhammadu Buhari adminstration like it did the Goodluck Jonathan government for the Chibok girls. Other African countries would love to get a sense of American policy on their issues as well. South Africans have been a little taken aback for not being on Mr Tillerson’s itinerary, for instance. The American view of the new Cyril Ramaphosa administration’s land expropriation without compensation policy is one some nervous market participants would be interested in. When asked about the matter at a conference call ahead of Mr Tillerson’s trip, acting assistant secretary of state for African affairs Donald Yamamoto did not give a definite view.

Competing for influence
In light of the foregoing, there is a risk of overestimating the influence of the Americans in Africa. They are not as important as they once were. Mr Tillerson has certainly shown a realism in this regard. In fact, the focus of his first speech in Addis Ababa was preponderantly focused on China’s now enviable hold on the continent. He mentions the growing indebtedness of African countries to China, in particular; cautioning them not to sell their sovereignty away. Coming from the Americans, who through the International Monetary Fund (IMF), were once similarly overbearing on African politics and policy, and perhaps still are, it seemed a little uncanny. But it speaks to the concern of the Americans about the Chinese. Already, the Americans plan to clarify from China in a meeting scheduled for the spring what their operational military goals in Africa are. That meeting, if it holds, would likely be dominated by Chinese military activities in Djibouti. In February, Djibouti terminated its contract with Dubai’s DP World for the management of Doraleh Container Terminal at the Djibouti port. American intelligence has it on good standing that the Chinese, who already have a military base in the country, would likely be gifted the port; with potentially “significant” consequences for American military operations in the country. Incidentally, Mr Tillerson’s Africa trip coincided with a similar one by Russian foreign minister Sergey Lavrov. While in Ethiopia, Mr Lavrov and Mr Tillerson stayed in the same hotel but did not meet. Before arriving in Addis Ababa, Mr Lavrov was in Harare to meet President Emmerson Mnangagwa to agree military and mineral deals. The Americans have more than the Chinese to worry about, it seems.

macroafricaintel | Africa FX Monthly – Mar 2018

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Currency 1 month

(30 Mar 2018)

3 month

(31 May 2018)

6 month

(31 Aug 2018)

12 month

(28 Feb 2019)

South African Rand (USD:ZAR) 12.3 12.5 13.1 12.7
Nigerian Naira (USD:NGN) 361.0 363.0 350.0 315.0
Ghanaian Cedi (USD:GHS) 4.5 4.3 4.4 4.1
Kenyan Shilling (USD:KES) 101.3 101.5 101.1 101.5
Ugandan Shilling (USD:UGX) 3,637 3,631 3,630 3,640
Tanzanian Shilling (USD:TZS) 2,247 2,241 2,245 2,240
Ethiopian Birr (USD:ETB) 27.7 27.9 28.1 28.5
Mauritian Rupee (USD:MUR) 32.9 32.7 32.5 32.6
Namibian Dollar (USD:NAD) 12.3 12.5 13.1 12.7
Botswanan Pula (USD:BWP) 9.6 9.7 9.4 10.1
Zambian Kwacha (USD:ZMW) 9.8 9.7 9.9 10.0
US Dollar Index (DXY) 90.0 90.5 91.1 92.1

macroafricaintel Weekly | 5 Mar

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Date Data / Event Period Forecast Previous
6 Mar South Africa GDP, % qq saa Q4 2017 2.8 2.0
Seychelles CPI, % yy (mm) Feb 2018 5.0 (0.6) 4.5 (2.1)
Tanzania CPI, % yy (mm) Feb 2018 3.7 (0.7) 4.0 (0.8)
Botswana CPI, % yy (mm) Feb 2018 3.1 (0.2) 3.1 (0.4)
Namibia CPI, % yy (mm) Feb 2018 3.7 (0.4) 3.6 (1.7)
Nigeria CPI, % yy (mm) Feb 2018 14.3 (0.8) 15.1 (0.8)
Ghana CPI, % yy (mm) Feb 2018 10.5 (0.8) 10.3 (1.4)
South Africa CPI, % yy (mm) Feb 2018 3.5 (0.3) 4.4 (0.3)
Ethiopia CPI, % yy (mm) Feb 2018 13.1 (0.4) 13.4 (0.4)
Mauritius CPI, % yy (mm) Feb 2018 5.8 (0.9) 6.2 (2.6)

