In 1989 at the time of the Tiananmen Square protests the sovereign capital markets risk perceptions of Brazil, India, China and Russia (BRIC countries) were uncorrelated as they are today. In much the same way, the underlying risks of the world’s last frontier capital markets (many of them in Africa), are only gradually becoming correlated with each other. It is against this dynamic background that a recent New York court ruling against Argentina ordering it to pay over USD1.3bn to foreign bond holdouts, and Argentina’s threat to not pay the amount, threatens to wreck havoc in Africa’s frontier capital markets. Kenya’s planned USD1.5bn Eurobond scheduled for November could be stalled. Other existing bond issues may see steep yield spikes.
The verdict on the hearing of the Supreme Court in Ghana is due to be delivered tomorrow, on Thursday 29th August 2013. For 48 days, Ghanaians have been exposed to a litigation process like no other, in which three petitioners from the opposition New Patriotic Party (NPP) including the party’s flagbearer for the December 2012 elections, are calling for the annulment of close to 4 million votes. Continue reading ->
On 29 August Ghana’s Supreme Court will deliver its landmark verdict on the legal challenge to President John Mahama’s disputed December 2012 election. Continue reading ->
The on-going bloody struggle between Egypt’s Muslim Brotherhood (MB) and the country’s military forces may soon be transported from the streets of Cairo to the sidewalks of major western capitals. Continue reading ->
Much has been made of the Bo Xilai trial as a statement of the intent of the new Chinese leadership to crackdown on corruption. In reality, nothing could be further from the truth. Continue reading ->
Investment patterns and sources of funding for trade
Private financing flows to Africa continued during financial crisis due to the high share of foreign direct investment over other more volatile forms of private capital. These funds favoured the most politically stable and resource rich territories, with Kenya, Mozambique and Tanzania attracting significant investment flows. Continue reading ->
Egypt’s $5.45bn junk rated Eurobonds at increased risk of default. Military coup torpedoes multibillion dollar IMF negotiations, legally imperils US/EU economic aid, halts recovering tourism sector and stalls 2H 2013 GDP growth. Today’s capital markets euphoria will dissipate as dire economic realities are soon exposed. Continue reading ->
Nigeria, Africa’s most populous country and the continent’s largest frontier market on July 2 raised $1billion from the global capital markets in two Eurobond issues – a $500 million 5-year bond at a yield of 5.375% and a $500 million 10-year bond with a yield of 6.625%. Continue reading ->
Turkey used to be viewed as a modern Muslim nation. It was not an Islamic state – the purpose of Kemal Ataturk’s revolution in the 1920s was to make Turkey a secular society. And Prosperity and peace in Turkey has derived from this. Continue reading ->
Gabon has announced its intention to take assets back from Chinese company Sinopec, in a sign of Africa’s growing confidence in asserting control over its natural resources. For over a decade, Western investors have had assets seized and contracts renegotiated by resource nationalist governments that were keen to take advantage of Beijing’s ‘no strings attached’ investment policy. JLT Specialty has forecast for some time that Africa’s love affair with China would be short-lived and that Chinese assets would eventually become vulnerable to expropriation. Continue reading ->
As discussed in the previous blog, water scarcity can increase political risk and political violence in many areas. The table below includes the nine ‘perils’ rated by World Risk Review and the accompanying implications of water scarcity for business. Continue reading ->
Nigeria’s sovereign stability at risk as security challenges and sectarian clashes threatens economic growth, FDI and capital inflows
Nigeria, Africa’s most populous nation, a major OPEC oil exporter and one of the continent’s fastest growing economies is at risk of a reversal in economic fortunes. Continue reading ->
Latin America seems to suffer from regionalist inflation. Four new integration projects were born in the last ten years: The Bolivarian Alliance for the Americas (ALBA) launched by President Chavez of Venezuela to counter neoliberal policies and US influence and advocating a radical change of economic and social models; The Union of South American Nations (UNASUR) created and supported by Brazil to give a platform to its regional and global projection; the Community of Latin American and Caribbean States (CELAC) to give the region a single voice in its political relations with international partners; and, most recently, in 2012, the Pacific Alliance, composed of Chile, Peru, Colombia and Mexico with a view to foster exchanges with the Asia-Pacific. This one has attracted considerable interest and expectations, especially from the international business community.
The economic prospects look promising for the Pacific Alliance area. The bloc has a population of about 204 million people (roughly equivalent to the size of Brazil’s), generates a GDP of 1.4 billion USD corresponding to 34% of Latin American GDP, GDP per capita is close to 11.000 USD per year, and the four countries account for about half of the foreign trade of the entire region. Besides, exports from the bloc grow by 8% a year on average, with a staggering 13% increase in exports toward Asia in the period 2007-2011. The four members are among the fastest-growing economies in Latin America and the declared objective of the Alliance to provide a common platform towards Asia, the fastest-growing region in the world, make economic projections interesting for both investors and domestic political and social planners.
