Frontier Markets Weekly, June 3rd 2023

EU bids for African minerals | Bangladesh increases taxes | Violence flares on Afghan/Iranian border | Drought hits Panama Canal


Prices surge as Tinubu ends Nigeria’s gasoline subsidy

Fuel prices in Nigeria have almost tripled since new President Bola Tinubu scrapped a subsidy on gasoline. Tinubu announced that he would end the subsidy at his inauguration on Monday, CNN reports.

During his campaign for president, Tinubu pledged to get rid of the fuel subsidy, which costs Nigeria about $10 billion per year, according to central bank statistics. Despite being Africa’s largest oil producer, Nigeria lacks refining capabilities and imports nearly all of its gasoline. That results in high prices, which for the past decade have been combated with subsidies.

Drivers queued at gas stations in Nigeria after Tinubu announced a controversial fuel subsidy was ‘gone.’ Photo: Pius Utomi Ekpei/AFP/Getty Images

Nigeria’s dollar bonds surged following the announcement, Premium Times reports. On Thursday, Angola followed suit, sharply reducing its own gasoline subsidies. Prices at the pump nearly doubled in response, Bloomberg reports.

US reconsiders engagement with Uganda as Museveni signs anti-gay law

Ugandan President Yoweri Museveni signed a restrictive anti-gay law on Monday that punishes anyone convicted of homosexuality with life in prison. It also allows for the death penalty in some cases.

The legislation drew condemnation from Western countries, many of which provide significant sums of aid to Uganda. “I have directed my National Security Council to evaluate the implications of this law on all aspects of US engagement with Uganda,” US President Joe Biden said, “including our ability to safely deliver services under the US President’s Emergency Plan for AIDS Relief (PEPFAR) and other forms of assistance and investments.” Biden also said he was considering implementing sanctions on Uganda.

A Ugandan wearing a mask with a rainbow sticker at a Gay Pride parade in 2015.Photo: Isaac Kasamani/AFP via NPR

Homosexuality was already illegal in Uganda, and the country’s parliament passed a version of the law in March, NPR reports. After that bill passed, large global corporations, including Google and Microsoft, warned that it would hurt Uganda’s economy. Previous anti-gay legislation, which Museveni signed in 2014, was struck down by the country’s courts after the United States and other large donors condemned it.

EU bids for Africa’s critical minerals

The EU has begun negotiations with the Democratic Republic of the Congo to buy minerals the bloc could use in batteries that support the transition to a lower-carbon economy, Reuters reports. The EU is seeking to initiate similar talks with other mineral-rich African nations.

A mineral processing facility in DRC. Photo: Jonny Hogg/Reuters

The trade negotiations come as the EU attempts to wean itself off critical minerals supplied by China, which dominates the processing of lithium, copper, nickel and cobalt. The bloc has already signed agreements with KazakhstanNamibia and Ukraine, and is involved in talks with Argentina and Chile, Mercopress reports. The EU expects to launch talks with RwandaUgandaZambia and Tanzania in the near future.

China remains a major player in securing minerals from Africa. Last week, DRC’s President Felix Tshisekedi visited China with the goal of renegotiating a mineral rights deal. However, the outcome of the visit remains uncertain, Voice of America reports.

Renewables are best solution for South Africa’s power crisis, PCC says

South Africa could resolve its load shedding crisis in two-to-four years at low cost by investing to scale up renewable energy and storage capacity, a panel working for President Cyril Ramaphosa said this week. In a press briefing, the Presidential Climate Commission admitted that there is no set schedule for decommissioning the nation’s vast fleet of coal-fired power stations, but reiterated its support for a determined move to replace them with clean power sources.

A source close to the discussions told FMN that building new coal plants to address the electricity crisis would be “foolish” given that none of the PCC technical models suggest introducing new coal generation capacity. But technical expert Steve Nicholls told FMN that the magnitude of South Africa’s electricity shortage could make it necessary to the life of existing coal plants beyond current expectations.

