Frontier Markets Weekly, June 9th 2024
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By Ken Stibler, Noah Berman and Nojan Rostami. Executive editor: Dan Keeler
Africa
Sudanese leaders visit Russia amid war against Wagner-supported rebels
The deputy head of Sudan’s Transitional Sovereign Council, Malik Agar, met with Russian foreign minister Sergey Lavrov this week on the sidelines of an economic conference in Saint Petersburg, the Sudan Tribune reports. The visit comes as Sudan finalizes a deal that would give Russia access to a port on the Red Sea in exchange for weapons and ammunition, Middle East Eye reports.
The deal with the Sudanese government means Russia is effectively supporting both sides in the country’s civil war, as the Russian paramilitary Wagner Group is helping to provide supplies to the rebel Rapid Support Forces.
Russia has long coveted access to the Red Sea, which sits at a critical nexus in the web of global waterways. It is also deepening its relationships across Africa, particularly among a new wave of military leaders, and this week Lavrov reportedly visited Burkina Faso, Chad and Guinea, all of which have had coups in the past three years.
South Korea lines up African minerals deals
South Korea signed a flurry of deals aimed at growing its access to critical minerals at a summit attended by leaders of more than two dozen African countries this week, the AP reports.
At the inaugural Korea-Africa summit, South Korea’s industry ministry agreed to cooperate on critical minerals with Madagascar and Tanzania, Reuters reports. Other deals included a $1 billion loan to Ethiopia, roughly $500 million loans to Kenya and Uganda, and an electricity supply arrangement with Mozambique. Meanwhile, South Korean President Yoon Suk Yeol said his country would increase its development aid to the continent to $10 billion and its export financing to $14 billion, Africanews reports.
Africa has an abundance of minerals that are crucial to the green transition, including two-thirds of the world’s cobalt reserves and one-third of its lithium reserves. The UN projects that global demand for these and other minerals will increase sixfold by 2050.
Somalia warns Ethiopia about support for breakaway territory
Somalia says it will expel Ethiopian peacekeepers from the country by the end of the year if Ethiopia does not ditch a proposed deal with the breakaway region of Somaliland, Reuters reports.
Experts said Somalia would struggle to fill the security vacuum left by the departure of the 3,000 Ethiopian peacekeepers currently in the country, according to the Africa Report.
Somalia is wrestling with a longstanding insurgency by al-Shabaab, an Islamic militant group linked to al-Qaeda. Landlocked Ethiopia has helped Somalia quell that threat, but relations frayed earlier this year after Addis Ababa indicated that it would recognize Somaliland in exchange for long-term access to 12 miles of coastline.
Asia
Sri Lanka closes in on restructuring deal
Sri Lanka and its bilateral creditors conducted late-stage talks this week to restructure the country’s debt. Countries including India, Hungary and the so-called Paris Club group of wealthy lenders are trading drafts of a deal that is necessary for restructuring, Bloomberg reports.
The South Asian island nation owes $10.6 billion to bilateral creditors, including $4.7 billion to China, according to government data, and the outcome of the talks will be key to Sri Lanka’s near-term economic future. The country must reach deals with creditors to continue receiving disbursements under its $3 billion loan from the IMF.
Beijing did not participate in this week’s talks.
Investors responded optimistically to the news that Sri Lanka, which defaulted in 2022, is approaching an arrangement with its creditors. On Wednesday, the country’s dollar-denominated bonds reached their highest level since April, the last time it seemed like Sri Lanka and its creditors were close to finalizing a deal.
EU officials visit Tajikistan with plans for infrastructure investment
Envoys from the EU visited Tajikistan last weekend with the goal of hammering out the details for a planned $10 billion Central Asian infrastructure initiative.
The EU announced the investment in the initiative, which will enhance a trade route that runs from China to Europe passing through Central Asia, earlier this year. Trade through the so-called Middle Corridor grew sharply between 2021 and 2023, prompted in part by the Russian invasion of Ukraine, which made a previous route that ran through Russia implausible, according to the Atlantic Council, a think tank.
The World Bank estimates that trade along the Middle Corridor could increase to five times current levels before the decade is up, requiring major infrastructure investment in countries along the route.
In addition to the EU, the European Investment Bank and the European Bank for Reconstruction and Development have also pledged billions of euros toward infrastructure in Kazakhstan, Kyrgyzstan and Uzbekistan. Kazakhstan has also raised money by selling its major airports to firms from Turkey and the UAE, Astana Times reports.
Indonesia’s president plans to move to new capital city next month
Indonesia’s President Joko Widodo (Jokowi) said on Wednesday that he will begin working from Indonesia’s new capital city in July in an effort to allay doubts about its future, Reuters reports.
Indonesia is spending $32 billion building its new capital, which is reportedly now 80% complete. The city, Nusantara, which is twice as large as New York, will be officially inaugurated as Indonesia’s capital in August, Jokowi said.
Nusantara is intended to replace the current capital Jakarta, which is sinking. Jokowi’s statements followed the resignation on Monday of two of the officials tasked with leading Nusantra’s construction.
