Frontier Markets Weekly, February 11th 2024

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By Ken Stibler, Noah Berman and Nojan Rostami. Executive editor: Dan Keeler


Kenya signs deals with Toyota

Kenya signed a series of deals with Japanese car manufacturer Toyota on Wednesday, Kenyan President William Ruto announced during a state visit to Tokyo.

The deals include renewable energy and vehicle production initiatives that could unlock 99 billion shillings ($620 million) in investment, Business Daily Africa reports. Funded projects include a geothermal power plant, a wind farm and a solar energy program previously financed by the World Bank. Toyota will also invest 800 million shillings ($5 million) in a Kenyan vehicle-manufacturing plant.

Kenya’s President William Ruto with Toyota Tsusho President Ichiro Kashitani during a site visit of Toyota Motomachi Factory in Nagoya, Japan. Photo: Pcs

Ruto said the agreements will bolster Kenya’s industrial sector, strengthen Kenya-Japan ties, and expand economic opportunities for Kenyans. He also pushed for Toyota to open a production facility in Kenya.

Senegal president suspends election

Violence broke out in Senegal this week over President Macky Sall’s decision to postpone a presidential election from the end of this month to December, Al Jazeera reports.

Protesters run away as a smoke grenade lands near them during clashes with police in Dakar. Photo: Guy Peterson/AFP

In the capital, Dakar, police fired tear gas on crowds of young demonstrators. International observers called for elections to be held quickly as security forces removed members of parliament who objected to the postponement.

Sall said he would not seek reelection in December, but critics said the delay had the hallmarks of a coup, the New York Times reports. While the US and other countries have not officially designated it as such, the election delay undermines Senegal’s reputation as a functioning democracy in politically turbulent West Africa. Military coups have deposed elected officials in four of the region’s fifteen countries since 2020.


Cambodia and Thailand to discuss energy exploration 

Cambodia and Thailand will discuss joint hydrocarbons exploration in the Gulf of Thailand’s disputed waters, the leaders of the two countries announced on Wednesday.

Thailand, which relies on imports for much of its energy supply, is eager to co-develop a contested area of the gulf that is estimated to contain 11 trillion cubic feet of oil and gas deposits, Nikkei reports. The development would occur in a 27,000 square-kilometer area that is claimed by both Thailand and Cambodia. 

Thai Prime Minister Srettha Thavisin, right, and Cambodian Prime Minister Hun Manet in Bangkok this week. Photo Hiroki Endo via Nikkei

Thai and Cambodian ministers also signed five agreements elevated deepen their countries’ relationship. The talks, which occurred during new Cambodian leader Hun Manet’s first visit to Thailand, also focused on bolstering tourism and promoting coordinated supply chains in the automotive, electronics, and medical devices industries.

Pakistan’s election takes a surprising turn

Independent candidates affiliated with the party of former Prime Minister Imran Khan won the most seats in Pakistan’s election on Thursday, defying a campaign of repression intended to keep the Pakistan Tehreek-e-Insaf (PTI) party from government.

Polling staff open ballot boxes in Quetta, Pakistan. Photo: Banaras Khan/AFP/Getty Images

The former PTI candidates won more seats than establishment parties including Pakistan Muslim League Nawaz (PML-N), which was the heavy favorite, and the Pakistan People’s Party (PPP). But the independent candidates did not win an outright majority, obscuring the path to prime minister, CNN reports. Both Nawaz Sharif, the PML-N candidate, and Khan claimed victory on Friday.

  • At least 30 dead in Balochistan explosions, day before Pakistan election (CNN)

In the weeks preceding the vote, Pakistan’s Election Commission barred PTI from officially competing and a court handed Khan multiple prison sentences. On election day, authorities restricted internet and phone access, and efforts to subdue the ghost of PTI are expected to continue as parties jostle for control of parliament.

The country’s powerful military and the PML-N and PPP are poised to block Khan-affiliated candidates from joining any governing majority, FT reports.

Indonesia prepares for general election

Voters in Indonesia will take to the polls on Wednesday to decide the next president of the world’s third-largest democracy. More than two hundred million Indonesians are eligible to vote in the three-way contest. 

Prabowo Subianto, a 72-year old former general and current defense minister under President Joko Widodo (Jokowi), is leading the polls. Prabowo is running with the son of the massively popular Jokowi, who is term-limited. The other candidates are Anies Baswedan, the former governor of Jakarta, and Ganjar Pranowo, a long-time public servant.

