Kenya’s Public Tribunal Trot
As Kenya’s deputy president Ruto goes before The Hague on human rights abuse charges, equities were up 25 percent on the MSCI index through August among Africa’s frontier leadership as the Finance Ministry pushed for a regional record size $1.5 billion maiden sovereign bond issue. Neighboring Tanzania, which already managed a private placement, also intends to join the public queue in the near future and get a credit rating, and both instruments are expected to yield around 8 percent with the proceeds headed for infrastructure projects. Sub-Saharan external offerings have been over $6 billion this year, with Ghana and Nigeria slipped through a narrow window the past three months. A dozen countries from the continent have debuted since 2007, most recently Rwanda and Zambia with average ratings in the “B” range. Nigerian government paper has been the main domestic play after entering the JP Morgan benchmark as a minute weighting but foreign investors have turned wary as the naira drops from its dollar fluctuation band despite regular central bank intervention. They previously shed Ghanaian holdings on whopping fiscal and balance of payments deficits, and presidential election outcome uncertainty just dispelled with a Supreme Court ruling validating 2012’s squeaker result. Asian and Mideast buyers have joined traditional European and US portfolio inflows to support the securities boom and Chinese officials visiting Nairobi last month emphasized their companies were now the top FDI source. Both GDP growth and inflation are at 5 percent with the central bank’s rate stance on hold following a recent spike in 3-month T-bill yields. Better rains should bolster agriculture, and tourism had begun to revive before the big fire at the Kenyatta air terminal which should not cause lasting damage according to officials. The financial sector contribution has been minimal on slack credit demand as stockbrokers prepare for their own pain with imposition of a 15 percent commission VAT. With natural resource discoveries new legislation has been proposed for oil and mining joint ventures, with employment and revenues to go to surrounding communities and royalties to be placed in a separate sovereign wealth fund.
All MSCI frontier Africa members remained positive into the Q3 close including Zimbabwe which maintained a 10 percent advance after the immediate correction on President Mugabe’s resounding re-election win and judicial refusal to consider opposition party cheating allegations. The incumbent claimed “resurrection” after taking two-thirds of parliament seats and 60 percent of the vote and pledges to forge ahead with full implementation of the “indigenization” policy of majority local control which thus far has relied on voluntary commercial terms. The government expropriated and redistributed farms in the past and foreign banks may be soon pressured further after calls during the campaign to expand business and household credit. The still manually-traded stock exchange has already delisted powerful conglomerates like Cairns which went bankrupt during the state’s long anti-free market crusade.
