#Africa #Markets | 20 Nov

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Key data releases or events to follow today (& those over the weekend):

* NIGERIA – Q3 GDP due by 0730GMT. [Forecast is 0.8% yy from 0.6% in Q2] #Nigeria #GDP

* KENYA – Supreme Court to rule on 2nd presidential election petition today. #Kenya #ElectionsKE #PPII

* ZIMBABWE – President Mugabe refused to quit over the weekend. [Impeachment expected on 21 Nov] #Zimbabwe #MugabeMustGo

* NIGERIA – Elections in Anambra state in agitated southeast of country were  largely successful. #Nigeria #AnambraDecides

#Africa #Markets | 3 Nov

(REUTERS) The following company announcements, scheduled
economic indicators, debt and currency market moves and
political events may affect African markets on Friday.

GLOBAL MARKETS
Asian shares took a breather on Friday as investors gave a
guarded reception to Republican plans for massive U.S. tax
cuts, while welcoming the appointment of a centrist at the
helm of the Federal Reserve.

WORLD OIL PRICES
Oil markets rose on Friday, supported by OPEC-led supply
cuts which are tightening the market as well as by strong
demand, but analysts cautioned that the cuts would need to
be extended to counter rising U.S. output.

SOUTH AFRICA MARKETS
South Africa’s rand extended its comeback on Thursday,
ignoring turbulence in parliament to trade below the
psychological 14.00 mark as a sharp slide in the greenback
encouraged some short buying before focus shifts to Friday’s
U.S jobs data.

NIGERIA CURRENCY
Nigeria’s government expects the naira currency to
strengthen and does not see a significant risk of
devaluation in the medium term, Finance Minister Kemi
Adeosun said on Thursday.

NIGERIA OIL
Nigeria must use its oil wealth to prepare for a future when
the world no longer runs on fossil fuels, the vice president
said on Thursday.

NIGERIA BUDGET
Nigeria’s President Muhammadu Buhari will present the 2018
budget to parliament on Nov 7, he said in a letter on
Thursday, seeking to avoid the delays that have plagued
previous budgets, not passed until well into the years they
targeted.

KENYA MARKETS
The Kenyan shilling was steady against dollar on
Thursday supported by tight market liquidity and inflows
from horticultural sector matching dollar demand from
multinational companies, traders said.

KENYA STRIKE
Nurses in Kenya have ended a five-month-old strike over
delays to agreed wage rises, a union official said on
Thursday, just as university lecturers began a similar
action over their pay and benefits.

KENYA SECURITY
Kenya’s chief justice said the national police chief had
“enhanced” the security of Supreme Court judges after one of
their bodyguards was shot, denying a Reuters report that a
request for extra security had been turned down.

KENYA STOCKS
Kenya’s main stock exchange index, already up 18.5 percent
this year, looks set to be recharged as it recovers from
months of political uncertainty, its chief executive officer
said on Thursday.

KENYA EQUITY GROUP
At least half a million small borrowers at Kenya’s biggest
lender by customers, Equity, have been locked out
of credit by an interest rate cap imposed a year ago, the
bank’s chief executive said on Thursday.

TANZANIA MINING
Acacia Mining’s top two executives have resigned in
the midst of talks between its parent company and the
Tanzanian government aimed at ending a long-running dispute
that has hit Acacia’s operations.

GHANA BOND
Ghana plans to issue a three-year domestic dollar bond next
week to develop local funding sources to support the
economy, deal arrangers told Reuters on
Thursday.

IVORY COAST ELECTRICITY
Ivory Coast started producing power on Thursday at a 275
megawatt (MW) hydroelectric plant that will boost the
country’s electricity output by more than 10
percent.

UGANDA MARKETS
The Ugandan shilling was broadly stable on Thursday,
underpinned by waning demand for dollars from importers and
commercial banks.

ANGOLA RATES
Angola’s central bank kept its benchmark lending rate
unchanged at 16 percent following a policy meeting on Nov. 1
as consumer price inflation slows, the regulator said in a
statement.

NAMIBIA RESERVES
Namibia’s foreign reserves rose in September to 31.4 billion
Namibian dollars ($2.25 billion) from N$30.6 billion at the
end of August, central bank data showed on
Thursday.

NAMIBIA ECONOMY
Namibia’s economy will grow at 1.6 percent this year and by
double that in 2018 as the mining sector emerges from years
of contraction and the impact of recent severe drought
eases, the finance minister said on Thursday.

