Frontier Markets News, February 25th 2024
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By Ken Stibler, Noah Berman and Nojan Rostami. Executive editor: Dan Keeler
Africa
Senegal’s president to step down in April
Senegalese President Macky Sall has come full circle. After announcing earlier this month that he would postpone the country’s presidential election until December, he said on Thursday that he will leave office on April 2, the date that his term ends.
Last week, Senegal’s top court ruled that his proposed 10-month delay to elections was illegal. However, it remains unclear how soon Senegal will be able to host a presidential election and inaugurate a new leader. Sall, who has been president since 2012, is term-limited.
Sall promised to host talks with political leaders next week to determine a timeline for elections, AP reports. He also said that he would consider pardoning jailed opposition leader Ousmane Sonko, whose supporters have accused Sall of stifling dissent, Le Monde reports.
ECOWAS lifts sanctions after Niger misses another debt payment
West African economic bloc ECOWAS this week lifted some of the sanctions it imposed on Niger in response to last July’s coup, admitting the restrictions were hurting civilians, France24 reports. The group scrapped a number of key financial, travel and commercial sanctions shortly after the cash-strapped West African country failed to repay $22 million in debt.
The agency responsible for managing debt in the West African monetary union said Niger had missed repayment of principal for a one-year bond due February 16. Niger also failed to make interest payments on notes due in 2027 and 2030. The defaults could threaten the financial stability of banks operating in West Africa. Niger’s sovereign debt makes up about 14% of the assets of Niger-based lenders, Bloomberg reports.
The country has now defaulted on $519 million in debt since the sanctions cut Niger’s access to financial markets, Reuters reports.
South Africa restructures reserves as debt mounts
South Africa will use gold and foreign currency to curb its rising debt load, the country’s finance minister said on Wednesday. The announcement marks the first time South Africa will tap funds held in an emergency fund known as the Gold and Foreign Exchange Contingency Reserve Account.
The withdrawal aims to make an additional $8 billion available over the next three years, allowing South Africa to reduce its reliance on bond issuance to finance its budget. As a result, South Africa now projects that it will cut the cost of servicing debts, which has grown more expensive amid surging global interest rates and a stagnating South African economy.
Debt service currently consumes about 20% of South Africa’s tax revenue, FT reports. Investors welcomed the announcement. The South African rand edged up almost 1% against the US dollar this week and government bond yields fell, Bloomberg reports.
Asia
With cash in short supply, Sri Lanka settles Iran debt with tea
Iran agreed to take $20 million worth of tea exports from Sri Lanka as payment on the island nation’s oil debt. The two countries agreed to the tea-for-oil swap in December 2021, but its execution was delayed amid compounding political and economic crises in Sri Lanka.
With Iran drowning in sanctions and Sri Lanka steeped in debt, the deal provided a mechanism for each country to avoid draining their foreign currency reserves. It also allowed Sri Lanka to avoid violating those sanctions, which could have worsened the country’s economic crisis.
Sri Lankan efforts to recover from that crisis are ongoing. This week, the country provided a counteroffer to an October proposal by its bondholders that had suggested a 20% haircut and the issuance of macro-linked bonds, SCMP reports. Details of Sri Lanka’s counter were not immediately available.
Indonesia targets OECD accession
The Organization for Economic Cooperation and Development (OECD) announced on Tuesday that it has opened accession talks with Indonesia, which would become the institution’s first Southeast Asian member.
Indonesia will now work with the OECD to create a “road map” that will prioritize policies related to free trade and investment, public governance, integrity and corruption prevention, environmental protection, and climate change, Indonesian state-owned outlet Antara reports.
OECD Secretary-General Mathias Cormann said the relationship would benefit both OECD and Indonesia. “As the largest economy in Southeast Asia and the world’s third largest democracy, Indonesia is a significant global player, providing important leadership across its region and beyond,” he said.
Japan and South Korea are the OECD’s only current members in Asia.
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Middle East
Saudi Arabia’s deals with Chinese firms come with strings attached
Saudi Arabia’s growing investment in Chinese companies such as Alibaba include requirements for the firms to directly invest in the Kingdom, the FT reports. According to insiders at the companies, the requirements range from the establishment of regional headquarters, R&D centers, and manufacturing plants locally, as well as training local staff.
The requirements appear to mirror those made by Chinese companies of Western partners—particularly the demand for cooperation in technology research and direct technology transfers to local firms. Some of the partnerships are under the auspices of a new Saudi investment vehicle “Alat,” which is overseeing the creation of manufacturing facilities producing high tech devices such as industrial robotics, surveillance technology, EVs and, eventually, semiconductors.
Alat draws capital from Saudi Arabia’s sovereign wealth fund the PIF, which is planning on deploying $40-50 billion in capital in 2024-2025, and $70 billion a year after. The fund might struggle to support such spending, the WSJ reports, as its cash reserves had sunk to $15 billion by the end of last year, the lowest level since the fund began reporting the data and a 75% drop from its peak.
