Frontier Markets Weekly, January 7th 2023

Sri Lanka trade talks | Hungary aims for birth-rate boost | Bukele bitcoin bet goes bust | FMN’s new podcast

 By Ken Stibler, Noah Berman and Dan Keeler 

Reminder! On January 17th we will be holding 2023’s first frontier and growth markets networking evening at New York City’s coolest new restaurant: The Mermaid Oyster Bar, Times Square. If you’d like to come along, let me know ASAP. Capacity is limited, so don’t dither!

Talking of “coolest new” check out the new FMN podcast on Apple or Spotify. This week, we put Capital Economics’ chief EM economist through the wringer. Next week, we’ll take a deep dive into Sri Lanka—and share some news that might surprise listeners as much as it did us. 

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Ghana to request debt relief under G20 common framework. Ghana will likely request debt relief through the G20 common framework for debt treatment, Reuters reports, as the country adjusts its debt restructuring to pave the way for an IMF bailout.

Ghana reached a $3 billion staff-level agreement with the multilateral in December, contingent on a restructuring of the country’s debt. As 2022 came to a close, the country announced it had suspended payment on most of its $28.4 billion in external debt, effectively defaulting and endangering the IMF rescue package.

The common framework was launched in 2020 with the goal of providing accelerated debt relief to frontier economies. While it was hailed for bringing together China and the so-called Paris Club group of creditors (which includes most other creditor nations), the common framework has since been criticized for its glacial process. Ghanaian officials have said they will need guarantees of an expedited process before they sign on the framework.

Low rainfall deepens southern Africa power woes. Power outages lasting as long as 20 hours continue to plague nations in southern Africa, with Zambia and Zimbabwe among the worst hit. The outages have been caused in part by historically low rainfall over Lake Kariba, which sits on the border of the two countries, with low water levels diminishing the ability to generate power from the lake.

The Kariba Dam and Lake Kariba. Photo: Guillem Sartorio/AFP

Over 75% of Zambian electricity generation comes from hydropower, Al Jazeera reports, much of which comes from Lake Kariba; at Kariba North Bank Power Station in Zambia, power-generating capacity has fallen over 60%. Zambian state-owned power company Zesco said it had been “constrained by the drastic reduction in available water in the Kariba reservoir for electricity generation.”

The water level in Lake Kariba has fallen to 4.6% of the lake’s capacity, according to a study by Columbia University’s Center on Global Energy Policy, with Zambia controlling most of the remaining water. Zimbabwe stopped generating electricity from a dam on its side of Lake Kariba in November last year.

Chad joins list of ‘foiled’ coup attempts. Chad’s military government this week claimed it foiled a ‘destabilization’ plot in early December and said it had arrested 11 alleged perpetrators. The country joins a growing list of African nations claiming coup attempts had been thwarted.

Chad’s junta leader Mahamat Idriss Deby Itno. Photo: Denis Sassou Gueipeur

In November, São Tomé and Príncipe’s prime minister said the country’s military had thwarted a coup attempt in which at least four people died during an attack on the military headquarters. Gambian authorities in December arrested five soldiers they accused of planning to overthrow the government.

In May, Mali’s military government said it foiled a countercoup attempt, and earlier in the year, Guinea Bissau’s armed forces reportedly foiled a coup attempt against the government.


Myanmar releases prisoners. The military junta in Myanmar announced on Wednesday that it released over 7,000 prisoners, including an unknown number of political prisoners. The amnesty program commemorated the 75th anniversary of Myanmar’s independence from the United Kingdom, CNN reports.. 

Myanmar has been subject to intensifying international pressure to reduce the violent repression it inflicts on its people. Nearly 17,000 political prisoners have been arrested since the coup, according to the rights group Assistance Association for Political Prisoners, and over 13,000 remain detained.

One of the newly freed prisoners is welcomed by family members after her release. Photo via The Irrawaddy

This week’s amnesty may be an effort to score political points with the West, which has pressured the regime to release political prisoners, The Irrawaddy reports. The released prisoners included journalists and officials from the government that was ousted by a coup in February 2021. 

Sri Lanka resumes trade talks. Sri Lanka is set to begin renegotiating trade deals withChinaIndia, and Thailand, Reuters reports, as the country seeks more economic partners in the wake of the island nation’s political and financial crises last year.