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Middle East
Oman reaps economic gains from its diplomatic mediator role
Iran’s acting foreign minister Ali Bagheri said this week that Oman continues to act as a backchannel diplomatic mediator between the US and Iran and its allies, despite the death of key interlocutor Hossein Amir-Abdollahian, Iran’s former foreign minister, in a helicopter crash last month. In May, Oman was revealed as having played a key role in mediating talks on avoiding further attacks between Iran and Israel, Axios reported.
Oman’s longstanding position of neutrality between the US-coalition and Iran’s so-called Axis of Resistance has also made it a target for investment by Russian commodities firms, Bloomberg reports. Omani state-owned investment funds have taken positions in key Russian commodities trading and logistics firms, and Oman’s strategic position on the Strait of Hormuz has made it a popular spot for sanctions-evading ship-to-ship transfers of Russian oil.
Other sectors are also attracting substantial investment. This week the Oman Investment Authority said it was finalizing a $1.6 billion deal with a global company in the aquaculture industry. Oman has also improved its fiscal position, cutting its public debt to just $37.6 billion amidst a high-interest rate environment while its neighbors like Saudi Arabia are adding to their debt pile.
Analysis: Syria reverts to its status as the Middle East’s proxy battleground
Following a period of relative normalcy that saw a rehabilitated Syria return to the Arab League the country is once-again looking like a battleground for great-power conflict. Earlier this week, an Israeli airstrike in Aleppo killed multiple Iranian advisors—the latest such strike in a larger air campaign by Israel against Iranian assets in Syria.
Following the strike in Aleppo, Iranian state-media reported that Iran’s proxy “The Islamic Resistance in Iraq” claimed a successful drone attack on a “vital” target in Israel. Yemen’s Houthis claimed involvement in the strike, and said they would now be coordinating with their partners to “intensify” operations against Israel, signaling a coordinated, cross-regional expansion of the conflict.
Additionally, Ukrainian media this week reported that Ukrainian special forces, working with anti-regime Syrian rebels, had successfully attacked Russian forces in Syria.
Read Nojan Rostami’s full analysis on FMN’s website.
Europe
Turkish inflation surge tests support for orthodox policies
Turkey’s annual consumer inflation rate soared to an 18-month high in May, prompting concerns that the country’s recent pivot towards more orthodox monetary policy might not be working as well as hoped, Bloomberg reports. Despite the surge to almost 76%, finance and economy minister Mehmet Simsek sought to reassure the public and international investors that the “worst is over” and predicting that a permanent decline in inflation would begin in June.
Turkey’s top court this week provided some support for the more orthodox stance, ruling that President Recep Tayyip Erdoğan’s decree to give himself the power to fire central bankers was unconstitutional. The decision, which came in response to a lawsuit brought by the main opposition party in 2018, could help address the concerns of foreign investors who have been wary of Erdoğan’s interventions at the central bank.
However, rising interest rates are taking longer than initially expected to calm conditions. As hyper-inflation deals economic pain to Turks and the central bank has vowed to resume monetary tightening if the inflation outlook deteriorates, orthodox policies risk coming under renewed attack from the population—and from Erdoğan himself.
Weak demand hampers Hungary’s economy
Hungary’s economy is facing a significant slowdown driven by the declining consumption and manufacturing output according to a report from Dutch bank ING. The core issue lies in the weakening demand for Hungarian manufacturing exports, particularly from Germany, which has led to a persistent decline in industrial output compared to the 2021 monthly average.
A decline in retail sales has added to the concerns about Hungary’s economic health, the bank said, although it pointed out the general trend in retail sales remains positive. Helping to support that view is the fact that Hungary is seeing “persistently high real wage growth and generally robust labor market conditions,” the bank added.
China to build massive Georgian port in blow to EU efforts
Georgia’s announcement last week that it would award a contract to build a deepwater port on the Black Sea to a Chinese consortium is fueling concerns that the country is turning away from Europe, the Jamestown Foundation reports. The Anaklia port project has been at the center of geopolitical jostling, with EU-based and Chinese companies vying for the contract.
Georgia’s strategic location on the eastern edge of the Black Sea has made it particularly crucial for the so-called Middle Corridor, a trade route between China and Europe bypassing Russia that has grown in importance since Moscow’s invasion of Ukraine. However, the country’s dearth of high-quality infrastructure has held back its transit potential, with the World Bank warning that neither Georgia nor the Middle Corridor would be a competitive trade route without a deepwater port.
Georgia has increasingly turned to China for infrastructure projects, with every project worth more than $100 million since 2021 involving Chinese companies. The deal comes amid growing concerns over Georgia’s political trajectory, as the government recently pushed through a controversial “foreign agent” law and EU officials warn that Tblisi is turning away from the bloc.
Latin America
Guest Post: Argentina’s Milei faces narrow path to success
Argentina’s libertarian President Javier Milei is six months into his tenure, and while his accomplishments to date are impressive, his remaining agenda is formidable—and his path to success is uncertain.