Prabowo campaigning in Bali. Photo: Getty Images

The election, and the inclusion of the outgoing prime minister’s son, has raised concerns that Jokowi is trying to retain influence after he leaves office, especially given his support of Prabowo over Ganjar, who is the candidate from his own party. That fear has been underscored by Prabowo’s checkered history, which includes several allegations of human rights abuses during his time in the military. 

If no candidate earns more than 50% of the vote, the top two will compete in a runoff in June, International Intrigue reports.

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Middle East

Iran GDP surges as oil exports hit 5-year high

The IMF’s World Economic Outlook published in January 2024 found that Iran’s economy grew in real terms (i.e., adjusted for inflation) by 5.4% in 2023, compared to a forecast of just 3.8%. The outlook projects growth of 3.7% for 2024, amid expectations that inflation will fall faster than expected in most regions, and that conflict in the Middle East and supply disruptions elsewhere will boost commodity prices.

In line with predictions for moderating inflation, Iran’s latest Purchasing Managers’ Index, which is a gauge of economic prospects came in “almost flat,”according to the Iranian Chamber of Commerce. There is some concern, however, that Iran’s recent succession of low PMI readings might actually suggest disinflation and weak business conditions in the domestic economy.

Iran’s oil exports have reached a 5-year high, largely on the back of strong buying of sanctioned oil at a discount by China, Nikkei Asia reports. Chinese support for the Iranian economy, particularly in the realm of sanctions evasion, has been in the headlines in London this week amidst revelations by the FT that Iran used Lloyds and Santander to receive payments from China for sanctioned oil.


New Turkish central banker warns Erdoğan against undermining inflation fight

Turkey’s new central bank chief warned this week that President Recep Tayyip Erdoğan’s policies are complicating inflation control. Fatih Karahan warned a 49% minimum wage hike exceeded targets, fueling a 7% monthly price spike. But he expects recent significant interest-rate hikes to curb inflation, which is expected to fall to 36% by the end of this year—down from 65%—and drop to single digits by 2026.

Erdogan has backed tight monetary policy after winning reelection last May, despite his longtime low-rate stance. But economists fear Erdoğan will be tempted to spend more before upcoming local elections, which could spur further inflation. 

Turkey’s new central banker, Fatih Karahan. Photo: Emin Sansar/Anadolu/Getty Images

Karahan is the sixth central bank chief in five years under Erdoğan. His predecessor blamed a media smear campaign for her resignation. Policy continuity has provided some confidence, but Erdoğan ultimately holds sway over Turkey’s economic direction.

Slovakian anticorruption office to close 

Slovakia’s Eurosceptic Prime Minister Robert Fico has pushed through a plan to shut the country’s anticorruption office despite popular protests. Fico’s coalition government’s adoption of the measure effectively ends a number of probes targeting officials. 

A demonstration in Bratislava against the government’s plans to amend the penal code and eliminate a national prosecutors’ office. Photo: Martin Divisek/EPA-EFE/Shutterstock

The move, which also weakens white-collar crime penalties, brought thousands into the streets and drew threats of EU action. The opposition tried to delay the reform but lacks votes to block it.

Latin America

El Salvador’s Bukele wins landslide reelection

El Salvador’s President Nayib Bukele won re-election in a landslide after a fierce crackdown on gang violence transformed security in the Central American nation. With most ballots counted, Bukele had secured over 80% of votes, and his party is set to also control the legislature, conferring unprecedented power, Reuters reports. 

Bukele, whose policies have slashed murder rates but also effectively suspended civil liberties, vowed to eliminate gangs and revitalize the economy in his second term. Poverty is rising amid stagnant growth and low investment. 

Bukele supporters celebrate in front of the National Palace. Photo: Jose Luis Gonzalez/Reuters

Critics also say Bukele’s consolidation of control is a threat to democracy—a position his administration doesn’t counter, according to the NY Times. He has packed courts with loyalists and could overhaul the constitution to allow indefinite rule. 

Paraguay jumps on local-currency borrowing bandwagon 

Paraguay this week joined the group of emerging markets that have the policy advantage of borrowing in local currency, issuing its first-ever guaraníes-denominated international bonds. The government sold $1 billion of bonds, including a $500 million tranche denominated in the guaraníe local currency. 

The country’s president Santiago Peña said investor demand for the bonds exceeded $5 billion, MercoPress reports. The funds will finance infrastructure projects and pay government debts.

