Frontier Markets Weekly, March 25th 2023

Demand rises for North African oil | Sri Lanka gets IMF funds | Saudi outreach continues | Corruption purge in Venezuela?

By Dan Keeler, Ken Stibler, Noah Berman and Nojan Rostami

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North Africa to benefit from European oil demand. Global energy giants are increasingly turning to North Africa to quench their thirst for new sources of oil. Long viewed as too politically risky to safely invest, the region has been attracting big oil companies since the Russian invasion of Ukraine disrupted energy markets.

This week, Halliburton and Honeywell worked out $1.4 billion worth of deals to develop oil projects in Libya, the Wall Street Journal reports. At the end of 2021, Libya held the largest proven oil reserves in Africa, according to the US Energy Information Administration, accounting for 39% of the reserves on the continent. It is Africa’s third-largest producer of petroleum products, following Nigeria and Algeria.

North Africa’s massive oil-and-gas reserves and its proximity to Europe make it an attractive alternative energy supplier to Russia. PHOTO: APP/Nurphoto/Zuma Press

Chevron and the Italian energy giant Eni have both sought deals with Algeria’s state-owned energy company since the invasion began last year. Chevron has also turned toEgypt, which is eager to plug holes in its economy with energy revenues, OilPrice reports.

Rising prices prompt protests in Kenya. As inflation in Kenya surges and its currency depreciates the country’s citizens are facing the realization that their new president may not be the economic savior they were hoping for. 

Despite campaign promises to empower the country’s poor, President William Ruto has lifted subsidies on gasoline and maize, a staple food in Kenya. Confronted with more expensive critical goods, Kenyans are now preparing to stage protests twice a week, Africanews reports.

The Central Bank of Kenya whose data shows public debt hit KSh9.145 trillion ($73 billion) in December 2022. Photo: NMG

Despite the fact that the World Bank estimates Kenya’s GDP will grow an average of 5.2% this year and next, economists are predicting a bleak future as the worst drought in decades threatens the country’s agricultural output and protests dampen tourism prospects, AFP reports. Kenya’s currency, the shilling, dropped to an all-time low in February, and the country’s public debt soared to over $72 billion, the East African reports. Meanwhile, inflation reached 9.2%, according to central government statistics.

Podcast: Investing in Vietnam with Mekong Capital’s Chad Ovel

Curious about investing in Vietnam? In this week’s podcast, Chad Ovel, a partner at Ho Chi Minh-based ⁠Mekong Capital⁠, gives us the inside scoop on how the dramatic progress Vietnam has made over the past decade is just the first chapter in a multi-generational growth story.

“There are very few limitations. It’s a country of very hard-working, very optimistic and highly educated people, and when you’ve got that demographic you don’t need much of a tailwind. It…drives itself forward.”

And a new tailwind is stirring: Chinese investors seem to be suffering a bad case of FOMO.


Sri Lanka receives long-awaited IMF bailout. The IMF approved a $3 billion funding package on Monday after months of back-and-forth with Sri Lanka’s government during which a cloud of economic chaos threatened to engulf the country. The agreement could unlock up to $7 billion in additional lending from multilateral institutions such as the World Bank and the Asian Development Bank, Reuters reports.

Garment workers at a factory in the outskirts of Colombo. Photo: Dinuka Liyanawatte/Reuters

The IMF said it would immediately disburse $333 million from the bailout package. Sri Lanka is looking to restructure $84 billion in debt after defaulting last May, Al Jazeera reports.

Years of financial mismanagement came to a head in Sri Lanka last year, as inflationary pressure prompted by Russia’s attack on Ukraine compounded the effects of dwindling foreign reserves and the damage caused by the pandemic. President Ranil Wickremesinghe brokered an agreement with the IMF last September but that agreement was stalled until this week as Sri Lanka labored to meet the fund’s conditions, including winning approval from bilateral lenders India and China

Vietnam seizes tons of ivory. Vietnamese authorities confiscated seven tons of elephant tusks on Monday, its largest seizure of smuggled wildlife in over four years, South China Morning Post reports. The tusks, which had been shipped from Angolawith a stop in Singapore, were seized at the port city of Haiphong in Northeastern Vietnam, in a container that was declared to be carrying peanuts.

Vietnamese customs officers unload illegally transported ivory. Photo from Tuoi Tre video

Despite international bans on wildlife trafficking, smuggling of valuable animal goods including ivory remains big business in Southeast Asia. Goods are typically sold on to China, where they are used as charms, medicine, and decorations, Radio Free Asia reports.

Amid mounting international pressure to prevent the trade of ivory, Vietnam has cracked down on wildlife smugglers. Last month, customs officials seized over 1,300 pounds of illegally imported African ivory at a different port in Haiphong, and in October 2018, authorities seized over eight tons of ivory and other wildlife products.