CONGO ECONOMY
Democratic Republic of Congo’s central bank said on Thursday
that it expects year-end inflation to stand at 49.8 percent,
down from an earlier estimate of over 52
percent.

macroafricaintel | On the African prospects of Islamic finance

By Rafiq Raji, PhD

I attended an Islamic finance roundtable event in Lagos recently. It was organised by S&P Global Ratings, one of the three leading global credit rating agencies. There is increasing interest in Islamic finance in African countries, whether in the form of a sukuk (Islamic bond which makes returns from an underlying revenue-generating asset as opposed to scheduled and fixed interest payments in conventional bonds) or commercial banking products that avoid the payment of interest, which Muslims are barred from earning. African sukuk issuances have yet to impress, though; about US$2 billion (since 2014 mostly), according to S&P Global Ratings. (17 African sovereigns issued US$46 billion in conventional debt in 2015.) Over the past two years, annual global sukuk issuance was about US$65 billion on average and end-2016 Islamic finance industry assets are estimated at about US$2.1 trillion. There has been a decline in the volume of global issuances lately, though; low crude oil prices are one reason why. Even so, there are significant prospects for more sukuk issuances by African sovereigns and sub-sovereigns. A sign that Islamic finance may eventually become mainstream is that corporate entities are beginning to seriously consider it as a source of financing. The Lagos-based Africa Finance Corporation (AFC) issued a 3-year US$150 million sukuk in early 2017, for instance.

Entrenched ways
Curiously, Muslims have not warmed up to Islamic banking as was probably envisaged, though. Most have gotten used to conventional banking, especially as they have over time devised personalized mechanisms for abiding by their religious principles while still availing themselves of conventional commercial banking services: For example, when paid interest on their savings account deposits, they would either ask that the interest portion be removed or alternatively, they maintain it as a permanent balance in their accounts. The motivation is rational. To forgo conventional banks for the few Islamic ones that have only recently begun to spring up in a few African countries could be costly. Conventional commercial banks have more heft to provide a more diversified bouquet of banking services than the still budding Islamic ones. To become more commonplace, Islamic banking professionals have to find ways to make their services appealing to non-Muslims. Patronage of an Islamic bank does not require that you believe in Islam. It is simply a type of banking that insists that if you must earn a return, it should be from actual assets and not just financial transactions. Call it ethical banking, if that is more palatable to your religious sensibilities. Such sentiments seem to have been overcome in the Islamic capital market sector, however. Non-Islamic entities and countries have issued sukuk, for instance. Still, Islamic law does underpin the industry.

Standardize now
A lack of standardization is becoming a problem, though. To be clear, Islam is clear on what the rules are or should be. Varied and unusually dynamic interpretations of sharia (Islamic law) on what is compliant or not have been problematic, however. The controversial case of Dana Gas, an Abu Dhabi-listed gas company, may be the crisis the industry needs to finally put things in order. To avoid parting with more cash than it agreed to, Dana Gas is seeking to restructure two sukuk issues worth US$700 million into more supposedly Islamic-compliant ones. The reason is obviously not religious but financial. It is the classic case of trying to use religion to escape fulfilling an obligation. Still, Dana Gas is simply latching on to what seems like a “dynamic” Sharia interpretation culture in Islamic finance. To be fair, prominent Islamic finance sharia advisors have been forceful about what a dangerous precedent the Dana Gas case would set if it wins the case it filed with an English court, which may not be heard before December 2017 (according to The Economist, a British newspaper), two months after the sukuk issues would have matured. Put simply, the problem is human, not religious. It is a classic case of an attempt to breach a contract after agreeing to its terms. Bear in mind the sukuk issues in question were issued some 10 years ago. That is a long time for anyone or entity to suddenly develop a phony sense of religiosity. There could not be a greater need for standardization. A global authority on Islamic finance needs to be instituted without delay, a point made at the S&P Global Ratings Lagos event (and in recent features by The Economist and African Banker magazine). The Malaysian model, which is more liberal and advanced than the Middle Eastern variants, is touted as befitting. The current artificial ambiguity is a needless constraint.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/african-prospects-islamic-finance/