Paraguay’s President Santiago Peña. Photo via MercoPress

The World Bank forecasts Paraguay will continue to post solid growth of 3.8% in 2024-2025, potentially outpacing regional peers such as BrazilMexico and Chile. Paraguay’s pragmatic fiscal policies and debt control have supported growth. Last June, Paraguay issued $500 million in dollar-denominated 10-year bonds. Since then, it has focused on local borrowing. Earlier deals include a $50 million private placement of 7-year local bonds to Eaton Vance.

Peña aims to secure an investment-grade rating during his term, a goal boosted by this week’s upgrade to a notch below investment grade by ratings firm S&P.

Bolivian debt downgraded on flagging fundamentals

Ratings firm Fitch has downgraded Bolivia’s credit rating deeper into junk territory based on concerns over the country’s dwindling foreign exchange reserves, among other factors. The agency cut Bolivia’s rating to CCC from B-, citing a $2.1 billion drop in international reserves last year. Reserves now stand at just $1.7 billion, mostly held in gold.

A currency exchange house in La Paz, Bolivia. Photo: Marcelo Perez del Carpio/Bloomberg

Bolivia condemned the downgrade, claiming Fitch ignored economic positives like low inflation and falling poverty. But the central bank is already rationing dollars and borrowing from commercial banks and the country is effectively shut out of global capital markets, with 2028 bonds yielding 24%. 

Declining gas exports and high fuel subsidies are pressuring the current account.

Fitch forecasts slowing growth and wider deficits in 2023-2024, with public debt potentially rising to 74% of GDP. The finance ministry insists it will prioritize social programs and maintains its commitment to service debts.


Emerging and frontier economies diverge

With many emerging markets easing monetary policy and returning to bond markets, investment inflows are expected to reach a decade-high of $200 billionin 2024, Fitch reports. 

Frontier markets, though, are still largely struggling, and more than 40% of frontier sovereign bonds are still trading above 1,000 basis points. ArgentinaEcuadorTunisia and Pakistan look most vulnerable, Capital Economics argued in a recent note.  

  • Is recent emerging market success down to effort or luck? (FT)

Many distressed frontier countries have yet to complete restructurings. Creditor divisions have slowed processes under the G20 Common Framework, and even solid fiscal performers face risks amid heightened volatility and political risk, CapEc notes. Without access to ample domestic financing, they remain prone to external shocks. 

What we’re reading

Investment firm Adenia passes $400m target for Africa PE fund (New Private Markets)

Nigeria ‘repays’ foreign airlines, rebuilds confidence (The Africa Report

New Liberian president orders audit of central bank under predecessor (Bloomberg

US pressure on Russian oil sees dark fleet turn to Gabon’s flag (Bloomberg

Kenya seizes on bond market thaw to issue new US dollar debt (FT

Bill Gates-backed mining company discovers Zambia’s largest copper deposit (FT

Myanmar’s garment industry shows signs of a shakeout. (Nikkei

India ends free border movement with Myanmar, citing security (Bloomberg

Bangladesh weans garment industry off subsidies for new-look economy (Nikkei

Hungarian President Katalin Novak resigns over child abuse pardon scandal (BBC)  

Ukraine ousts top general in reboot of war effort (WSJ

Libyan tanker seizure in Albanian waters opens window on $5b smuggled fuel trade (Bloomberg

Qatar’s foreign reserves surge (Arab News

Saudi Aramco in investment discussions with Indian companies (Reuters

McKinsey and BCG warn staff face jail if they reveal Saudi work (FT

Yemen’s presidential council sacks PM (AP

Iraq minister calls for halt on oil exports to Jordan (Offshore Technology

Nicaragua grants political asylum to former Panamanian President Ricardo Martinelli (CNN

Guatemala’s foreign ministry reaffirms ties with Taiwan after China trade deal (Reuters

Mexico surpasses China as the main source of US imports (El Economista

ExxonMobil to explore for oil and gas in offshore area claimed by Guyana and Venezuela (AP

Ecuador embraces the hard-line ‘Noboa way’ (NY Times)

Russia stops Ecuador banana imports after US arms deal (Moscow Times)

Ecuador ratifies free-trade agreement with China (BNAmericas

Petro’s executive branch spars with Colombia’s judiciary (El Pais

Argentina’s YPF plans sweeping asset sale to focus on shale (Buenos Aires Times)

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