Cyril Ramaphosa has pushed back against pressure to accelerate South Africa’s decarbonization. Photo: Dinilohlanga Mekuto

South Africa’s electricity crisis is most visible through “load shedding”: daily rolling blackouts enacted in response to deficiencies in grid integrity, transmission capacity and power generation that severely depress the economy.—Nojan Rostami

Podcast: Crypto’s potential for frontier markets

Impact investors and cryptocurrency advocates have long talked about the potential for blockchain-based technology to transform the lives of people in small emerging markets. The NGO Mercy Corps is putting its money where its mouth is with an impact fund focused specifically on using the tech to solve some of the gnarliest problems in human development and environmental protection.

It turns out that crypto’s killer app might be saving lives.

Listen on Spotify or wherever you get your podcasts.


Bangladesh prepares tax hike to meet IMF conditions

Bangladesh proposed increasing taxes in its annual budget released on Thursday as it attempts to meet the conditions of its loan from the IMF.

In January, the lender approved a $4.7 billion bailout package for the South Asian country. The loan included conditions such as raising tax revenue, making reforms to the financial sector, and removing subsidies, Bloomberg reports.

Bangladesh is tightening taxes to try to meet IMF conditions. Photo: Photographer: Amir Hamja/Bloomberg

As part of the tax hike, bank accounts containing more than $94,000 will be subject to a higher government excise tax, Daily Star reports. Accounts with between $94,000 and $468,000 will have to pay a tax of $168, up from the current rate of $140. There were 165,951 such accounts in Bangladesh at the end of last year.

The move comes a day after ratings agency Moody’s pushed Bangladesh’s debt further into junk territory. Moody’s cited heightened external vulnerabilities, illiquidity and the deterioration of the country’s foreign exchange reserves as reasons for the downgrade, Business Standard reports.

ASEAN countries sign on to US-led Indo-Pacific deal

Seven ASEAN member states agreed to coordinate supply chains with the US and other members of the Indo-Pacific Economic Framework (IPEF) this week as part of an effort to reduce dependence on China. The deal calls for IPEF countries to form a “crisis response network” that would serve as an early-alert system for supply chain disruptions, Reuters reports.

The participating ASEAN countries—BruneiIndonesiaMalaysiaPhilippinesSingaporeThailand and Vietnam—are playing growing roles in global supply chains.

US Commerce Secretary Gina Raimondo at the IPEF meeting in Detroit. Photo: Rebecca Cook/Reuters

This week’s agreement is the first of four expected IPEF pillars. The other three—trade, climate, and labor standards—have taken longer to negotiate amid criticism from business groups, the New York Times reports. Unlike traditional free trade agreements, the IPEF does not lower tariffs or provide preferential access to the US market, drawing objections from some ASEAN leaders, Foreign Policy reports.

Turkey reelects Erdogan

Turkish President Recep Tayyip Erdogan won reelection in a runoff vote on Sunday, defeating his opponent in the biggest challenge to his leadership since he took office more than two decades ago. Erdogan secured 52.14% of the vote. His challenger, the opposition leader Kemal Kilicdaroglu, won 47.86%.

The election result could continue Turkey’s economic tailspin. The country’s currency hit a record low after the result was announced, and Morgan Stanley predicted that it would drop even further this year, the Guardian reports. That drop was preceded by four years of currency-crisis, partly caused by a presidential directive not to raise interest rates in the face of 88% inflation, the Council on Foreign Relations reports. With an additional five years in power, Erdogan is unlikely to change his domestic agenda, Time reports.

Erdogan addressing supporters before the presidential runoff election. Photo: Murat Cetinmuhurdar

“Some might hope that Erdogan now feels sufficiently secure politically to revert to orthodox economic policy and that the very close-run election might persuade him that the electoral cost of his unorthodox economic policy is too great,” Hasnain Malik, head of equity research at London-based Tellimer, said. “This seems far too optimistic, and, even in this scenario, major negative currency and growth adjustments are needed as a part of any policy U-turn.”

