African Private Equity’s Tricky Confidence

2018 January 29 by

Deloitte and the East and Southern Africa Private Equity Associations released their annual survey of industry economic and asset class attitudes from 75 respondents highlighting “adaptability and agility” despite deal and growth difficulties. In the latter sub-region manufacturing is increasingly popular next to energy and real estate and although 60% believe South Africa’s economy is in bad shape 80% plan greater allocation. The East’s 6% growth leads the continent and is “coming of age” despite controversial presidential elections in Kenya and Rwanda and stricter regulation in Tanzania. New fundraising is up as first stage PE vehicles reach maturity and local pension funds subscribe, but at steeper entry multiples with rising transaction competition. Small business is a current focus, especially in agriculture and financial and retail services, and renewable energy is a major technology play. Of the limited partners asked 15% expect exits in the coming year, whereas none were contemplated in 2016. Sub-Sahara Africa GDP expansion is forecast at 2.5% in 2018, with “muted” commodity price advance. The East has experienced prolonged drought, and Ethiopia is now the largest economy and growth champion, with 10% jumps the past decade from domestic demand and infrastructure as it slowly opens to foreign investment. South Africa has been in recession amid sovereign ratings downgrades close to junk, and Mozambique will join Botswana and Malawi in 5% growth despite its external debt travails. In the West Nigeria has stabilized with wider foreign exchange availability and Cote d’Ivoire, Senegal and Ghana should see 7% range output upticks over the medium term. PE activity will climb in all three areas the next twelve months, but most in the West with Nigeria’s predicted turnaround, according to the research. Existing funds should be fully deployed in 2-4 years, and among countries Ghana, Tanzania, Rwanda, and Cote d’Ivoire have emerged as preferred destinations.

By sector the consumer is the top priority, especially in food, healthcare and pharmaceuticals. Small and midsize and mature companies are equal emphasis, and typical fund size runs from $50-$200 million-plus, while deals are around $20 million. General partners differ by geography, with governments and development banks dominating the South and West and endowments-pensions the East. Europe is the main external source, followed by South Africa and the US. Debt finance is due to rise alongside equity, and the main exit paths are strategic and secondary market investor sales. The return time horizon extends beyond five years, and backers tilt toward mid-size Pan-African strategies. Corporate governance and transparency are the chief domestic issue challenges, with owner-manager distinction an important underappreciated concept. Internationally, Brexit’s impact on bilateral trade and signaled US protectionism are high on the list. The Trump administration’s initial budget blueprint recommended big African aid cuts, and AGOA’s duty-free preference extension is under review for several signatories, while the older GSP poor-country program may not be renewed. The new heads of development agencies AID and OPIC expressed commitments to economic growth and venture capital fund support, and the State Department held a summit with dozens of foreign ministers, but a bungled counterterror operation in Niger has overwhelmed the joint agenda with possible future supplementary private capital dimensions yet to offer confidence.


The CFA Franc’s Dogged Devaluation Designs

2017 December 25 by

The CFA Franc two-decade old peg to the French counterpart and then the euro, with a 50 percent devaluation in 1994, is again under the microscope after recent commodity price decline worsened domestic and external imbalances in the respective Central and West Africa monetary unions, according to a ratings agency report which identifies countries most at risk from currency realignment. CEMAC’s oil export dependence puts it in worse position as current account and fiscal deficits were in the high single digits to national income at end-2016, with $5 billion in reserves covering just over half of monetary liabilities against the 20 percent minimum needed under the French Treasury arrangement. Budget gaps have eaten into liquid assets at the regional central bank, which has also exhausted overdraft facilities to member governments. WAEMU is more diversified with bigger output and leaders Cote d’Ivoire and Senegal register 7 percent GDP growth and better governance, S&P comments. Foreign exchange and fiscal reserves are “comfortable” and the analysis does not forecast formal depreciation but offers a sensitivity index ranking the most vulnerable in a switch. Congo, currently in negotiations on an IMF program with a low “CCC” sovereign grade, is at the top of the list with an 80 percent share of imports/output, the worst fiscal deficit in the two groups and a default record on its $500 million international bond. Its statistics are not reliable or frequent, and although the commercial debt burden would spike the relative damage would be greater in Cameroon, Gabon, Cote d’Ivoire and Senegal with bigger and more regular Eurobond issuance. They may have partially hedged risk through an African Development Bank window but another 50 percent CFA Franc drop would compromise budget positions and hurt ratings. Petroleum exporters Cameroon and Gabon already signed Fund programs and Senegal’s economic indicators are “much better” than in the 1990s. The sustainability debate over the currency regime has been “largely political” reflecting colonial era estrangement and new Asia outreach. In September protests erupted across the zones as Paris under President Macron unveiled a fresh Africa strategy stressing bilateral investment and security improvement, but immediate alternatives are lacking. Monetary flexibility is limited but low inflation in the 2-3 percent range, versus 15 percent for the rest of the continent average, has been a stability buffer outweighing possible competitive gains from devaluation, the review concludes.