macroafricaintel Weekly | 17 Jul

By Rafiq Raji, PhD

Click to download PDF version

Date Data / Event Period Forecast Previous
17 Jul Nigeria CPI, % yy (mm) Jun 2017 15.9 (1.4) 16.3 (1.9)
17 Jul Kenya Policy Rate, % 10.0 10.0
19 Jul South Africa CPI, % yy (mm) Jun 2017 5.2 (0.3) 5.4 (0.3)
19 Jul South Africa Retail Sales, % yy May 2017 0.6 1.5
20 Jul South Africa Policy Rate, % 7.0 7.0

macroafricaintel | Time to unify exchange rates

By Rafiq Raji, PhD

With their trading volumes clearly being hurt by the increased interventions of the central bank in the foreign exchange market, bureaux de change operators recently asked that the current multiple rates regime be abolished. Aminu Gwadabe, their representative, made the suggestion in an interview with Reuters, a wire service, in mid-June. For such a call to come from participants who have profited hitherto from the market distortions induced by the central bank’s unorthodox FX policies is almost surreal. They are just being rational though. Black FX market operators have seen their margins diminish significantly since the central bank’s ramped-up interventions began. The bank has sold more than US$5 billion this year already, after OPEC production cuts in late November 2016 pushed up international crude oil prices, boosting government revenues and the central bank’s FX reserves. Besides, it was almost always going to be the case that most customers would prefer to do their transactions with banks if they could secure competitive rates.

Other stakeholders sense an opportunity for the central bank to finally integrate the market as well. In remarks to Bloomberg, another wire service, in mid-June, Bola Onadele, the head of FMDQ OTC Securities Exchange, the over-the-counter markets platform which handles the new Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) mechanism – better known as the investors’ and exporters’ FX window – by the Central Bank of Nigeria (CBN), seemed to suggest a single foreign exchange market was only a matter of time. Six weeks after it was introduced on 24 April, NAFEX has recorded more than US$2 billion in inflows. More importantly, the central bank reportedly intervened less than 30 percent of the time. And in the week just passed, the naira was trading at about the same level in both the NAFEX and parallel markets; raising hopes of convergence in the at least six FX markets. Noteworthy is also how the new FX window has mirrored the parallel market thus far, with the naira sometimes trading weaker in the former, vindicating much held views that the latter was more reflective of demand-supply dynamics.

Remove bottleneck
Still, a lot of global fund managers remain wary of putting money in local currency assets. The more Afro- and frontier-markets-centric ones have been increasing their Nigerian exposure owing to the NAFEX window, however. Some context is needed at this point. Before the FX shortages began, foreign portfolio and direct investments typically averaged about US$3 billion a quarter. In a good year, 2014, say, one quarter recorded as much as US$6.6 billion in foreign investment inflows. And the year before that, quarterly capital importation was about US$5 billion. So the US$2.2 billion FX inflows via NAFEX six weeks on (latest data) is significant. Should the remaining sceptical foreign portfolio investors join in, there could be a deluge; in a good way, of course. The importance of enticing them back into the Nigerian market cannot be overemphasized. The Nigerian economy remains in a recession primarily (in one’s view) because of the hard currency supply bottleneck. An analysis of economic growth data since the contraction began in the first quarter of 2016 shows sectors dependent on hard currency are primarily those weighing on the economy. Take one not so dependent, the agriculture sector, for instance, which incidentally also constitutes about a quarter of output: it grew by 4 percent on average in 2015-16. That more dependent on imported inputs, the industry sector (almost a quarter of output as well) for example, contracted by more than 5 percent in the same period. Not until 2016 did the remaining half of output, the services sector, record a contraction; below 1 percent at that. And when dissected, quite a few sub-sectors in services have been surprisingly resilient.

Short party
Considering crude oil prices have been sticky around the US$45-50 area lately, short of fully converging the markets, the CBN may soon become hard-pressed to sustain the current momentum. This is especially as the outlook for oil prices remains somewhat bearish. Despite the extension of OPEC’s 1.8 million barrels per day (mbpd) production cuts in late-May for almost another year, improved production by Nigeria and Libya, which are exempt from the cuts, have undermined the expected price-boosting effects. With the Forcados pipeline system back online, Nigeria has added at least 200,000 barrels per day to its production. Improved conditions in Libya has seen it add at least as much. Some estimates put incremental production between the two since the cuts began late last year at about 600,000 barrels per day, almost half of the cartel’s agreed cuts. So not only would the fiscal authorities likely need to borrow more than the US$3.5 billion they plan externally in the 2017 fiscal year, the monetary authorities may see their external reserves deplete quite significantly (or accrete slower) as well; that is, if current interventions continue. But with proof that a more transparent market would encourage needed FX inflows and is not all too destabilizing, as demonstrated by the NAFEX window, the CBN has an opportunity now to fully liberalize the market. In that event, it would not matter which way crude oil prices go.

