Africa’s Unhealthy Commodity Command

Sub-Saharan stock markets continued to reel amid Ebola, raw material price and political scares as Nigeria in particular was off 15 percent on the MSCI Frontier index as the naira fell through the 165 to the dollar band. The WHO declared success in eliminating the virus there, but Boko Haram continued attacks and kidnappings in the North with thousands killed and displaced as the economy withers. GDP growth otherwise has been pared  back to 6 percent as oil dips below the 2015 budget assumption placing the recently restored $4 billion excess crude account at risk. The Finance Minister has warned that tax collection at under 5 percent of GDP must improve to fill the hole, especially with traditional election-related spending due to rise. President Jonathan was formally endorsed by the ruling party for another term but his passivity on economic and security policies has raised doubts among supporters and foreign investors who previously were overweight debt and equity. The fiscal deficit is manageable and the benchmark 12 percent interest rate has not budged with the new central bank chief, but reserves have slipped to $38 billion, which covers 6 months’ imports but may not sustain the currency fluctuation mandate instead of outright devaluation. The pass-through weakness may return inflation to double digits and harm consumer purchasing power going into the polls and domestic demand as a safety valve. In West Africa Cote d’Ivoire was on the immediate front line of potential Ebola spread and fallout from the military takeover in Burkina Faso as longtime President Compaore fled after attempting another tenure extension. The borders with Liberia and Guinea remain porous as civil war vestiges have left large undefended swathes of territory. President Ouattara, who is likely to run again next year despite ill health, agreed to receive Compaore who had mediated past regional disputes. The main opposition party continues to boycott the process as growth at 8 percent skyrockets from a low base. The regional bourse awaits privatization listings to keep the budget deficit at 3 percent of GDP as past supplier arrears are steadily cleared. No external bond issuance is planned over the election period as performance on JP Morgan’s NEXGEM index is solid. Elsewhere in the CFA franc zone Gabon’s illiquid bonds have been pressured by the oil price corrections and opposition efforts to unite against President Bongo. Medium-term 5 percent growth will come increasingly from infrastructure spending that has created a minor budget gap as offshore blocks are opened to potential “pre-salt” discoveries from foreign companies with advanced technology.

Kenya stands out with a 15 percent MSCI gain with the 25 percent recalculation of output as per-capita income approached $1500 within the middle-income range. Poor weather and terrorism are the main threats to the 5 percent growth forecast and single-digit inflation, with the central bank likely to keep the policy rate at 8.5 percent as tax-free infrastructure bonds repeat as a prized commodity.

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