Sovereign debt restructuring that may be in play regardless of exchange rate level should follow market-based recommendations compiled by an expert study group, according to the UN’s Economic and Social Affairs Department sponsoring the effort. Detailed templates should be developed for loans as well as bonds, and the more popular fiscal agent could be shifted to a trust structure to more easily bind creditors. Their committees should be free of conflict of interest, including holding credit default swaps on instruments while in dialogue and negotiation. The IMF’s “good faith” requirement must entail information disclosure and prevent arbitrary voting pool designation and is otherwise a “safety valve” to flag egregious behavior. Bank regulators including the BIS should reconsider capital standards and other treatment that foster pro-cyclicality and delay resolution despite both sides earnest engagement, the UN panel urges.


Zimbabwe’s Post-Mugabe Crocodile Tears

2017 December 5 by

Zimbabwe stocks as the only savings haven paused after a near 400 percent advance on the MSCI frontier index through October, as the ruling party turned against President Mugabe approaching four decades in office after he cleared the succession path solely for his spouse Grace. The longtime army chief and vice president for the past two years, nicknamed The Crocodile for his alleged patient ruthlessness including violence against the political and tribal opposition, was dismissed for suspected plotting, but military allies sprung to his defense and deployed tanks into the streets and around key government installations to assert control. The President was confined to quarters and stripped of party leadership and subject to impeachment vote, as local and foreign democracy campaigners urged fresh elections. The power struggle had been brewing for months and coincided with a grim Article IV IMF review in July highlighting the depth of continuing economic and financial system collapse and remoteness of official lender reengagement with continuing arrears despite a staff monitoring program. The report traces a sad history since independence when per capita income was higher than neighbors and manufacturing lead output, and points to 1990s farm confiscation and runaway spending triggering hyperinflation as low points. It cited informal private sector resilience as a rare bright spot and praised the decision to replace the domestic currency with the dollar and rand a decade ago despite the “imperfect regime” in view of the undercapitalized central bank and scarce liquidity.  Public sector wage giveaways and an overvalued exchange rate soon endangered the system, and reserves have run out with steep current account deficits and unpaid external debt. New “quasi-currency” instruments were introduced as a half-measure, but so-called bond notes, electronic transfers and Treasury bills are poor substitutes for hard cash in circulation. Additional exchange and deposit withdrawal controls underscore the country’s isolation from mainstream trade and investment as well as diplomacy in light of sanctions over bad governance and human rights, the review commented.


To finance the 10 percent of GDP fiscal deficit above Treasury bill issuance capacity the government borrowed directly from the central bank, as the external position likewise weakened on falling agricultural exports and rand-based remittances. Overdue payment was cleared to the Fund’s concessional poverty facility under the 2015 “Lima process” but other bilateral and multilateral obligations remain outstanding despite attempts to line up commercial sources and to collateralize gold assets for refinancing. One fifth of currency in circulation is now bond notes trading at a sizable discount to dollars, and bank account daily limits are $20 with interest rate ceilings also in place. Foreign exchange priority is essential goods with an Article VIII restriction assigned under the Fund’s rules promoting open capital follows. Both growth and inflation were originally forecast at 2-3 percent this year, and before the official infighting over the post-Mugabe path fiscal consolidation was “urgent” especially with state enterprise losses likely to drain the central asset management company. Financial sector functioning was impaired with heavy bad loans and the severing of 50 correspondent relationships the past two years with increased credit and reputation risks. The business environment may improve from a meager base with recent Special Economic Zones, but the “indigenization” legacy may continue to prey on stock market wading safety, the analysis suggests.


