Frontier Markets Weekly, May 27th 2023

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

Welcome to the latest edition of Frontier Markets News. As always, I would love to hear from you at dan@frontiermarkets.co with news ideas, feedback and anything else you find interesting. 

If you’d like to receive this newsletter in your inbox every weekend, sign up at FrontierMarkets.co. Please also share this link with any friends or colleagues you think would enjoy it.

And don’t forget to check out this week’s podcast with South African opposition leader John Steenhuisen.

Africa

DRC to push for improvements to China mining deal

On a visit to China this week, President of the Democratic Republic of the Congo Félix Tshisekedi sought to renegotiate a deal with Beijing concerning rights to the African country’s precious minerals.

In 2008, then-President Joseph Kabila agreed to a $6.2 billion minerals-for-infrastructure deal with China, which Tshisekedi has criticized for giving away too much of the DRC’s cobalt. He is seeking to increase the amount of the venture owned by the DRC to 70% from 32%, Reuters reports.

In exchange for its share of the venture, China agreed to build $3.2 worth of infrastructure in the country. As of February this year, China had built infrastructure worth only an estimated $822 million, the South China Morning Post reports.

UN works with African Export-Import Bank work to secure Russian agricultural exports

The UN and the African Export-Import Bank are working to develop a mechanism to process transactions that would allow them to buy Russian grain and fertilizer. 

As part of an agreement to allow Ukraine to export food and grain, Russia secured a UN commitment last year to facilitate exports of its own agricultural products. Both deals are intended to mitigate a brewing global food crisis, which is expected to hit Africa the hardest. Russian food and fertilizer exports have already reached Malawiand Kenya, with more potentially headed to Nigeria and South Africa, Reuters reports.

Prior to the Russian invasion of Ukraine in February 2022, many African countries were dependent on Moscow and Kyiv for grain. After the war disrupted exports of those goods, an already-worsening humanitarian crisis has threatened to turn even more dire. Last month, the UN warned food insecurity in West Africa and the Sahel region is heading for a 10-year high.

Côte d’Ivoire and Kenya snag IMF deals

The IMF approved loans to both Côte d’Ivoire and Kenya this week, as African economies continue to seek economic lifelines amid fallout from the war in Ukraine, the Covid-19 pandemic and global uncertainty. C

On Wednesday, the IMF approved a $3.5 billion loan to Côte d’Ivoire, to be disbursed over the next three-and-a-half years. The first tranche, consisting of $495.4 million, was made available immediately, the lender said. The disbursement of the remainder of the funds will be contingent on structural reforms, including anti-corruption and anti-money laundering initiatives.

• Kenyan president accuses tax agency of graft as economy struggles (Al Jazeera)

A day earlier, the IMF said that it had reached an agreement to provide Kenya with a $1 billion loan. Kenya’s economy has become heavily indebted and its currency’s value has sunk. If the deal is approved by the IMF board, Kenya will receive an initial tranche of $410 million immediately, Africanews reports.

Asia

Thai election results could threaten power and construction sectors

The victory of the Move Forward party in Thailand’s general election earlier this month has put pressure on its power and construction industries.

Although the election result has not yet been certified by the country’s election commission, the Move Forward party is working to establish a coalition with enough seats to elect the next prime minister. The party ran with a pledge to raise the minimum wage and cut costly electricity bills—and investors are worried those policies could dent the profitability of major players in the energy industry, Nikkei reports.

Shares of Gulf Energy, the country’s largest independent power company, fell 7.6% compared to their value before the May 14 election. That drop could also reflect political dynamics. Gulf Energy is thought to be close to current Prime Minister Prayut Chan-ocha, according to Nikkei. Shares of other energy companies, including B.Grimm Power and Gunkul Engineering, also fell this week. 

US tightens ties with Pacific nations

Micronesia agreed to extend this week a two-decade-old security pact with the US that gives the island nation security and defense guarantees in exchange for hosting US military facilities, Al Jazeera reports.

The move follows the announcement of a similar renewal agreement with Palau and comes as the US is negotiating such an agreement with the Marshall Islands. Under the agreements, the US will commit $7.1 billion to the three nations over the next two decades, Reuters reports.

