Africa’s Oil Bounce Backfire

With oil prices on an indefinite roll with geopolitical and production squeezes, big African exporters suffering budget and balance of payments blows and often turning to IMF rescues seek to return to investor favor amid wider economic overhaul doubts. Nigerian stocks continued to perform badly through mid-year with an over 10% MSCI frontier index loss, with banks shunned in particular over lingering mid-size lender weakness. The central bank has seized units and forced mergers most notably between Access and Diamond, as the sector reels from bad corporate and consumer debts from petroleum sale and associated supplier reckoning. The Finance Minister on a US roadshow proclaimed the 5-year downturn was over, and that economic diversification and infrastructure building set a bright future despite scant structural evidence. The recession is technically over, but GDP growth is still in the 3% range with foreign exchange and import restrictions firmly rooted. Electricity shortages have worsened with a flailing private provider and renewables push, and the naira below 500/dollar on the parallel market even as official channels improve hard currency access. JP Morgan has not reinstated local bond index membership, as public debt worries spike despite the modest headline 30% level as a share of output. Tax collection is only 5% of GDP, unable to bridge the fiscal deficit as debt repayment absorbs two-thirds of central government revenue.

 The IMF has recommended a value added levy to shrink the gap, but the re-elected Buhari administration remains unpopular with scant political capital it husbands for the anti-terror fight against Boko Haram and allies. The conflict has widely displaced populations at home and abroad and mixed with a Francophone/Anglophone split in next-door Cameroon, which accounts for half of activity in the Central Africa Monetary zone. The IMF issued a regional report in July with mixed views praising fiscal and monetary changes under new arrangements while criticizing commodity overreliance and lagging non-oil revenue. Other member countries Gabon, Chad and the Central African Republic have Fund programs, and Congo and Equatorial Guinea are in discussions. Congo restructured its debt with China but faces lawsuits from other creditors over unpaid bills, while Equatorial Guinea’s application to join the extractive industries transparency initiative as a first step is pending. Area growth was “subdued” at 2.5% last year, with the oil sector up at double that pace, with public debt at 50% of GDP. The common central bank drained liquidity and tweaked the policy rate, but overdue loans are one-fifth the total as only half of banks comply with concentration risk standards. They have large sovereign and state enterprise exposures, and smaller institutions face closure. The current account hole improved slightly but reserves cover less than three months imports, and new foreign exchange rules surrendering export proceeds have been applied slowly. Angola is the continent’s number three oil producer with the biggest IMF facility at $3.5 billion, after $30 billion was found missing in an audit when successor ruling party President Lourenco took office. Debt/GDP is near 100%, and insider deals continue to plague banking system cleanup and telecoms privatization, where an influential general won a disputed tender with anti-corruption commitment equally questioned.