Africa’s Miffed Market Maturity Measures

2017 October 27 by

African official and private sector sponsors including Barclays, the OMFIF think tank and the African Development Bank joined to unveil a planned annual Financial Markets Index covering seventeen countries initially, with qualitative and quantitative assessments across half a dozen categories. They probe market depth, foreign exchange access, regulation and taxation, local investor capacity and economic strength for a total possible 100 score. South Africa far outstrips the pack with a 92, followed by Botswana, Mauritius, Kenya and Nigeria in the 50s and 60s, with nascent exchanges in Ethiopia, Mozambique and Seychelles in the rear 25-35 range. For subjective results over fifty bank, brokerage, accounting and multilateral agency executives were surveyed with the aim of establishing a “useful” new foreign investment tool that can be presented during the IMF-World Bank yearly gatherings. Domestic institution scope was a glaring poor performer, with a 22 average outside South Africa and Namibia with big pension and insurance sectors. Transparency in terms of rule adoption in contrast was high, although enforcement lags. Egypt and Kenya did well on liquidity as stock market capitalization was 60 percent of GDP among the group, but turnover outside those two was just 2.5 percent and bond trading is scarcely above that figure. Capital controls are heavy and increased in recent years in Rwanda, Tanzania and Zambia with commodity export price retrenchment and currency intervention siphoning international reserves. Portfolio inflows are only 5 % of GDP, with Kenya and Mauritius in the lead with a net $9 billion compared with $450 million for the rest. Fragmentation prevails despite regional integration efforts, notably through Cote D’Ivoire’s West African CFA Franc zone bourse, and the report urged further cross-border policy and transaction steps.

Depth looks at securities and hedging products, internationalization, and secondary dealing and only rand- denominated bonds are listed on Euroclear and market-makers formally exist in a dozen countries but are relatively inactive. Small and midsize company access is meager and large state enterprises tend to dominate and officials often shun capital market innovations that may create volatility. Wide exchange rate fluctuations and multiple quotations act as deterrents, and outside South Africa’s $1 trillion market hard currency volume is negligible. Namibia has adopted economic empowerment legislation mandating 25% black and disadvantaged population company ownership to inhibit foreign capital. Regulation is “improving but uneven” with limited tax treaty networks and frequently stiff capital gains and withholding levies. Morocco, Uganda and Mozambique have thin minority investor protection, while Nigeria crafted a good exchange information and broker oversight system after previous complaints. Less than half the list is working on Basel III banking standards, but most follow international financial reporting ones. Half the index members have no corporate ratings for credibility and visibility, and capital markets authorities often lack political and professional independence. Pension and insurance assets increased $150 billion on the continent the past decade and funds are typically too big for local markets while operating under allocation guidelines confining them there. Seychelles’ pools are offshore-based for tax reasons, and cross-border preferences when allowed are surfacing as for Kenyan funds in Mauritius. With little derivatives and securities borrowing activity, countries do not subscribe yet to the relevant master global agreements urged in a future index haul, according to the last distinct evaluation snapshot.



Ghana’s Addled Issuance Anniversary Angles

2017 October 22 by

Ghana marked a decade since it Sub-Saharan Africa setting sovereign bond debut as rating agencies have one-third of the continent on negative watch on still slippery commodity recovery, with $25 billion in near-term maturities due. Oil earnings were half the 2013 peak last year at $1.5 billion, and cocoa exports continue to draw $2 billion in syndicated loans with arranger banks emphasizing relationships rather than crop resurgence. International lines have been in the sector forefront as domestic counterparts battle with 20 percent bad loan portfolios that forced the central bank to close two institutions in August and transfer them to state-run Ghana Commercial Bank, a heavyweight stock exchange listing, with the MSCI frontier index up 70 percent through the third quarter after a prolonged slump. Banks are also absorbing the impact of local debt swaps to reduce costs and extend tenors, as $2.5 billion in new issuance will tackle energy arrears and inject liquidity. Total global obligations are $30 billion and servicing drains one-third of government revenue, but the currency is no longer in free fall after an IMF program and inflation is near single-digits at 12 percent. Fiscal discipline is the centerpiece of the Fund accord recently stretched to 2019, with this year’s deficit estimated at 6 percent of GDP as “ghost workers” were dropped from the official payroll and a new digital identification system is to incorporate informal tax evaders. President Akufo-Addo, whose father held the post after independence, campaigned on a pro-business platform and named well-known former investment bankers to the Finance Ministry.  However the World Bank Doing Business ranking is 110, and the President has come under criticism for minister sprawl as he rewarded over 100 appointees associated with his party and decades of political life. Relations with China are also controversial, as his team cracked down on small-scale gold miners after complaints from mainland operators and set ambitions as a sub-regional rail hub with Chinese borrowing and technology.

