Africa’s Energetic Pocket Protectors

As Sub-Saharan capital markets continue to correct, slashing year-end MSCI frontier index improvement to single digits, the IIF issued an upbeat forecast for new energy and financial services capacity to mitigate “turbulence pockets.” Regional GDP growth should again top 5 percent in 2015 and rebased accounts in Kenya, Nigeria, Tanzania and Zambia will double economic size. For commodity exports, hydrocarbon and metal prices are down but agriculture has diverged with Cote d’Ivoire and Ghana getting cocoa windfalls, although the former may experience worker shortages with the Ebola epidemic. Traditional oil heavyweights Angola and Nigeria have been joined by major East and West African discoveries with “game-changing” potential according to the study. Ghana’s Jubilee field will be fully on line in 2016 and double current 100,000 barrels/day output. In Kenya fifteen exploration wells have been drilled with half hitting deposits. Presumed reserve revenue could offset the current account deficit, and a pipeline to Lamu will facilitate delivery. Mozambique and Tanzania have huge offshore gas availability likely to start production by end-decade and shale is also untapped in South Africa’s Karoo area. Electricity generation aided by bilateral and multilateral public-private partnerships has also increased to reach the two-thirds of the continent without power as regular outages cost another 2 percent of GDP. Nigeria’s sector was privatized and five winning local-foreign bidders modernized plants bringing current scope to 5,000 megawatts with plans to rise almost tenfold by 2020. Ghana and Kenya have invested heavily in alternatives, including wind, hydro and geothermal to add thousands of MW. Clean coal technology is being tapped as aid recipients look to further commitments by the US and China after they reached an outline carbon-emission reduction understanding at the November G-20 summit. Washington offered $3 billion to the UN’s Climate Fund and other members signaled pledges ahead of a global summit next year to extend the original Kyoto treaty. Tanzania, which hosted President Obama when he unveiled the Power Africa scheme, has upgraded transmission lines and will link the domestic grid with neighbors. Government debt in part to finance the effort has crept back to 50 percent of GDP for a half dozen countries, but officials have adopted wage restraint which may be embedded in IMF programs and short term portfolio capital inflows are “relatively low,” the IIF believes, despite occasional dangers as when foreign investors did not rollover Ghana’s Treasury bonds as the Finance Minister reluctantly entered IMF negotiations.

The central bank hiked the benchmark rate above 20 percent with the currency off 30 percent against the dollar and double-digit inflation. In September a $1.5 billion Eurobond and cocoa board syndicated loan over that amount were raised, so the Fund facility will likely be precautionary to address the “confidence crisis,” the report argues. Templeton continues to buy external bonds as a contrarian play as the stock market is the worst MSCI African performer with bank, consumer and gold listings devoid of earnings energy.

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