Middle East

Violence flares over Iran-Afghanistan water rights tussle

Tensions between Iran and Afghanistan erupted into fighting this week, with skirmishes breaking out across the border between Iran’s Sistan-Baluchistan and Afghanistan’s Nimroz provinces, Reuters reports.

At least three people were killed in the fighting, and both sides have blamed the other’s border guards for shooting first. The violence comes after months of public rancor between Iran and Afghanistan’s respective foreign ministries.

Images from social media showed Afghan military vehicles apparently massing near the border with Iran.

Both sides have since issued statements calling for mutual de-escalation and a return to negotiations to “resolve the conflict through diplomatic channels,” Al Jazeera reports. However, Iran has since unilaterally closed the Milak-Zaranj border post, a commercially significant crossing that is unrelated to the site of this week’s clashes, and, according to Iran International, Taliban fighters have moved heavy military equipment into the border area recently.

Saudi deals raise risk of further tension with US

Saudi Arabia’s purchases of Russian diesel hit a record last month, filling the gap in demand caused by EU sanctions on Russian petroleum products and defying a joint US-EU effort to curb Russia’s oil and gas industry, Reuters reports. At the same time, diesel exports from Saudi Arabia to Singapore also hit a high, leading analysts to suggest the kingdom is capitalizing on a spot arbitrage opportunity caused by refinery shortages in the region.

However, the Wall Street Journal reports that Saudi Arabia is angry with Russia for flooding the oil market with cheap crude, undermining the kingdom’s efforts to stabilize prices. Despite committing to curtail its output in line with the rest of OPEC, recent data shows that Russia is still pumping significant amounts of oil into the market.

An oil field in Russia. Photo: Yegor Aleyev/Zuma Press

Saudi Arabia is also in talks to join China’s “BRICS Bank,” a multilateral economic development lender established as an alternative to the US-dominated World Bank, the FT reports. Both moves are likely to exacerbate simmering tensions between Saudi Arabia and the US.

Separately, Saudi Arabia’s state-owned Agricultural and Livestock Investment Corporation this week reportedly acquired a 10-15% stake in Brazil’s Marfrig Global Foods, the country’s largest poultry producer. The kingdom’s sovereign wealth fund Public Investment Fund also acquired a 30% stake in regional grocery retailer Tamimi Markets.

Iraq vies for role as regional transport hub

Iraq this week unveiled a $17 billion road and rail infrastructure project linking Europe and the Middle East, via Turkey, to Iraq’s Grand Faw Port on the Persian Gulf, France 24 reports. The project leans heavily on developing Iraq’s existing oil and gas transport infrastructure, and is a step toward fulfilling its goal of transforming the country into a transportation hub linking Europe, Russia and Asia.

Iraqi Prime Minister Mohamed Shia al-Sudani unveiled the plan to turn the country into a regional transportation hub. Photo: Iraqi Prime Minister’s Press Office

Iraq is also poised to sign a maritime cooperation agreement with Russia, according to a press release reported by Russia’s government mouthpiece Sputnik News. The agreement streamlines customs and border formalities for commercial vessels, despite a US-led crackdown on Russia’s oil and gas shipping network, the state media agency wrote.


Kosovo rebuked by key partners after ethnic tensions flare

The US is punishing its longtime ally Kosovo following a series of ethnic clashes that injured Nato peacekeepers and Serbian protesters. The violence erupted when Kosovo authorities deployed police to facilitate the installation of ethnic Albanian mayors in majority-Serb communities.

A US soldier in Zvečan, Kosovo. Photo: Miodrag Draskic/Reuters

The US publicly blamed the Kosovan government for exacerbating tensions with the country’s Serbian minority. Washington also canceled Kosovo’s participation in joint military drills, put diplomatic meetings on hold and withdrew support for the country’s inclusion in international fora.

After coming under pressure from the US and the EU, Kosovo’s Prime Minister Albin Kurti late on Thursday said through a spokesperson that he was considering rerunning the elections, Politico reports.