macroafricaintel | The Triumph of Nene

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

First impressions matter. I first happened on Nhlanhla Nene, South Africa’s second-time finance minister, some years ago now, at a Chatham House event in London. Former minister in the presidency, Jeff Radebe, was also present, as I recall. Mr Nene and selected ministers were there to take questions from economists, analysts and journalists on the state of their country’s affairs. Africans, often nostalgic about home, who are typical attendees of these Africa-focused events, were also in the audience. I am not sure now what question I asked Mr Nene. But I am almost certain it was a difficult one. As in my own case, my team members would be expecting the notes of the event, I was at the ready with my pen waiting for Mr Nene’s reply – there are usually a couple of questions taken at a time. Imagine my surprise when before answering mine, Mr Nene acknowledged me by name. We had never met before. Naturally, I was pleased. (It is a familiar trick by politicians, I know.) But since I was not the primary analyst for South Africa at my bank, he did not have to put in the effort. I would find out in due course that this was in line with his humble nature.

Smart choices
So yes, I was distraught by his unceremonious dismissal about a year later by the president of South Africa at the time, Jacob Zuma. It did not take long before the reasons why he was excused from the cabinet came to light. Unsurprisingly, Mr Nene got caught in the crosshairs of his erstwhile principal because he would not allow him have his way with the treasury. With the benefit of hindsight, it is now well-known the enormity of the forces he had to contend with. It is not unlikely Mr Zuma particularly took umbrage that someone who should expectedly be culturally inclined to his whims would be so bold. Momentarily, Mr Zuma appointed a replacement so evocative of his disdain for excellence, competence, and integrity that even he, whose unique resilience is without question, could not handle the backlash. Mr Desmond van Rooyen lasted just days as finance minister. His replacement was a former finance minister: Pravin Gordhan. Reports suggest Mr Nene was approached to take his job back but declined. He did himself a great service. Mr Gordan suffered grief upon grief working for Mr Zuma. In the end, the wily former president won what is certainly now a pyrrhic victory. Now, Mr Gordhan has been reappointed minister by President Cyril Ramaphosa; albeit to the probably now equally relevant public enterprises ministry. The drama between Mr Zuma and Mr Gordhan was a source of many columns, as I recall. Two prominent victims of Mr Zuma’s unusual ways, both former finance ministers under him, have made such an extraordinary comeback in relatively little time, that they can be nothing short of inspirational. They are humble, sound and well-respected by market participants. President Cyril Ramaphosa is smart to appoint them to his cabinet.

Same colour
The task before the new finance minister is huge. He inherits a budget that was presented about a week before his appointment. It is not the way he would have wanted to start. Not that he likely cares very much for credit. But a finance minister makes a mark by first setting out an agenda via the budget statement. No matter. He would get a chance later in the year, when hopefully, he would be in good stead and health to present the medium term bugdet policy statement. Even so, the 2018 budget is a good one; a remarkable turnaround by former finance minister Malusi Gigaba – whose “survival” and reassignment to the home affairs ministry is also instructive but not as inspiring – from what was a sloppy mid-term budget in October. In that less than remarkable proposition, Mr Gigaba was honest to a fault about the state of the country’s finances but not as creative or bold with the solutions to fix the problem. In February, he redeemed himself by making firm fiscal proposals that should plug the gaping 50 billion rand hole in the fiscus. Yes, an increase in the value-added tax is not exactly equitable. After all, the huge fiscal gap could be traced to the profligacy of the Zuma administration. What did emerge, though, was how who is president, matters; for some cadres of the ruling African National Congress (ANC) party, at least. Mr Gigaba was impressive under a better sheriff. This is one of the reasons why Mr Nene is a truly remarkable person: he will do the right thing no matter who the president is.