Africa’s Oil Fire Singe

African securities were pounded by a combination of commodity price and global financial market jitters as oil fell toward $80/barrel and debt and equity fund outflows began to stall the frontier category according to industry sources. Nigerian stocks were off 20 percent as foreign investors with one-fifth of the market cut back with elections in several months and the Bonny Light crude premium eroding with the world supply glut and demand retrenchment. The Finance Minister repeated an Ebola-free message but her audience at the IMF-World Bank annual session doubted eradication as West African and US cases spread. President Jonathan is due for formal re-nomination in December as the main opposition party dissolves into factions. GDP growth was 6.5 percent in the first half on single-digit inflation and the excess crude account and sovereign wealth fund have almost $6 billion on hand together as the Fund recommended higher savings to prepare for downturns. The 3 percent of GDP fiscal deficit will increase with election outlays and monetary liquidity will be injected at the same time with maturing bank Asset Management Company paper. The exchange rate has been allowed to breach the 155 naira/dollar corridor without official policy change as the central bank keeps its course through the February poll. International reserves have stayed around $40 billion or six months’ imports but authorities have recently cracked down on money transfer houses to curb volatility. Local debt performance has also turned negative as previous GBI-EM over-weights were abandoned on political and energy risks and portfolio rebalancing. Ghana’s external bond yields blew out to 8 percent as Fund talks on a program may drag into 2015 to tackle internal and external deficits above 10 percent of GDP. Oil production capacity is hindered along with the price reversal and growth may weaken to 4 percent this year under the additional overseas investor and visitor Ebola fright. Public debt has already triples since official relief to over 60 percent of GDP and wage and subsidy cuts are slated for an eventual IMF facility which the government claims will be a precautionary one. The equity market is at the bottom of the Sub-Saharan roster with a 30 percent loss and local bond players have been burned by currency access and central bank buying changes.

Zambia had acknowledged the need for Fund help earlier but its bond price sank too on copper tumult and backtracking that only enhanced monitoring through a Policy Support Instrument is warranted. The President fell ill during his New York visit for the UN General Assembly and the Vice President has absorbed his workload. The 7 percent growth target will be missed and the fiscal deficit will top 5 percent of GDP as a new mining tax regime is introduced. The companies concerned have already pushed back against its complexity and steeper rates as they press for over $500 million in VAT refunds. The currency has stabilized but reserve coverage remains tarnished with the metal move.

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