The agreements deal a blow to China’s effort to grow its influence in the region. Last year, China signed a security arrangement with the Solomon Islands that raised concerns among US officials, and also sought to coax South Pacific states into a regional trade agreement. That deal floundered after a number of countries refused to sign it.

Middle East

Iran denounces Afghanistan’s leaders

Tensions between the Iran and Afghanistan’s Taliban government are rising amid a dispute over shared water rights to the Helmand River, the AP reports. Iran last week warned Afghanistan to respect a water rights treaty, which predates the current Taliban government, and allow Iranian hydrologists to check the water levels of the river.

The Helmand River flows from Afghanistan to Iran, which over the last 10 years has experienced worsening droughts. Iran’s foreign ministry claims Afghanistan has been diverting and damming the river’s flow, and has issued this week a denunciation stating Iran “will not recognize the current rulers of Afghanistan” via the state media apparatus Mehr News.

Saudi Arabia to increase investment in Iraq

Saudi Arabian oil giant Aramco this week agreed to develop a 400 million cubic-feet-per-day gas field in western Iraq, Reuters reports. Iraq’s oil minister Hayan Abdel-Ghani announced the investment on Thursday, and stated that there are other initial agreements on developing “promising strategic projects in the petrochemical industries in Iraq.”

Saudi Arabia is also increasing non-oil-and-gas related investments in Iraq via the Public Investment Fund, the kingdom’s sovereign wealth fund. PIF announced this week the formation of a $3 billion unit, the Saudi-Iraqi Investment Company, with a mandate to invest in infrastructure, agriculture, real estate and financial services.

UAE expands non-GCC trade relations

The UAE is opening a new consulate in Hyderabad, India, to meet rising visa demand and boost local business investment by Emirati companies, the Times of India reports. The UAE is India’s third-largest trading partner, and Emirati officials are signaling ambitions to increase non-oil trade from the current $73 billion to $100 billion by 2027.

The UAE has a set of trade and investment agreements with India called the “Comprehensive Economic Partnership Agreements,” bypassing the Gulf Cooperation Council’s customs union, common market and negotiating bloc. Only four CEPAs exist at present, but earlier this month the UAE started talks on additional CEPAs with Malaysia and Thailand.

Europe

Bulgaria forms government, ending political uncertainty

Bulgaria’s main political factions agreed this week to form a coalition government after two years of instability that saw five elections and a parliamentary stalemate that froze policymaking. The coalition’s leaders highlighted the economic and political benefits such membership would bring, such as access to substantial EU funding and opportunities to carry out anti-corruption, economic and constitutional reforms.

The coalition, pending approval by the respective parties’ MPs, will see the prime minister position rotate between the two main parties’ leaders. The country, though, remains starkly divided, with demonstrations and vandalization of EU symbols by the Revival Party and the Bulgarian Socialist Party highlighting Moscow’s continued influence in the eastern Balkan country.

Armenia ‘ready to end’ Nagorno-Karabakh conflict

Armenian Prime Minister Nikol Pashinian said that his government intends to recognize Azerbaijan’s claim to Nagorno-Karabakh. The development, which is contingent on guarantees for Armenians living in the disputed region, is the most concrete progress towards peace in the conflict, which has seen two wars and decades of lower-intensity fighting.

Any such deal would face stiff domestic resistance amidst ingrained anti-Azeri sentiment. After Armenia ceded territory to end the 2020 war, for example, nationalist protesters seized parliament and the military joined many Armenians calling for Pashinian’s removal.

Despite the difficulties, lasting peace would boost both economies and support investment flows into the South Caucasus, an impoverished but strategically located transport hub.

Latin America

Argentine government explores increasingly unorthodox economic policies

In the face of 108% inflation, a severe shortage of foreign exchange, and a poverty level of around 40%, Argentina’s increasingly desperate government is turning to unorthodox and potentially counterproductive policy options, as FMN flagged in April. This week, the central bank introduced a 2,000 peso note, making it easier to store large amounts of cash, and separately, Vice President Cristina Kirchner called for the country to halt IMF debt repayments, a policy that has drawn left-wing support in the past.

The central bank and the government are also pressuring Argentine businesses to conserve foreign exchange badly needed for debt and import payments. The government has asked oil companies and large corporations to finance their own imports through international banks or parent companies, further complicating operations for the country’s embattled corporates.