Iran enters election week, but few seem to care
Apathy is threatening to undermine the legitimacy of Iran’s parliamentary elections next week, with some estimates suggesting more than three-quartersof eligible voters might choose not to cast a ballot. Campaigning began this week with the release of the government-approved slate of candidates.
Scheduled for March 1, the election of the Assembly, which elects the Supreme Leader, is particularly important given that the current Ayatollah Khamenei is 84 and reportedly in poor health with no clear succession plan in place.
Another report suggested the low expected turnout could be due to the fact that this is the first election since the 2022 crackdown on nationwide protests following the death of Mahsa Amini in morality police custody, in which 500 were killed and 20,000 arrested.
Oman launches privatization plan, aiming at an “IPO spree” in 2024
Oman’s government is stepping up efforts to reduce its reliance on the oil and gas sector with a broad strategy that involves selling stakes in state-owned companies and encouraging direct inward investment. The country hired investment bank Lazard to advise on plans to privatize its state-owned power utility, and has reportedly invited banks to bid on a potential listing of the state-owned electricity transmission unit, Bloomberg reports.
Since 2020 Oman has divested completely from 16 state-owned companies, partially divested from another five, and has plans to sell a further 35 state-owned companies over the next five years. The privatizations will diversify Oman’s state holdings, and also raise cash for its sovereign wealth fund, which has been investing in local SMEs, tourism, and “green” technologies like hydrogen energy production.
Recently published data shows that Oman attracted a record $70.48 billion in FDI in 2022, up 8.2% from the prior year. Foreign investment outflows from Oman shrank, indicating that more capital is being invested domestically.
Europe
Albania ratifies migrant deal to enhance EU relations
Albania’s parliament voted on Thursday to ratify a controversial migration agreement allowing Italy to hold asylum-seekers in Italian-law centers on Albanian territory. The deal enables Italy to process 36,000 migrants a year outside the EU, setting a precedent for wealthy nations to potentially offshore immigration overflow to emerging economies.
Prime Minister Edi Rama framed the pact as Albania’s “choosing to act like an EU member state” by bearing shared responsibility, although some have criticized the human-rights implications. The vote comes amid a broader push from Rama’s government to align itself with Europe through pro-business reforms, and to portray Albania as a partner, while boosting foreign investment and development funding.
Initiatives range from legalizing online sports betting to allowing developments in protected lands.
Latin America
Ecuador backs out of Ukraine arms deal after Russian threat
Ecuador has reversed course on an agreement to send Soviet-era weapons to Ukraine in exchange for modern US arms, after Russia banned imports from major Ecuadorian banana producers.
Russia is a critical export market for the country’s agriculture, purchasing a quarter of Ecuador’s banana output annually, worth around $800 million. As a small Latin American economy already facing budget strains, losing this business would be crippling.
Russia has frequently targeted agricultural imports over political disputes, meaning that it moved fast to replace lost Ecuadorian supply. The speed suggests this trade blockade was prepared in advance, part of a Russian strategy to deter arms deals aiding Ukraine.
Bolivia unveils pro-business reforms to ease dollar shortage
Facing a worsening dollar shortage that has emptied shelves and left workers unpaid, Bolivia’s government this week unveiled a raft of reforms aimed at spurring investment, production, and exports, Reuters reports. The government hopes to slash red tape for exporters, boost grain output, facilitate diesel imports and allow bigger trucks to transport goods.
Reserves have plunged from $15 billion a decade ago to under $2 billion now as natural gas income, the mainstay of Bolivia’s economy, dried up. The collapse in reserves prompted ratings firm Fitch to downgrade Bolivia’s debt deep into junk territory earlier this month.
The reforms come after pressure from the business community, which President Luis Arce says he hopes can bring in up to $5 billion through farming and mining. But the crisis persists on the ground, where trucker strikes over late payments have hit cities and importers struggling to access the dollars they need are resorting to the black market where the boliviano trades far below its official rate.
Venezuelan PDVSA bonds plunge but investors see opportunities
Quasi-sovereign bonds of Venezuela’s state oil company, PDVSA plunged this week after New York’s top court ruled Venezuelan law will determine if the debt, backed by its US subsidiary Citgo, is valid. The 2020 notes now trade around 72 cents on the dollar, down 17 cents over the week.
Despite the ruling, JP Morgan announced Thursday it will reintegrate Venezuelan sovereign bonds into its benchmark EM index. This will likely boost inflows from index investors.
As the country reestablishes global financial ties after sanctions relief, funds are seizing discounted debt for upside in case US-Venezuela relations thaw further. Still, news this week that Caracas has restarted imports of Russian crude oil highlighted how political and legal risks abound for investors reentering Venezuelan markets.
Global
US and China explore tools to head off EM debt crisis
The US and China are considering collaborating on new measures to stave off sovereign defaults through preemptive debt extensions, Bloomberg reports. Discussions are focused on channeling more financing through multilateral lenders before countries formally default. The goal is to bring a proposal to G20 leaders in November.
