Nigeria’s Stretched Band Recoil
Nigerian stocks were down 30 percent on the MSCI Frontier Index after the central bank raised the benchmark interest rate and depreciated the currency band almost 10 percent to the dollar, as the Finance Minister scrambled to slash the budget around a $65/barrel oil price. The naira promptly fell through the floor toward 185 to the dollar prompting intervention from $37 billion in reserves or half a year’s imports as overnight borrowing rates touched 45 percent in a bank cash squeeze. Inflation should again reach double-digits on devaluation and food and transport disruption in the North from the Boko Haram siege as GDP growth slides to 5 percent. The budget deficit will stay at 2 percent of GDP but may draw on $4 billion in the excess crude account as lower fuel subsidy cost aids spending. Petroleum production is just over 2 million barrels/day as the Delta region focuses on security challenges and the upcoming February election with the ruling PDP party ahead in opinion surveys. President Jonathan is on track to get the nod in his own right but even business loyalists are clamoring for a shakeup in economic and anti-terror policymaking. As foreign investors have dumped debt and equities local counterparts are hoarding dollars pending new government moves, as the long-delayed petroleum reform bill may be abandoned for a fresh model with the global price slide and alternative energy competition. The continent’s other leading source Angola based the 2015 budget on $80/barrel with a 5 percent of GDP deficit which was to be partially covered by a Eurobond. The $5 billion sovereign wealth fund managed by the president’s son has begun allocation, but that amount already went separately to a bailout of Portuguese bank BES’ local arm as Fitch downgraded the BB- rating outlook to stable. Before the collapse, system NPLs were one-tenth the total, with the Dos Santos administration in arrears to contractors on weak 4 percent growth. The main liquefied natural gas plant suspended operations and exploration for off-shore pre-salt deposits has yet to be completed, as the IMF in post-program monitoring urged greater transparency and infrastructure building within 40 percent public debt/GDP. Gabon is another oil giant with bond jitters despite a $10 billion economic diversification plan as onshore fields are exhausted ahead of 2016 elections. President Bongo may face a stronger run from a new opposition group led by the former chair of the African Union, especially if subsidies and salaries are trimmed and debt placement on the Francophone regional bourse becomes more expensive.
Copper has also been a big commodity loser roiling Zambian paper ahead of January elections to choose a successor after President Sata’s death. His Patriotic Front party will present a candidate to fill the remainder of the term until 2016, and spending will likely worsen the 5 percent of GDP fiscal gap with IMF talks on hold as intervention strings along kwacha correction.