Additionally, the central bank has further restricted trade, banning the collection of freight payments by importers, pausing import payments, and banning shippers from paying in pesos. According to the Federation of Foreign Trade Chambers of Argentina (Fecacera), the measures will increase the time and cost of imports, disrupt supply chains, and potentially lead to the collapse of the country’s trade systems. 

Beijing makes gains in Latin America with commercial diplomacy

The US and EU are losing ground in Latin America as China pushes hard to deepen trade ties with the region, the FT’s Michael Stott reports. Chinese trade with Latin America had exploded to $495 billion by 2022, and is set to expand much further after Costa Rica and Ecuador inked trade deals. Panama and Uruguay are likely to follow soon. 

Beijing has also outpaced the region’s traditional allies with extensive infrastructure investment and building projects, leading to over $136 billion in official development aid alone since 2005.

Washington and Brussels have been focusing on corruption, democracy, the environment, human rights and the risks of doing business with China, but despite pressuring the region’s governments to fall into line the Biden administration has ruled out new trade agreements. The US has a patchwork of six existing free trade agreements covering 12 Latin American countries, but the lack of a common framework has made it difficult to integrate regional value chains. 

European and US companies have been also divesting from projects in renewable energy and critical minerals amid unstable politics, allowing Chinese firms to consolidate their positions.

Global

Emerging markets caught in the crossfire as Russia pushes for support

Russia’s government is reportedly exerting pressure on emerging-market governments to persuade them not to do anything that could further isolate Russia financially in the wake of its invasion of Ukraine. Russia is threatening to disrupt defense and energy deals unless these governments help block moves that could make Russia a financial pariah.

Bloomberg reports that documents and accounts from NATO officials shed light on Russia’s efforts to influence commercial partners ahead of a crucial meeting where Kyiv is expected to push for Moscow to be added to the Financial Action Task Force’s “gray-list” of money-laundering enablers in June.

Such a designation would place Russia alongside countries such as North Korea, Iranand Myanmar, further isolating its economy.

What we’re reading

Nigeria’s doctors fume over plans for five years of mandatory service (The Guardian)

Chinese hackers ‘attacked Kenyan government’ as debt strains grew (Reuters)

Tanzania LNG project cost increases to $42b (Energy Capital & Power) 

Zimbabwe president vows action against business for ‘causing economic woe’ (Bloomberg)

Zimbabwe exchange to list carbon credits as state upends trade (Bloomberg)

Zambia uses pension funds to shore up debt-stressed economy (The Africa Report)

South Africa’s mounting economic risks will hinder commercial performance through 2024 (FrontierView)

China loans ‘to strain African debt market liquidity’ (The Africa Report)

Sri Lanka will apply to join RCEP trade bloc, Wickremesinghe says (Nikkei)

Pakistan pins hopes on Chinese help in debt crunch. (FT)

Pakistan aims to produce 1m AI-trained IT graduates by 2027 (CoinTelegraph)

Vietnam eyes higher taxes to curb real estate speculation (Nikkei)

Vietnam economic growth could disappoint in 2023 (Bloomberg)

Traffickers switch to Myanmar after China erects border fence (Al Jazeera)

Mongolia nudges China to increase investments (SCMP)

From wigs to seafood, North Korea scrambles for China trade (Nikkei)

Turkish drone strike kills Yazidi fighters in Iraq (France24)

Germany issues arrest warrant for Lebanon’s central bank chief (Reuters)

Lebanon ‘set to be gray-listed’ by financial crime watchdog (Jerusalem Post)

Iran’s security chief replaced (Al Jazeera)

Saudi Arabia and Canada to restore full diplomatic relations (FT)

Russia–Georgia flights resume despite protests, strained ties (ABC)

Estonian, Latvian and Lithuanian investment prospects improve with pan-Baltic index (EBRD)

To aid Ukraine in fight against Russia, allies look to security model like Israel’s (WSJ)

Civil society leads push for unified opposition candidate in El Salvador (El Faro)

Thousands of Afghans migrate to the US through the Panama’s Darien Gap (NYT)

Ecuador’s president signs decree-law to promote inward investment (Mercopress)

Uruguay’s historic drought leaves water supply running dangerously low (TVP World)

EU’s foreign policy representative Borrell begins trip to Cuba with support for island’s private sector (El País)