Malaysia seeks closer ties with Saudi Arabia. Malaysian Prime Minister Anwar Ibrahim visited Saudi Arabia this week, seeking to restore ties with the wealthy Middle Eastern country after a financial scandal created bilateral tension. 

The relationship between the two nations soured after former Prime Minister Najib Razak claimed to have received $100 million from a Saudi prince. Razak, who stole $700 million in government funds, ultimately went to prison in what became known as the 1MDB scandal. His successor, Mahathir Mohamad, railed against perceived Saudi involvement in the scandal.

Malaysian Prime Minister Anwar Ibrahim is welcomed in Jeddah by the city’s governor, Prince Saud bin Abdullah. Photo: Prime Minister’s Office of Malaysia

Now Malaysia could be looking to get back into the good graces of its largest trading partner in the Middle East. Total trade between the two countries was valued at over $10 billion last year, Arab News reports. For its part, Saudi Arabia could be looking for inroads into Southeast Asia, Nikkei reports, with rapidly growing Muslim nations including Malaysia and Indonesia holding increasing regional influence. Malaysia is expected to host a meeting of ASEAN and Gulf Cooperation Council countries later this year.

Middle East

Saudi Arabia and Iran plan bilateral talks. After holding a call on the first day of Ramadan, Saudi Arabia’s and Iran’s foreign ministers have agreed to hold bilateral talks on reopening embassies and consulates, Al Jazeera reports. The meeting is the next step in the formal restoration of diplomatic ties between the two regional rivals after an initial agreement, brokered by China.

Also announced this week was an agreement by Saudi Arabia and Syria to reopen embassies and consulates after cutting diplomatic ties over a decade ago due to Syria’s civil war, Reuters reports. Syria’s President Bashar al-Assad is a key regional ally of Iran, and the restoration of diplomatic relations is indicative of a broader engagement of rapprochement by Saudi Arabia and Iran.

There have been hopes that this easing of the rivalry between the two regional powers would reopen the possibility of long-term peace talks in Yemen, where Saudi and Iranian proxies have been fighting a bloody civil war that has given rise to a humanitarian crisis. However, renewed fighting in Yemen’s Madlib Province by Iran’s Houthi proxies casts doubt on that possibility.

IMF warns Lebanon of hyperinflation risk. Ernesto Ramirez Rigo, the head of the IMF’s mission in Lebanon, said on Thursday that progress towards finalizing a bailout package has stalled, AP reports. Since reaching a preliminary agreement last year, Lebanon has failed to make progress on key reforms, such as restructuring its debts and easing capital and currency controls, putting it at risk of hyperinflation.

Retired members of the Lebanese security forces in a protest over pay levels. Photo: Hassan Ammar/AP

Lebanon’s currency is officially valued at 15,000 Lebanese pounds to the dollar, but is currently trading at more than 100,000 to the dollar on the black market, which in Lebanon accounts for nearly all transactions. Protests erupted this week in Beirut as the pound hit a new low and inflation hit a new triple-digit-high, further destabilizing the country’s already precarious security situation, Al Jazeera reports.

Since 2019, Lebanon’s economy has fallen into a severe crisis, with the pound losing some 98% of its value and three-quarters of the population falling below the poverty line.


Ukraine clinches IMF package to protect its battered economy. The IMF finalized a $15.6 billion loan, pending board approval, providing a financial lifeline for the battered Ukrainian economy. The program is intended to build “fiscal, external, price and financial stability” by raising additional funds, increasing tax collection, and eliminating monetary financing of debt.

A school destroyed during a Russian attack in eastern Ukraine. Photo: AP via VoA

The lifeline is especially critical as the war’s economic toll has been immense with a 30% economic contraction, interest rates over 25%, and non-performing loans averaging 38% across the financial sector. While business sentiment has stabilized after Russia’s winter offensive, the private sector has struggled as multinationals relocated to elsewhere in the region and an estimated three-quarters of companies are scaling back production.

Russia changes tax policies to counter drop in oil revenue. Moscow has moved to change its process for taxing oil companies as steep discounts between various price levels have eroded key hydrocarbon revenues for the now-deficit-running government, the FT reports. The change from using the Urals standard to a Brent crude-based calculation system will reportedly capture a larger share of sales in data and generate an extra $8 billion of annual revenue for the state.

Discount in price for Urals to Brent crude. Source:

While the price fragmentation has enabled Russian oil companies to increase their untaxed profits, the Kremlin has flagged an impending crackdown, with Putin directing officials to close the loophole. Under the new system, the maximum Urals discount to Brent will be $34 a barrel, a number that will shrink to $25 in July.

Such reforms highlight growing complexity in Russian oil markets and increasing tensions between the government and oil companies over excess profits. 

Orban clashes with Hungary’s central bank. Hungarian Prime Minister Viktor Orban has escalated a standoff with the country’s central bank with a decree constraining its ability to tighten monetary policy, Bloomberg reports. The restriction bars big local investors and retail banks from putting cash in central bank credit facilities carrying 18% interest. 