Latin America

Panama drought threatens additional inflation across the Americas

A severe drought depleting the water in a Panamanian lake that feeds water to the country’s iconic canal is unnerving economists and supply-chain experts, Bloomberg reports. The drought has already reduced draft levels forcing large ships to lighten their loads by taking fewer containers or dividing the same amount of cargo between more containers.

A ship leaving the Panama Canal’s Miraflores locks near Panama City. Photo: Luis Acosta/AFP

Such adjustments raise the cost of moving goods through the strategically significant canal that carries roughly 5% of global trade. One economist estimates that a 20% increase in shipping costs boosts the US inflation rate by 0.15%. For major commodity exporters such as Brazil and Argentina, increased shipping times and costs risk making imports more expensive and reducing the value of their exports.

Lula’s embrace of Maduro undermines unity pitch at regional group

A South American summit convened by Brazilian President Luiz Inácio Lula da Silva to revive regional cooperation was undermined by his strong support for Venezuela’s President Nicolás Maduro. While Lula advocated for greater integration and the creation of a regional currency to rival the US dollar, the focus shifted to the dispute over Maduro’s human rights record.

  • Brazil’s president proposes common South American currency at regional meeting (CNN World)
  • Colombia returns to Unasur, Petro announces (Mercopress)

Uruguay and Chile’s presidents both condemned Lula’s conciliatory tone, which played down reports of repression in Venezuela as propaganda. While less relevant for regional policy, as countries have begun gradually re-engaging with Caracas, Brasilia’s enthusiastic embrace of Maduro risks adding another rift in regional relationships, which have already been tested by trade tiffs among members of the regional group Mercosur and diplomatic spats over former president Pedro Castillo’s ouster in Peru.

What we’re reading

Illegal fishing costs West African nations billions in revenue (

Protests erupt in Senegal after opposition leader is sentenced to prison (NYT)

Angola says it’s ready to ditch Russia for US as Lourenço eyes third term (The Africa Report)

Washington’s dilemma in Chad: Defense or democracy? (WSJ)

US reopens embassy in Seychelles after 27-year absence (AP)

North Korean IT workers help spy from UAE and Russia, UN Says (Bloomberg)

Indonesia and Malaysia freeze trade talks with EU over palm oil (FT)

Maldives leads tourism recovery, buoyed by Russian travelers (Nikkei)

Militant attacks threaten cash-strapped Pakistan’s energy plans (Nikkei)

ESG investors push international firms to rethink Myanmar projects (Nikkei)

Nepal PM visits India to boost bilateral ties (India Today)

A debt default in Pakistan is near certain (FrontierView)

Biden adviser ‘discussed possible outreach’ to Iran on nuclear program with Oman (Axios)

Iran’s Khamenei welcomes better ties with Egypt (Reuters)

As Iran seizes tankers in Gulf, UAE pulls back from US-led maritime force (NYT)

Teenagers from Islamic State families undergo rehabilitation in Syria, but future still uncertain (AP)

EV firm Lucid raising $3 billion with more money from Saudi owners (Bloomberg)

Moldova to create ‘anti-propaganda center’ to counter Russian disinformation (BalkanInsight)

Ukrainian lawmakers approve sanctions on Iran for 50 Years (Radio Free Europe)

Toqaev ‘appreciates’ Lukashenka’s ‘joke’ proposal for Kazakhstan to join RussiaBelarus union (Radio Free Europe)

Pensions and protests in Central Europe: Different strokes for different folks (Balkaninsight)

Argentina’s economy minister seeks Chinese support (Mercopress)

Nicaragua accuses Catholic Church of money laundering (Reuters)

Guatemala elites flex muscle, excluding leading presidential contender (InsightCrime)

Derelict El Salvador gang houses given to locals (Latin Times)

Venezuela’s new oil chief targets graft and courts workers (Reuters)

Peru authorizes the entry of US troops for military exercises and training (InfoBae)

Paraguay’s next president likely to focus on infrastructure projects and fiscal deficit (BNAmericas)

Brazil’s Petrobras eyes new investments in Guyana, Venezuela and Bolivia (Upstream Online)

Chile’s president presses need for tax reform to fund social agenda (Bloomberg)

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