Also published in my BusinessDay Nigeria column (Tuesdays). See link viz. http://www.businessdayonline.com/time-unify-exchange-rates/

macroafricaintel | The Osinbajo imperatives

By Rafiq Raji, PhD

Evil men are forever in bondage of their schemes. Just when they think victory is within their very grasp, that ever-patient Omnipotent simply declares otherwise. It is sometimes no more than a blink of the eye. So to speak. All of a sudden, the variables just change. A man whose aspiration was no more than a life in academia has power thrust upon him without even the slightest effort. Yet, many abound in those stained corridors who have twisted knots to no end for the exact same thing. To simply watch how the varied machinations of these sort of people often come to naught is to put it mildly: awe-inspiring. Who would have thought such mischief possible from just a word. “Co-ordinate” in place of “act”: who knew? Of course, the law is clear. Following the letter by the Nigerian president, Muhammadu Buhari, to the legislature declaring his intention to proceed on medical leave – the second one this year already, power transfers automatically to his deputy, Yemi Osinbajo. But the drafters of the letter already knew that. So why did they do it? The shadowy figures probably wondered if anyone would notice. How about we test the waters to see what we can get away with, they probably reckoned. Well now, they know. It is not likely that the president had the time or the strength to bicker with his clearly mischievous aides over the wording of a simple letter. The ailing leader is excused.

Act without fear
With such mischief about though, it has been suggested in some quarters that the life of the acting president might be in danger. Complete nonsense. Prof Osinbajo is not any safer being guarded by his kinsmen than he is by those of his principal. His enemies are not fools. But if they could just guide his hand, slow it perhaps and our destinies in tandem, that may be just right for them, say. Courage beckons on Prof Osinbajo. He must embrace it. Should he act with the needed firmness, he may even come to earn the respect of those who are counting on the stereotype of the faint-hearted Yoruba man. With power now placed by Divinity in the hands of one who has the twin blessings of salubrity and diligence, and might actually be able to do some good with them, even the slightest compromise by the one so chosen would be the greatest betrayal. The acting president must act with dispatch to fix some of the rubbish that has been festering due to the failing health of President Buhari; who could not attend to many government business consequently. It is widely believed a lot of official memoranda which required his approval were either not brought to his attention or even when they were, he could not attend to them.

Ordinarily, a president should not have to personally approve everything. In the American or British jurisdictions, some of these are delegated to the chief of staff or cabinet secretary. And such mundane tasks like the signing of greeting cards, routine letters and so on are done using a so-called “autopen” programmed with the president or prime minister’s signature. That type of leeway would be prone to unimaginable abuse in the Nigerian context, however. Still, it is unbelievably astonishing how some very inconsequential activities require the approval of a Nigerian head of state. A still existing command-and-control structure inherited from the military is partly why. Unsurprisingly, the healthiest president might still find the office a little overwhelming. Even so, Mr Buhari was not able to consider even the very important ones, it is believed. Unfortunately, there have also been actions emanating from the so-called “presidency” in his name that seem alien to his character and thus he probably did not approve of. To have to reverse these likely presidential usurpations whenever he became acquainted with them would have been problematic; especially as the erring officials are believed to be some of his closest. This understanding probably motivates their daring. With Mr Buhari now rightly taking care of himself in England, such mischief would be hard to pass by Prof Osinbajo. Thus, the president’s close aides may be reluctant to give Prof Osinbajo a free pass this time around: during Mr Buhari’s penultimate medical leave, the heavens simply poured rain on the second house. Understandably, the occupants of the first house cannot soon forget the lessons that the drought brought with it: shall we not hold the heavens this time with such conjurations as “co-ordinate” or whatever, some smart aleck probably mused. Well, good luck with that.