The move also extended the duration of a ceiling on interest that commercial banks can pay on deposits until the end of June, effectively loosening monetary conditions amid a recession and despite persistently high inflation.

Viktor Orban. Photo: Akos Stiller/Bloomberg

The central bank has so far resisted pressure to cut its 18% main interest rate citing a continued focus on reducing inflation, which is over 25%, and fluctuations in the forint’s value. While the currency has remained supported, given its attractiveness for carry trades, the burgeoning conflict between Orban and central bank governor Gyorgy Matolcsy over monetary policy is creating unwelcome uncertainty for investors.

Latin America

Lula’s team struggles to put forward credible economic plan. A meeting of the leading economic policy figures in Brazil this week highlighted President Lula de Silva’s difficulty in presenting a credible economic agenda. Having established plans to remove constitutional spending caps, the cabinet has reportedly been at odds on how to finance Lula’s ambitious social spending without pushing debt, currently at 77% of GDP, to unsustainable levels.

Brazil’s Vice President Geraldo Alckmin. Photo: Andressa Anholete/Bloomberg

The uncertainty around the country’s new fiscal framework has compounded market nervousness over the direction the fledgling administration will take for managing Latin America’s largest economy. Without a clear fiscal path, Lula and his lieutenants have taken to sharply criticizing the newly independent central bank’s 13.75% interest rate as preventing growth. 

While markets have reacted poorly to the attacks on central bank independence and the prospect of higher inflation in turn, the central bank has pushed forward with its plans.

Oil minister resignation suggests a broader anti-corruption purge in Venezuela. Venezuela’s powerful oil minister Tareck El Aissami resigned after several high-level executives of state-owned oil company PDVSA were arrested for corruption. El Assimai was a critical ally of President Nicolas Maduro and effectively orchestrated the regime’s sanctions avoidance strategy and partnerships with Middle East countries such as Syria and Iran.

Tareck El Aissami said that he resigned to facilitate a government anticorruption probe. Photo: Miguel Gutierrez/EPA/Shutterstock

In a speech, Maduro called out corruption in the country and said that “very important business people, top officials at state entities and lawmakers” had been arrested in what would be the first phase of a crackdown on corruption. 

A broader purge reflects how Maduro’s grip on power has stabilized along with the economy as graft was a large part of how the regime had managed to keep control against both international and internal pressures.

What we’re reading

DRC says Rwandan mineral smuggling costs it almost $1b a year. (FT)

43,000 estimated dead in Somalia drought last year. (AP)

Ethiopian authorities remove terrorist label from Tigrayan party. (Voice of America)

China ‘to talk with Ghana’ over debt restructuring proposal. (Reuters)

Opposition files petition against Nigerian election result. (AP)

Côte d’Ivoire turns to the IMF again, three years after its last loan. (The Africa Report)

South African military deployed to prevent planned national shutdown. (FT)

Egypt’s military is under pressure to loosen its grip on economy. (WSJ)

World Bank agrees $7b five-year partnership with Egypt. (Reuters)

Nokia wins contract to digitize Egypt’s new capital city. (Afrik21)

Pakistan’s parliament summoned in midst of crisis over former PM Khan. (Reuters)

Ruling party sweeps Kazakh parliamentary election, exit polls show. (Reuters)

Chinese pressure tactics against other countries ‘largely ineffective.’ (WSJ)

Blinken pushes for $2b for US rival to China’s Belt-and-Road. (Radio Free Asia)

Jordan parliament votes to recommend expelling Israeli ambassador. (Al-Jazeera)

US strikes Iran-backed group in Syria after deadly attack on coalition base. (The Guardian)

Iran’s finance minister highlights surge in investment from Russia. (FT)

West eyes the UAE in crackdown on Russia’s sanctions evasion. (FrontierView)

Israeli airstrikes reportedly hit Syria’s Aleppo airport for second time in weeks. (Times of Israel)

China’s Xi Jinping backs Russia’s Putin on Ukraine but holds out on gas pipeline. (FT)

Moldova to target corruption with new court for major cases. (Balkaninsight)

Bulgaria’s pro-Kremlin leader refuses to send Soviet-era fighter jets and tanks to Ukraine. (Radio Free Europe)

Big jump in migrants crossing Panama’s dangerous Darien Gap. (AP)

Bolivia’s currency crisis deepens as dollar become hard to find. (Bloomberg)

Chile to ‘limit copper royalty bill’ after industry complaints. (Reuters)

Chile’s domestic demand shrank in Q4 2022, and a recession is inevitable. (FrontierView)

Argentina bonds slide after nation orders public sector sale. (Bloomberg)

Uruguayans go on strike against social security reforms. (Mercopress)

US World Bank nominee says ‘trillions’ needed for poverty fight. (Nikkei)

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