The move is widely viewed as a West Africa challenge to giant Nigeria, where President Buhari has been on medical leave abroad and secessionist stirrings in Biafra have reignited with the anemic 2 percent growth rate and Boko Haram pillaging and terror. Since April the foreign exchange crunch has eased with more regular auctions for essential imports, and foreign investors have crept back into Treasury instruments with nominal 15 percent yields despite eviction from the main JP Morgan index. The MSCI stock gauge in turn has rebounded 25 percent through September on stronger oil prices boosting reserves, and likelihood that the President may step aside before the end of his term in 2019 and in a history repeat from the last administration transfer power to his more dynamic and economics-savvy vice president. In East Africa Kenya has also gained 25 percent on the frontier index as the presidential contest is replayed in mid-October after a constitutional court found evidence of vote hacking and count irregularities in the original exercise. The ruling was hailed as a democracy triumph in good governance circles, but spooked the business community with another round of uncertainty and potential large-scale violence between rival tribal candidate camps. Blue-chip Safaricom announced expansion plans in Ethiopia as a strategy response despite the glaringly more questionable free-election path.



Power Africa’s Short-Circuited Anniversary Annals

2017 September 11 by

Power Africa released its first annual report under the Trump administration on its fourth anniversary, as the new head of AID, which coordinates the program, hailed a “hand up” in mobilizing over $50 billion in combined public-private sector commitments to expanding connections as envisioned under the 2015 Electrify Africa Act. A recent breakthrough was a $25 million regional pension fund investment in a generation company, and the team has worked with 100 US partner firms to promote women’s commercial and official participation. To date 80 transactions worth $15 billion have been facilitated producing over 7000 megawatts and reaching over 50 million users. Nigeria has accounted for almost half the extra hookups, followed by South Africa where AID’s office is located and Tanzania, where former President Obama made a high-profile visit to launch a solar project soon after the initiative was announced. Natural gas and hydro technology accounted for over 5000 MW, and two-thirds of connections are through solar lanterns, with 10 million people accessing larger grids and systems. A major thrust is technical assistance for the enabling environment, with a focus on legal and regulatory changes, cost-effective tariffs, and more creditworthy deal structures. The 25 projects at or near completion with US operations should support $500 million in exports. The Trade and Development Agency and Ex-Im Bank backed feasibility studies and loans, and AID leveraged $200 million through its credit authority, while OPIC has been in the lead with $2.5 billion in funding and insurance for ten power plants. Among the 15 bilateral and multilateral counterparts the French government was recently added, and cooperation with the African Development Bank has concentrated on a joint legal facility for project finance and purchase agreements. By end-decade Power Africa’s capacity and coverage should more than double according to projections, provided President Trump preserves such trade and investment engagement with the continent. At the annual private sector AGOA forum in Togo in August US officials including Commerce Secretary Ross could not articulate specific elements of future arrangements even as duty-free Sub-Saharan import status was renewed under the previous Congress.

Private equity is targeted for power ventures as the industry group EMPEA charted double digit first half fundraising and investment jumps, with the $22 billion allocated for the period the highest on record. KKR, which launched a dedicated African vehicle in the wake of Power Africa, closed the biggest fund to date at almost $9.5 billion for Asia, and energy-specific ones are in vogue as evidenced by Actis’ $2.7 billion global tap. Off-grid and micro-generation assets are increasingly attractive to managers with dozens of deals annually the last five years. Emerging market cash inflow into mid-year was half Western Europe’s $45 billion total and 10 percent of the worldwide sum, but PE penetration as a portion of GDP continues to badly lag developed world members. Sub-Sahara Africa’s is only 0.1 percent, with half from Nigeria, and South Africa’s is at the same level. India and Korea top the list at 0.2 percent, and the ratio in Brazil, China, Poland and advanced economy Japan is around the region’s, as the Middle East, Russia and Turkey are further behind on this power curve version.


