Africa’s Fumbling Favorable Narrative

African frontier stock markets were down 2% through midyear on the MSCI index as the group struggled to reprise the “rising” story amid uneven commodity price recovery and renewed debt crisis warnings. Kenya and Zimbabwe were exceptions with double-digit gains, as the  threat of political violence faded in the former with reconciliation between perennial party rivals, and the latter conducted the first post-Mugabe elections with his former vice president and leading general predicted to win a full term against the unorganized opposition also at a disadvantage in funding and media coverage. Nigeria was flat heading into its 2019 contest, with President Buhari vying for another term against the advice of civilian and military allies and medical experts. Oil rebound has ended recession and foreign reserve drain, aided by wider hard currency access while the central bank has kept the benchmark rate close to15%. The Boko Haram fight is a major campaign issue with the cost and mixed results of security operations, and recognition that a broader displacement and refugee crisis has developed with neighboring Cameroon, where the English-speaking south increasingly agitates for separate rule. Cameroon’s President Biya now holds the tenure record with Mugabe gone approaching forty years in power, and his health is uncertain with no designated successor. The July review of the 3-year $700 million IMF facility reiterated fiscal and banking weakness while disbursing another $75 million. As the biggest economy in the Francophone Central Africa zone it has catalyzed “fragile” recovery, with 4% growth set for 2018 with new natural gas production and construction around next year’s football Africa Cup. Inflation with the euro peg is minimal at 1%, and the current account gap should settle at 3% of GDP. However public debt ballooned to 40% of output in 2017, with the state oil refinery a chief cause.  Government borrowing in the regional bond market tends to stifle private credit, which barely increased through March. Banks have large sovereign exposures that can compromise capital and liquidity positions as the zone central banks apply stricter prudential standards. They also have business customers owed contract arrears that officials have yet to tally and honor. The tax/ GDP ratio is below 15%, and debt managers do not have a full accounting of state company contingent liabilities. Financial inclusion also lags with only one-tenth the population with a bank account, and structural competitiveness reforms do not match peers, according to the Fund.

In West Africa Ghana’s marks improved on its program following successful Eurobond issuance in May, as first quarter growth was almost 7% and inflation dropped to single digits. A fiscal responsibility law will cap the deficit, and the central bank sold dollars to support the slumping currency. The mining code will be revised, and UK-based Tullow Oil is under fire for alleged tax underpayment. Francophone giant Cote D’Ivoire likewise tapped the external market at 30-year maturity, and the IMF predicted another year of 7% growth on good cocoa prices and halving of previous 30% annual credit expansion. President Outattara, a former Fund executive, reshuffled his cabinet amid ruling coalition disputes, as jockeying starts for the end of second term contest which may recycle old political and personal rivals in a numbing narrative.

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