Officials from Thailand are expected to arrive in the country on Monday to restart negotiations that have been suspended since 2018. Sri Lanka is expected to start renegotiating trade deals with India and China in February and March, respectively. Colombo hopes to have all three deals completed by the end of this year or early 2024.

Drivers waiting in a line to buy fuel at the height of Sri Lanka’s economic crisis last summer. Photo: Kim Kyung-Hoon/Reuters

Trade between Sri Lanka and the three states totaled nearly $10.5 billion in 2021. The country secured a $2.9 billion bailout from the IMF in September, but disbursements have not yet begun. Meanwhile, the economic crisis continues to rattle the Sri Lankan public, with some parents forced to decide which child to send to school, BBC reports.

Tune in next week to our podcast on Sri Lanka’s prospects.

Philippines lands Chinese investment in renewable energy. Philippine President Ferdinand “Bongbong” Marcos Jr. said he’d secured over $22 billion in investment pledges after a three-day state visit to China this week, Manila Bulletin reports. The majority of the investment will be directed toward financing renewable energy projects, primarily in solar and wind. Around a third of the investment will fund mineral processing, NHK World reports.

Ferdinand ‘Bongbong’ Marcos Jr. and First Lady Liza Araneta-Marcos. Photo: Malacañang via Manila Bulletin

The Philippines had notoriously strict foreign investment rules until last year that restricted foreign ownership in Philippine companies to 40%. The restriction remains in the power transmission sector, though it is not immediately clear if that would affect the Chinese investments announced this week. 

The Philippines also agreed to renew its commitment to the Belt and Road Initiative, China’s expansive infrastructure investment plan. And the two countries agreed to establish a direct line of communication for issues regarding the South China Sea, where they have recently sparred over disputed islands.

Middle East

Israel strikes Damascus while Arab powers normalize relations. Israel fired missiles on Syrian capital Damascus’ international airport, killing two military personnel and shutting down the facility despite a recent detente between Gulf powers and Syrian President Bashar al-Assad’s regime. The attack is the latest of the more than 400 airstrikes since 2017 targeting Iran-linked military assets and that country’s network of allied militias in the region.

While the strikes are meant to weaken Iran’s capacity to use the country as a staging base for attacks on regional enemies, the strike comes as Jerusalem’s new Arab partners have taken a different approach. Two days after the strikes, the UAE’s top diplomat met Assad to discuss boosting economic ties as relations continued to thaw between the two countries.

Syria’s President Bashar al-Assad, left, with UAE Foreign Minister Sheikh Abdullah bin Zayed bin Sultan al-Nahyan in Damascus, Syria. Photo: Syrian state news agency via AP

The meetings highlight the growing regional trend toward normalization, with Bahrain’sreinstating its diplomatic mission and Algeria coordinating with other Arab countries to restore Syria’s Arab League membership.


Hungary removes income tax for women in bid to reverse falling birth rates.Hungary is to exempt mothers under 30 from personal income tax for the rest of their lives in a bid to boost sagging fertility numbers that have contributed to labor crises, reports Business Insider. In the first quarter of 2022, a near-record high of 87,000 jobs were unfilled, with no sign of abating. In 2020, the country’s fertility rate fell below the replication rate to 1.6 births per mother from 2.5 in 1975.

Hungary’s manufacturing sector is facing a severe worker shortage. Photo: György Varga/MTI

Despite this situation, the current right-wing government in Budapest has pursued strong anti-immigrant sentiment and laws that have depressed immigration. Absent an increase, Hungarian businesses will likely struggle with a labor force shrunk by emigration and low birth rates. The situation has forced the government to make a series of moves, including eliminating income tax for younger workers and mothers with at least four children.


Small emerging markets ‘should outperform developed world’ in 2023. Frontier and emerging markets are set for another difficult year in 2023, but they could fare better than their developed-market counterparts, according to William Jackson, chief emerging markets economist at consultancy Capital Economics. After facing a “perfect storm” in 2022 with rising US interest rates, the costly legacy of the pandemic and the war in Ukraine many frontier and emerging markets will continue to face considerable strain in 2023, he said.

While the firm expects three quarters of all the emerging markets it covers to see slower growth, it still expects them to do better than the developed world. “The growth differential between the EM and DM world will be the greatest it’s been in 10 years. Emerging markets will also be the first to be able to cut interest rates, having been ahead of the curve in raising rates,” he told FMN in our podcast, released this week.