Be quick, firm and transparent
Prof Osinbajo’s imperatives this week are as follows. Firstly, he must sign the 2017 appropriation bill without delay. For sure, there would be someone who will likely come with identified “paddings” in the budget: truth can be deployed towards mischief as well. Such issues (if they arise) should be handled through back channels. Time is of the essence. Secondly, swear-in the two new ministers recently confirmed by the Senate at cabinet on Wednesday. Thirdly, deploy the about forty-three already languishing ambassadors-designate. Fourthly, the acting president should relieve the suspended government scribe, Babachir Lawal, of his appointment. (That is, if it has been found that he indeed corruptly enriched himself with humanitarian aid meant for internally-displaced persons in the northeastern part of the country.) Doing these for starters would hardly be reckoned as “co-ordinating” or any such nonsense.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/the-osinbajo-imperatives/

macroafricaintel | Rejoice and despair

By Rafiq Raji, PhD

Even as economic growth was negative in the concluding quarter of 2016, it was positive for the full year; though a paltry 0.3 percent. And the South African economy would probably pull further ahead in 2017. Much of the constraints (load-shedding, political noise, rand weakening and volatility, drought-induced food imports and price spikes) which hitherto bogged down the economy have become relatively subdued. The rand has rallied lately. Barring the now expected negative political event now and then – most recently, the social welfare payments crisis – the Zuma government has been relatively well-behaved as well. Nonetheless, growth remains far short of the authorities’ target. That is even as growth is expected above 1 percent this year. Policy uncertainty has also been raised a couple of notches: Would land be expropriated without compensation? Is the treasury going to be weakened? Is finance minister Pravin Gordhan going to be fired?

Mixed promise
After the better than expected current account deficit data for the fourth quarter of 2016 – which came out at 1.7 percent of GDP, much lower than the consensus forecast of 3.5 percent – expectations have been raised that the South African Reserve Bank (SARB) would be able to cut rates sometime later this year, from the current benchmark level of 7 percent. Besides, the rand has been strengthening lately. Naturally, it is wondered whether this would be sustained at a time that the US Federal Reserve is decidedly now on a policy tightening path and external and internal political risks abound. Also, annual consumer inflation may remain above the SARB’s 6 percent upper bound target for most of the year. For instance, even if food prices become stable (a much bumper maize harvest is expected this season), power tariffs could rise: Eskom has already secured approval from the electricity regulator to raise tariffs by 2 percent in the 2017/18 fiscal year, in addition to getting leave to make additional hike requests if necessary. And should crude oil prices rise as envisaged, fuel prices would probably rise in tandem. Despite these though, the outlook looks promising, by and large.

Judging and ruling
Land expropriation without compensation. Xenophobic attacks fuelled by politicians trying to deflect attention from their corruption. Impunity enjoyed by certain favoured officials in the face of palpable incompetence. These are just few examples of the recently complicated turn of South African politics. In February, opposition Economic Freedom Fighters MPs were forcefully ejected from parliament as they frustrated the state of the nation address by South Africa’s president, Jacob Zuma; amid an unprecedented military presence on parliamentary grounds. And as the judiciary increasingly reins in the excesses of the executive, it has started having misfortunes of its own. The office of the chief justice was recently burgled, with crucial case files carted away, raising suspicions that those who could potentially be on the wrong side of the court’s judgements decided to be proactive. Such thinking is not farfetched. The boss of the elite police unit (“The Hawks”), Berning Ntlemeza, had his appointment revoked in mid-March by a high court, in a case brought against him by two non-governmental organisations. And only just before this recent rebuke of the executive by the judiciary, the constitutional court did not hold back its punches against social development minister Bathabile Dlamini, whose incompetence nearly put at risk welfare payments due 17 million people on 1 April.

With the courts becoming a pseudo-government of sorts, President Zuma has been pushing back: he rose in defence of Mrs Dlamini, an ally; albeit her survival is not unconnected to her leadership of the influential African National Congress (ANC) Women’s League, a voting bloc Mr Zuma needs if his preferred choice for the party’s presidency is to win the day in December (The two principal candidates are deputy president Cyril Ramaphosa and erstwhile African Union Commission chairperson Nkosozana Dlamini-Zuma). An imminent cabinet reshuffle by Mr Zuma is expected to help position Mrs Dlamini-Zuma for the top job. Mr Zuma has also deftly used the welfare payments crisis to bring the responsible agency under his direct control via his oft-used interministerial committee mechanism. Other power grabs are afoot. In mid-March, the ruling ANC indicated its desire for Mr Zuma to be “the strategic centre of power”, not the treasury. They want him (or whoever is president) to be the one who sets budget priorities that the treasury simply puts into action without question. Needless to say, the potential for abuse is best left to the imagination.

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. https://www.businessdayonline.com/rejoice-and-despair/