The political picture is equally encouraging. The four members are relatively stable countries. They are generally considered reliable partners and have a record of compliance with international commitments. Colombia has successfully addressed internal problems of guerrilla and drug trafficking reducing risks and improving the country overall performance and image. The arrival to power in Lima of left-leaning president Humala has not brought about a rejection of business-friendly policies adopted by his predecessor. Mexico has positively re-engaged with Latin America in recent years and the newly-elected president Peña Nieto has pledged to modernise the country and tackle alarming violence rates. Chile is on its way to first world status. All the four associates pursue open economy and free trade, maintain cordial relations with the US and have a clear focus on the Asia-Pacific.
However one may wonder what the newly-launched Pacific Alliance may add to this picture. The two principal objectives of the organisation are the free circulation of goods, services, capitals and people; and the creation of a common platform towards the Asia-Pacific. Now, the bloc commitment to free trade is a well-established policy and all members already have in place Free Trade Agreements (FTA) with one another. Furthermore they all have FTAs with the United States and with several Asian countries. The real added value of the Alliance would be a significant progress in the free circulation of services and capital. But it remains to be seen how serious the members are about this commitment. The creation of the Mercado Integrado Latinoamericano (MILA), which brings together and facilitates operations in the stock exchanges of Santiago, Lima and Bogota, was a positive move. Yet the exclusion of most agricultural products from the existing agreements provides a hint of the potential difficulties ahead.
Regarding the projection to the Asia Pacific, for the time being the Pacific Alliance does not have juridical personality. This means that the organisation is not able to sign any agreement on behalf of his members. Negotiations for new treatis with Asian countries will have to be conducted and concluded by member states. In this case, the real added value would be the ability of the Council of Ministers of the Alliance to exercise strong coordination on policies towards Asia. The extent to which this will be possible remains to be seen. Latin American precedents and traditional adversity to any form of supranationality cannot be discounted.
The Pacific Alliance looks more the reflection and consolidation of changes and policies that have already taken place rather than a driver of change. The enthusiasm it prompted might have been not only premature but slightly overstated. The good political, economic and social performances of its members predate it and transcend it. Its future impact and real weight will depend on the extent and consistency of its members’ commitment to it. After all, the Alliance is not even one year old.
While investors in oil & gas pipeline projects will always be among the most vulnerable to political risk due to the nature of the industry, steps can be taken to minimise the risk. Continue reading ->
The next state-level elections are on 4 September, in Mecklenburg-Vorpommern, followed by polls in Berlin on 18 September. In the previous state elections this year, Federal Chancellor Angela Merkel fared badly, mainly reflecting the huge unpopularity of any German bailout of weaker euro area economies, especially Greece. (Her see-sawing on other policies was also an issue.) Continue reading ->
Rallies and demonstrations across Pakistan – instigated by the opposition Pakistan Muslim League – Nawaz (PML-N) – are likely to continue, as pressure mounts on Prime Minister Gilani to resign. Gilani was convicted by the Supreme Court in April 2012 of contempt of court, for refusing to re-open a corruption case against the current President, Asif Ali Zardari. Continue reading ->
The power of a single commodity producer to disrupt global supply was starkly demonstrated by Russia’s ban on grain exports 2010. Despite reports of a strong harvest in the US and high wheat inventories that should cover the reduction in Russian output, Prime Minister Vladimir Putin acted prematurely and the markets reacted wildly with wheat prices rising to a 23-month high since the announcement. Continue reading ->
Pressure on natural resources and the insatiable demand for commodities by a rapidly growing and industrialising global population indicates that the medium to long term is high prices and high demand, with the competition for resources potentially leading to social and political instability and in some cases, war. Continue reading ->
Despite conceding to hold the rally in a stadium, the opposition-backed coalition of non-governmental organisations (known as Bersih 2.0) calling for electoral reform faced a harsh reaction by police in Kuala Lumpur on Saturday. There were up to 1,600 arrests, several injuries and one death in the clashes, which were brutally dispersed by police with water cannon and tear gas. Continue reading ->
After nearly six years of repeated denials that he was suffering from a form of cancer, Ghana’s President John Atta-Mills died suddenly on 24 July in Accra from complications from laryngeal cancer. Vice President John Mahama immediately assumed the presidency and is expected to pick a vice president within the next few days. Mahama, who is a Christian, but hails from the mostly Muslim north does not automatically become the 2012 flag bearer of the ruling centre-left National Democratic Congress (NDC). Continue reading ->
The demise of Italy’s PM Berlusconi has ushered in technocratic governments both there and in Greece. The shape of both is still awaited, but market focus has now turned to Spain where bond yields have pushed sharply higher. Continue reading ->