In an analysis on FMN, Ken Stibler argues that the initiative will be welcomed by emerging nations that have been increasingly vocal about the need for wealthy nations to help them address challenges from climate change, among other issues. Barbados’ Prime Minister Mia Mottley, for example, has called for debt cancellation for island nations, arguing island countries and the poor countries, devastated by disasters, need to be able to prioritize reconstruction over debt payments.
Brazilian President Lula de Silva has called for a ‘rethink’ of the credit ratings agencies and multilateral financial institutions that “strangle poor countries.” He advocates transforming debt into productive investments in infrastructure and education.
Shipping disruptions magnify retailers’ pain
Global retailers are feeling the pain from recent shipping disruptions at the Suez and Panama Canals, according to a new report from Moody’s Investors Service. The delays have led to reduced cargo volumes, late deliveries, and sharply rising freight costs that could hit retailers’ bottom lines in the coming months.
The rise in shipping costs has already pushed garment makers in Asia into the red. Container spot prices have more than doubled since last December, squeezing already thin margins.
If prices stay high when annual shipping contracts reset, global retailers must either raise prices or absorb losses. Costlier shipping crisis magnifies an existing challenge for retail manufacturers facing worker pressure for higher wage, evolving consumer preferences and continued supply chain disruptions.
What we’re reading
Zambia kwacha turns world beater with help from central bank (Bloomberg)
Aid groups warn of a humanitarian crisis in eastern DRC (Time)
Atrocities mount in Sudan as war spirals, UN says (NYT)
Somalia announces deal with Turkey to deter Ethiopia’s access to sea through a breakaway region (AP)
Nigeria blocks access to crypto exchanges in effort to curb currency slide (FT)
Nigeria’s naira hardship ‘like Argentina’, experts warn (The Africa Report)
Ghana eyes local iron ore processing to boost economy (Semafor)
Senegal Bonds Rally as Investors Bet Crisis Nears End (Bloomberg)
Guinea junta temporarily dissolves government, presidency says (Reuters)
Growth, returns and aid shift investor focus to West Africa (Bloomberg)
US-led partnership to develop Atlantic coast takes root in Africa (The Africa Report)
Abu Dhabi steps in to ease Egypt’s currency crisis with $35b investment (FT)
BP plans $1.5b investment in Egypt’s oil and gas sector (Offshore Technology)
West challenges China’s critical minerals hold on Africa (Reuters)
Reconstituted Wagner Group ‘expanding Russian influence in Africa and Mideast’ (Radio Free Europe)
Putin’s free grain for Africa comes with a political price (Bloomberg)
Cambodia’s airport dreams stall as Chinese money dries up (Nikkei)
Thai PM doubles down on rate-cut call as easing bets mount (Bloomberg)
Bangladesh resists growing calls to accept more Rohingyas from Myanmar(Nikkei)
Turkey–Albania media deal risks ‘exporting Erdogan’s propaganda’ (BalkanInsight)
Israel was ‘behind attacks on major gas pipelines in Iran’ (NYT)
US charges Japanese crime boss over alleged trafficking of nuclear materials to Iran (Sky)
UAE removed from money laundering ‘gray list’ (FT)
UAE and Kenya seal comprehensive economic partnership deal (Reuters)
Ukraine, IMF near $900 million payment amid stalled US aid (Bloomberg)
Ukraine plans to expand container shipping service for Danube ports (Maritime Executive)
Seize frozen Russian assets before US election, says Estonian PM (FT)
EU imposes sanctions on Russia-linked entities accused of destabilizing Moldova (FT)
The secret oil-trading ring that funds Russia’s war (WSJ)
Russia’s war machine is supplied through parallel supply chain of Kazakh companies and Belarusian warehouses (Organized Crime and Corruption Reporting Project)
Belarusians vote in tightly controlled election amid opposition calls for its boycott (AP)
Polish central bank rebuffs claims it misled cabinet over profit (Bloomberg)
Bosnia-Herzegovina’s Dodik doubles down on refusal to join sanctions against Moscow (Radio Free Europe)
Hungary to allow Sweden into NATO following jet fighter deal (Bloomberg)
Central European central banks to loosen monetary policy as inflation approaches targets (FrontierView)
Ecuador government proposes $214 million hike in security spending (Reuters)
Argentina markets double down on Milei as investors ‘start to believe’ (Reuters)
Strikes pile up in Argentina amid sting of Javier Milei’s shock therapy (Buenos Aires Times)
Poverty in Argentina hits 20-year high at 57.4%, study says (Reuters)
El Salvador confirms Bukele’s supermajority after opposition calls to void election results (Reuters)
Guatemalan president looks to turn EU backing into investments (AFP)
Guyana’s $1.9 billion gas-to-power project delayed to 2025 (Reuters)
Suriname is selling its gold and timber ‘at the cost of tribal land rights’ (The Guardian)
Five ways El Niño is wreaking havoc in South America (Washington Post)