In a guest post this week, Nick Padgett, managing director of frontier-markets-focused fund manager Frontaura Capital, lays out the challenges Milei needs to overcome and assesses his chances of success.
Uruguay plans Mercosur pivot toward China
As the EU continues to stall on finalizing its free trade agreement with Mercosur, the South American bloc is set to push for stronger ties with China, MercoPress reports. Uruguay, which will take over presidency of Mercosur in July, plans to intensify talks with China, aiming to position Mercosur as a dynamic platform for global trade, according to the country’s foreign minister Omar Paganini.
Uruguay’s planned pivot toward China is seen as a pragmatic response to the glacially slow progress on the potential deal with the EU. Tighter ties with China could ensure Mercosur remains competitive and attractive to international investors, while also diversifying the bloc’s economic partnerships.
Global
US-China trade diverts through emerging markets
As trade tensions between the US and China continue to escalate, Chinese businesses are increasingly routing exports to the US through other emerging markets, the FT reports. According to FDI Markets, a Financial Times subsidiary, the year leading up to March saw record numbers of Chinese manufacturing and logistics projects announced in both Mexico and Vietnam, with other emerging markets such as Thailand, Malaysia, Hungary and Egypt also witnessing unprecedented levels of Chinese investment.
The shift in Chinese investment patterns is a direct response to Western efforts to reduce reliance on Chinese factories and limit the country’s role in critical supply chains, and has resulted in a significant increase in Chinese exports to emerging markets. Exports to Mexico and Thailand more than doubled between 2017 and 2023, reaching $158.7 billion.
However, the shift in trade dynamics is not purely logistical. According to the Eurasia Group consultancy, EMs’ increasing trade surplus with the US is partly fueled by Chinese companies’ rerouting products through their subsidiaries, suggesting that while direct imports from China may decline, indirect trade routes will ensure continued US integration into Chinese supply chains.
What we’re reading
Africa sees Eurobond revival as Kenya and Senegal return to market (BNN Bloomberg)
Uganda’s sweeping surveillance state is built on national ID cards (Bloomberg)
Rwanda central bank mulls a digital currency (The New Times)
Zambian corn harvest falls to 14-year low amid drought (Bloomberg)
Benin–Niger spat deepens with arrests at crude pipeline terminal (Reuters)
Nigerian union strikes lead to blackouts and airport closure (Punch)
South Africa’s parliament holds coalition talks for first time in a generation (Semafor)
Morocco plans derivatives to help deepen market (Bloomberg)
Africa’s biggest drugmaker sees move to vaccine autonomy (Bloomberg)
African businesses struggle to recover from Covid pandemic (FT)
Bangladesh cuts GDP growth target to 6.7% as economic crisis bites (Nikkei)
Pakistan PM visits China (Dawn)
Pakistan beefs up security after deadly attacks on Chinese workers (Nikkei)
With pensions scrapped, Afghan retirees forced to return to work (Radio Free Europe)
Myanmar’s shadow government flags deepening economic turmoil (Bloomberg)
China and Japan vie for influence over Southeast Asia’s decarbonization (Nikkei)
Turkish airport company bets on Indonesia’s ‘massive’ growth (Nikkei)
China emerges as one of biggest bilateral lenders to Philippines (FT)
Maldives bans Israelis (The Guardian)
Palau worries about Chinese election interference (Reuters)
Azerbaijan hoping to cut emissions with $2b green energy investment (Reuters)
Azerbaijan and Kazakhstan in talks to boost oil transit (Offshore Technology)
Saudi Arabia sees 477% increase in multinational HQs in first quarter (Al Monitor)
Saudi Aramco courts Chinese investors (FT)
Kuwait’s emir names new crown prince (AP)
Iran presidential election: Up to 20 possible contenders gear up for battle (The Guardian)
Productivity and labor crisis hampering Iran’s mining sector (Donyaye Eqtesad)
Tunisia and Iran’s commercial friendship could backfire (The Africa Report)
OPEC’s oil production rises as Iraq continues to overproduce (Oilprice.com)
Scars of conflict are deeper and longer lasting in Middle East and Central Asia (IMF Blog)
Albania leader’s new anti-corruption initiative branded a PR project (BalkanInsight)
Growth slows in Romania but the outlook is brighter (ING)
Russia welcomes Turkey’s interest in BRICS economic bloc (Anadolu Agency)
Russia has taken out over half of Ukraine power generation (FT)
Russia ‘seeking French-held uranium assets’ in Niger (Bloomberg)
Ukraine bars men with dual citizenship or foreign residence from leaving country (Radio Free Europe)
Colombian companies face energy crunch as gas reserves plunge (Bloomberg)
Israel risks losing Colombian coal supplies over Gaza war (Bloomberg)
Saudi Arabia courts Latin America and the Caribbean (Americas Quarterly)
Argentina’s Milei turns to an ‘anti-Milei’ to save his project (FT)
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