South Africa’s Unconcealed Radical Regret

2017 September 5 by

South African shares, after a decent 15 percent jump through July still lagging the core universe 25 percent, scrambled to react to the mixed parliamentary confidence vote message to President Zuma, who won with a slim majority despite dozens of ANC ruling party members defecting in a secret ballot. The opposition Democratic Alliance has seized on unending scandals while attempting to forge a moderate alternative to the “radical economic transformation” newly embraced by the President to rally support and engineer the possible succession of his ex-wife in 2019 elections. Recession was recorded in the first quarter with unemployment near 30 percent, and the populist platform would increase government control across agricultural, industry and financial sectors to shift the post-independence course despite local and foreign investor resistance. Land expropriation would veer toward the Zimbabwe model of minimal or no compensation for transfer to black ownership, and mining firms would have to sell or hand over 30 percent of shares over time, up from the 26 percent in the existing charter, in addition to paying a 1 percent revenue levy. The industry, whose size at 7% of GDP has shrunk with hundreds of thousands of job losses the past decade, promises to fight the changes in court as “confused and contradictory” as listed companies were dumped on the Johannesburg exchange. Deputy ANC President Ramaphosa, a Zuma rival, has sided with the business community in urging reconsideration, as a recent African ranking of mining climates put the country behind neighbors Botswana and Namibia. The central bank with its long record of steady monetary policy management is also in the crosshairs of the activist campaign as it faces calls for rand intervention and social welfare rather than price stability focus.  Commercial banks in turn are under pressure to forgive or slash high-interest consumer debt accumulated in recent years to depress sentiment. With the inflation forecast cut to 5.5 percent, the benchmark repo rate was lowered 25 basis points to 6.75 percent in July. However the Reserve Bank cautioned the relief could be temporary ahead of risk events, including another ANC conference in December and potential sovereign ratings downgrade with the agency review cycle.

Finance Minister Gigaba, a controversial pick, previewed second quarter growth in the 2 percent range while unveiling an “inclusive” stimulus plan drawing on state enterprise balance sheets to boost the economy over the medium term and forestall relegation to “junk” rating status. Fiscal consolidation is still a goal but assigned reduced priority, as a turnaround in the terms of trade and regular drought could offer respite, despite sluggish services readings and uneven rand performance against the weaker dollar this year. Agriculture was a sore spot in Kenya as well going into presidential polls with its MSCI frontier gauge up over 20 percent on expectations of voting calm and a likely second business-friendly Kenyatta term. GDP growth has sputtered below 5 percent, but billions of dollars in infrastructure projects like a China-sponsored railway should raise output while the central bank tries to cap inflation at single digits. In a June pilot government bonds were sold to retail investors by mobile phone in part to finance these ventures, and were snapped up with a 10 percent yield despite technical glitches undermining confidence.




Central Africa Should Rejigger Rescue Formula (Financial Times)

2017 August 29 by

As an August IMF blog recounts, four of the six countries in the Francophone Central Africa Economic and Monetary Community (CEMAC)—Cameroon, Gabon, Chad and the Central Africa Republic—are now in oil price collapse and debt crisis programs with negotiations also begun with the Republic of Congo and Equatorial Guinea. They share a common central bank and the CFA Franc currency tied to the euro and managed through the French Treasury, which requires backing with half of foreign reserves. The Fund notes that despite a summit in Yaoundé last year that pledged commodity diversification and fiscal, financial sector and business climate changes, policy maker delay and the spreading Boko Haram conflict left the region in “dire shape” to be addressed chiefly through traditional austerity and transparency nostrums. French President Macron, at the recent G-20 summit, for his part recommended a new strategy that could involve shedding the 50-year old currency peg, but his message lacked specifics and was garbled by reference to “civilizational” differences like deep-rooted corruption and large families that can frustrate growth and modernization plans. Instead of relying on historic outside bilateral and multilateral relationships to overcome its repeated predicament, Central Africa should focus on its own stalled efforts, such as in banking integration and stock exchange launch, to achieve development breakthroughs and narrow the income and sophistication gap with the neighboring West Africa UEMOA zone led by Cote d’ Ivoire and Senegal, which has started to link with the English-speaking ECOWAS group.