The turnaround will present opportunities for investors, Hasnain Malik, head of equity research at frontier-focused research firm Tellimer, wrote in a research note this week. Small emerging and frontier equity markets “offer many ways to gain exposure…at valuations that are generally more attractive than in large emerging or developed markets,” he said. Key investment themes Tellimer is highlighting include manufacturing, commodities, tourism, technology and reform. 

Bitcoin bounty fails to materialize. In September 2021, when Bitcoin and other cryptocurrency prices were at a high, El Salvador became the first country to make bitcoin legal tender, requiring businesses to accept it as a form of payment. It was quickly joined by the Central African Republic, which embraced bitcoin and announced its own cryptocurrency, Sango Coin.

Despite September’s failure, almost 70% of Chileans still want a new constitution. The new process will be much more technocratic than the last, incorporating veto points at both chambers of congress, a 2/3 vote required to include articles, as well as a final plebiscite in late 2023.

The results of these experiments have been mixed, at best, Noah Berman reports in CFR. The value of El Salvador’s bitcoin holdings has plunged, and its adoption of bitcoin has drawn the ire of the IMF. An initiative in the Central African Republic to sell citizenship in exchange for $60,000 in Sango Coin was ruled unconstitutional by the country’s supreme court.

Proponents of the virtues of crypto—including El Salvador’s President Nayib Bukele—say the low transaction costs associated with bitcoin and other cryptocurrencies can transform economies that rely heavily on remittances. But as the experiments in these countries have worn on, only a small proportion of the population in bitcoin countries are using the cryptocurrency.

What we’re reading

US cuts off Burkina Faso from duty-free trade program. (US News

Ethiopia sets out on long road to peace after two years of war. (Reuters)

Kenya: Ruto rejects pressure to re-introduce subsidies as new year begins. (The Africa Report)

Tanzania’s President Hassan ends 6-yr ban on opposition rallies. (Al Jazeera)

Zimbabwe: Bumper wheat harvest, but government owes farmers millions of USD. (The Africa Report)

Botswana issues arrest warrant for ex-President Ian Khama. (AP)

Scoop: Morocco’s new demand for Israel. (Axios)

Egypt’s pound sinks to new low in biggest fall since October devaluation. (FT)

Vietnam offshore wind power sparks influx of foreign investment. (Nikkei)

Vietnam removes two deputy PMs amid anti-corruption drive. (Reuters)

Indonesia central bank bond law raises independence concerns. (Nikkei)

Myanmar sentences Aung San Suu Kyi to 7 years in final corruption convictions. (FT)

Nepal’s new PM faces ever trickier China-US-India high wire act. (Nikkei)

Pakistan unveils energy conservation plan as economy worsens. (ANI News)

Pakistan taps Chinese credit for railway upgrade despite debt crisis. (FT)

Chinese firm signs $540m oil-and-gas deal in Afghanistan. (WSJ

Turkmenistan’s leader heads to Beijing as dependence on China grows. (Radio Free Europe)

Turkish exports hit record high in 2022. (FT)

Israel’s powerful new finance minister aims to entrench Israeli rule in West Bank. (WSJ)

Saudi crown prince tangles with sovereign wealth fund over how to invest oil riches. (WSJ)

Russia risks causing IT worker flight with remote working law. (Reuters)

In Romania, US troops train close to Russia’s war, in signal to Moscow. (NYT)

Price hikes shock Croatia following introduction of euro. (Balkaninsight)

Facing migration flood, US resumes services at Cuba embassy. (AP)

Honduras’ war on gangs is also a battle for control of popular narrative. (The Guardian)

Colombia and Venezuela open key bridge as ties strengthen. (AP)

Shrimp eclipse bananas as Ecuador’s second-most-exported product. (Mercopress)

Protests and road blockades resume in Peru. (Mercopress)

Copper-price slide and delicate politics complicate Chile’s 2023 outlook. (Mercopress)

Brazil’s Lula reverses his predecessor’s gun law loosening. (WSJ

Brazil’s Bolsonaro faces legal risks after losing immunity. (Reuters)

Uruguay’s passport scandal forces reckoning on corruption. (FT)

Debt swap brings relief to Argentina. (Mercopress)

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