Power Africa’s Potent Circuit Breakers
President Obama received his Nigerian counterpart Buhari in Washington and will visit Kenya, another initial country target for the 2-year old Power Africa program, as the $7 billion public-private sector funding goal is blocked by conventional and alternative energy project delays, suspension of US Export-Import Bank lending and poor Sub-Sahara financial market performance. The African Development Bank has just launched a specialized infrastructure facility facing similar setbacks, and the UN’s third Financing for Development Conference in Ethiopia offered no aid or investment breakthroughs for comprehensive continental electricity access. At the same juncture last year frontier sovereign bond issuance was a record but the 2015 pipeline has been sparse, with Zambia soon to retest appetite at steeper cost.
Nigerian shares were off 15 percent on the MSCI as the central bank imposed import restrictions with the currency’s parallel rate heading toward 250/dollar versus the official 200. Luxury items were banned along with rice and other food with $30 billion in reserves at the six months coverage level. Local and external debt was $65 billion at end-March as borrowing continued for the 2.5 percent of GDP budget deficit, on estimated 4 percent economic growth with stunted oil exports and power supplies. President Buhari approved a $5 billion bailout for state governments unable to meet salary and bond payments, to be taken from natural gas revenues apart from the depleted excess crude account. The new administration was quiet about fiscal and monetary policy direction during a US Chamber of Commerce conference but will get World Bank technical assistance on planning and strategy with a medium term inflation-targeting goal. High yields have kept bank foreign bonds attractive but local Treasuries are shunned as GBI-EM exclusion may be imminent with the reinforced exchange controls. From a security standpoint portfolio managers are also increasingly on edge with a spate of Boko Haram guerilla attacks and bombings after swearing allegiance to IS which is already active in the Sahel sub-region. Military commanders were reshuffled but a fresh anti-terror and economic development approach in the frontline north has yet to be unveiled.
Kenya is down the same amount on the MSCI with heavyweight Safaricom vying for position in mobile banking against stiff competition, and Tullow Oil coming up against local environmental opposition in the north as the offshore Jubilee field raised first half output. As President Obama jetted there for a global entrepreneur summit, an international travel warning remained in effect due to rampant crime and the threat of Al-Shabab atrocities as the Westgate Mall re-opened 2 years after mass killings. Despite a $700 million IMF backstop the balance of payments is strained by the chronic current account gap and heavy bank and corporate dollar demand which have sparked a 15 percent shilling depreciation. The new central bank chief hiked interest rated 150 basis points in July and may directly intervene against “disorderly” currency moves as he tries to limit inflation to the 7.5 percent upper range. Ghana is another laggard with regular “light-offs” under its $1 billion IMF program, with just 4 percent GDP growth projected into elections next year. Zambia’s mining company electricity has been squeezed further after a sovereign ratings downgrade on the near double-digit fiscal deficit as $2 billion in planned Eurobonds may entail at least a 2 percent yield bump.