Oil is 60 percent of CEMAC’s exports and earnings halved from 2014-16 as the current account deficit neared 10 percent of output. Public debt rose 20 percent, approaching 50 percent of GDP, and international reserves dipped $10 billion to cover only two months’ imports, below the danger threshold exacerbated by the fixed exchange rate. The Fund arrangements feature standard formulas to correct imbalances and also limit further commercial borrowing from Cameroon and Gabon, which have issued Eurobonds and are components in JP Morgan’s NEXGEM index. Cameroon is to prioritize infrastructure projects from domestic and donor resources, and boost non-oil revenue through land taxes and ending exemptions. High bad loan levels and insolvent banks will be resolved and private sector “administrative obstacles” slashed, with 3.5 percent of GDP safeguarded for education and health spending. Gabon will improve public finance management and show progress across the World Bank’s “Doing Business” indicators, especially on company startup, construction permits, property registration and contract enforcement. After getting the first installment of its $650 million facility, GDP growth stabilized in mid-year at 1 percent with oil price recovery and mining, timber and construction contributions, with exports up almost 40 percent on an annual basis.  Both Cameroon and Gabon are led by longstanding rulers, and their governments must follow extractive industry transparency initiative (EITI) reporting and also clear and disclose outstanding contract arrears. Chad, which must restructure external commercial debt, and the Central Africa Republic, gripped by civil war, face similar program criteria with larger relative allowances for anti-poverty outlays.

As of April the central bank BEAC’s gross reserves were $4.5 billion, as it worked to maintain the integrity of the decades old CFA Franc structure, deal with the 15 percent commercial bank non-performing loan ratio, and tighten monetary policy through a 50 basis point interest rate hike and reduced access to overdraft facilities. Excess liquidity has evaporated from the system, which now requires emergency lines and recapitalization, according to a June IMF regional policy report. Stricter statutory ceilings on government borrowing will apply, and banks in turn will face collateral limitations for refinancing under the latest Fund pacts. Interbank foreign exchange and capital markets will also deepen, and supervision is due to strengthen next year with enforcement of prudential rules including connected lending, risk concentration, asset provisioning and board conduct alongside basic capital sufficiency. Several smaller banks have been closed and seized, most recently in Gabon, and with the deposit insurance regime to be finalized in 2018 other “orderly” insolvencies are likely following the terms agreed between the BEAC regulators.

These promises have fallen short in past efforts, and even if honored member countries could plot their own future direction apart from conventional recipes. They could explore a phased devaluation or peg to a wider currency basket, to include the dollar and major emerging market units given trade and investment links.  “Single passport” cross-border banking approaches should be revisited in full operational and regulatory senses and the dormant Central African securities market, with a few government and state company bond listings, can be cast as an active private sector debt and equity platform, or merged with the bigger nearby West African bourse so this frontier region charts a proprietary path that is no longer desperate.



Mozambique’s Mechanical Murky Water Dive

2017 July 7 by

The long-awaited audit of Mozambique’s $2 billion in suspicious loans from 2013 then defaulted by New York private investigator Kroll, paid for by the Swedish Embassy upon IMF insistence before program consideration, was released by the Attorney General, which has a separate domestic criminal inquiry. One-quarter of the total could not be tracked, and the three state company borrowers,tied to the national intelligence agency, reportedly spent $700 million too much for acquired fishing vessels and security equipment. The obligations were hidden off-budget from the Fund and bilateral donors that subsequently suspended aid. The debt syndicate arrangers, Credit Suisse and Russia’s VTB Capital, came in for criticisms over high fees amounting to $200 million which they claim were overstated. The detectives noted pervasive lack of cooperation and documentation in their findings, and a Fund statement welcomed the summary despite “information gaps.” Creditors of the lapsed “tuna bond” have yet to show their hand, as the country continues to negotiate new offshore gas exploration deals. They remain reluctant to take haircuts and may also press legal action against the underwriters for alleged deception or negligence. Kroll further discovered after reviewing business plans and feasibility studies that the Mozambique companies in question were “not fully operational” with “considerable” management dereliction and excess contractor authority. The government guarantee process was “inadequate” with conflicts of interest and admission of budget law breach. Tendering also entailed questionable due diligence, and loan agreements had unexplained fees. The companies have no revenue and product supply invoices are unclear and inconsistent, although assets could be physically located. Other state enterprises rather than the borrowings provided share capital. Credit Suisse demanded prior central bank approval and IMF disclosure, but the paper trail suggested only these conditions were “overcome.” According to the authors company executives may not only have been in violation of debt covenants but the local commercial code without proper qualifications, accounting and project oversight.

Cameroon in the Central African Francophone zone is the latest oil exporter to turn to a Fund arrangement, as the fiscal toll left it unable to meet monetary union convergence targets. President Biya is one of the continent’s longest serving rulers, and the border with Nigeria has become embattled with the Boko Haram rebellion. Its President issued his first public declaration since May after unknown medical treatment. Bank exposure to oil companies has triggered fears of another crisis, as MSCI put the stock market on “self-standing” notice for its foreign exchange crunch implying near-term frontier index expulsion. Ghana has less than a year to go on its Fund facility as it registered a QI small primary fiscal surplus which may finally embed consolidation. The trade balance was also positive with cocoa exports up 25% in the quarter on forward sales. Gold and oil shipments and FDI rose as well and international reserves at $6.5 billion, a five-year high, have slowed currency intervention. Inflation is still in double digits and although foreign investors are back in the local bond market as external issuance is cautious yields may again spike on likely supply curbs to ensure that austerity is no longer finessed.


Islamic Finance’s Africa Affinity Sweepstakes

2017 June 18 by

Malaysia’s Islamic Finance Center regular bulletin surveyed the sector’s “centerpiece” status in a half dozen African countries, with 50 banks including major ones in Egypt, Nigeria, Kenya and South Africa providing sharia-compliant products through dedicated windows. Sukuk bonds in turn have spread to Senegal, Mauritius, Gambia and Morocco with the African Finance Corporation recently issuing a $150 million pilot. Globally the industry should have $6 trillion in assets by end-decade, and Kuala Lumpur’s example, with 75 percent of corporate fixed income in sukuk form, can be replicated elsewhere. The worldwide Islamic bond total last year was $350 billion, almost a 10 percent annual increase. The report argues that the style fits a “responsible investment” strategy with over $20 trillion in commitments and that the regulatory and liquidity management pieces are now in place with twenty core standards and official backstop facilities. African growth is partially due to Asian and Middle East funds seeking additional outlets and to its natural resource and demographic base creating demand for credit and savings tools. It is also a means to financial inclusion with the vast unbanked population, with family and friends relied on ten times more than formal sources for small-scale loans across eight representative countries including Niger, Uganda and Zambia. Micro-finance could be a catalyst for business such as halal food export and the Islamic Development Bank and Sudan have concentrated efforts there.  Regional infrastructure needs are close to $100 billion/year and long-term Islamic bonds should meet diversification goals as short term government activity picks up in Gambia, Cote d’Ivoire and Senegal. “ Green” clean energy projects are proliferating across the continent to relieve shortages where these techniques could be adopted at the outset, aided by technical assistance from official lenders as well as consulting and training arms attached to more advanced Islamic hubs.

Egypt’s previous push was associated with Muslim Brotherhood rule, but since President Al-Sisi came to power it has been tied to local and external bond market normalization in the context of IMF program return. Foreign investors have acquired $1 billion in domestic instruments after shunning them entirely since the Arab Spring. The first Fund mission praised the 9 percent of GDP budget deficit and 4% growth for the first quarter, although inflation spurted to 30 percent after currency and subsidy swings. The central bank hiked the policy rate 200 basis points to over 17 percent to further fatten local yields although taxation could change. Nigeria has also tightened monetary policy through open market operations and foreign exchange sales as officials try to ease currency controls in the belief that economic shock has passed with oil price recovery and non-oil sector stimulus. Spending is due to rise 10 percent in real terms in the latest budget as the government looks to foreign military and diplomatic support to fight Boko Haram and famine in the north. The president is still on extended medical leave with an undisclosed illness and the vice president is by all accounts in charge of the reform and stabilization agenda to include a new petroleum industry bill debated for years without passage. A diaspora external bond is in the pipeline with a sukuk version likely as the family expands.