December 2, 2022

Frontier Markets Weekly, November 13th 2022

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. 

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Africa

Gabon targets a huge payday with carbon credits. Gabon, one of the most densely forested countries on earth, is launching the world’s biggest sale of carbon-offset credits, Phred Dvorak writes in the Wall Street Journal. The plan could net the country billions of dollars and upend the fast-growing market for carbon credits.

Gabon, which sits on Africa’s west coast, is 88% forest. It has slowed the cutting of those trees and is now seeking to sell credits for the emissions decline it has achieved. The trees pull carbon dioxide from the atmosphere, reducing greenhouse gases.

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Gabon is trying to figure out how to make money off its potentially lucrative timber industry while still preserving forests. Photo: Steeve Jordan/AFP

“In a self-interested way we’re looking at the money,” said Lee White, a UK-born zoologist and naturalized Gabonese citizen who is the country’s environment minister. “But then we’re also looking at potentially being an example of how it can work so that we can actually get this scale” needed to help curb global emissions growth, he said.  —Noah Berman

Liquidity concerns prompt Nigeria credit-rating cut. Ratings firm Fitch downgraded Nigeria’s public debt on Friday, as the costs of servicing its external debt and a longstanding fuel subsidy continue to eat into the country’s FX reserves. The downgrade brings Nigeria’s debt rating to B-, well into junk territory and at the same level as Nicaragua and Iraq.

“Low oil production and the expensive subsidy on petrol have consumed most of the fiscal benefit of high oil prices in 2022 and will continue to stress already low government revenue levels,” Fitch analysts Jermaine Leonard, Toby Iles and Erich Arispe Morales wrote.

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Taxi vans by Idumota market in Lagos, Nigeria. Photo: Adetona Omokanye/Bloomberg

Analysts say Nigeria has failed to take advantage of high oil prices, with production stagnant year-over-year amid security risks. Nigerian debt was downgraded by fellow ratings firm Moody’s investor Services in October to B3, with a negative outlook. S&P Global rates Nigerian debt as B- with a stable outlook.  —Noah Berman

Twitter clips Africa staff. One year after opening its first Africa office in Accra, Ghana, Twitter laid off all but one of its employees on the continent, Africanews reports. The layoffs were part of a global winnowing of staff for the social media giant, with significant cuts also expected in India.

The Accra office had around 20 employees, BBC reports, who were notified via email that their last day of work would be Dec. 4. The move appeared to violate Ghanaian labor laws, which require three months’ notice before termination of the contract date.“The company is reorganizing its operations as a result of a need to reduce costs. It is with regret that we’re writing to inform you that your employment is terminating as a result of this exercise,” the email read.

The move is the latest challenge for Twitter on the continent that it once viewed as “essential.” Last year, Nigeria suspended Twitter’s operations in the country, accusing it of “undermining Nigeria’s corporate existence.” Nigeria lifted the ban in January this year.  —Noah Berman 

Asia

Bangladesh tees up $4.5b IMF loan. The IMF agreed on Wednesday to provide a $4.5 billion loan to Bangladesh to help it tackle high inflation, a plunging local currency and the impact of recession concerns in key export markets, Philip Wen reports in the WSJ. The agreement is subject to review by the IMF’s executive board, expected within the next two months, with disbursements available beginning in February 2023.

“Bangladesh’s robust economic recovery from the pandemic has been interrupted by Russia’s war in Ukraine, leading to a sharp widening of the current account deficit, rapid decline of foreign exchange reserves, rising inflation and slowing growth,” said Rahul Anand, the IMF economist who led the visit.

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Bangladesh’s economic mainstay is the export-oriented garment industry, which is bracing for a slowdown. Photo: Mohammad Ponir Hossain/Reuters

The country’s foreign reserves have fallen over 23% since last year, shrinking to $35.74 billion in November, enough to cover about four months of imports, Al Jazeera reports. Meanwhile, inflation has hovered around 9% after reaching a 10-year high in August. Nevertheless, Bangladesh’s pursuit of IMF funding comes as a more preemptive maneuver than the bailouts sought by South Asian neighbors Sri Lanka and Pakistan. As a result of the less dire position, IMF facilities are expected to come with fewer strings attached, Tellimer Research analyst Hasnain Malik writes.  —Noah Berman

World leaders converge in Southeast Asia. Asian leaders and US President Joe Biden gathered in Cambodia this weekend for the first in-person ASEAN summit since the onset of the Covid-19 pandemic. On Monday, they will head to Indonesia for the G20, where they will be joined by leaders from across the world. The G20 comes on the heels of the B20, a conference that brought together business leaders from G20 states.

The crisis in Myanmar and the US-China rivalry dominated discussions at the ASEAN summit. Myanmar, a member of ASEAN, was not invited to this year’s summit over humanitarian concerns. The military junta-controlled country has grown increasingly repressive this year, sentencing former leader Aung San Suu Kyi and pro-democracy activists to lengthy prison sentences. 

Biden’s presence at the ASEAN meeting highlights the importance his administration places on enhancing relations with the bloc, which is a key trading partner and a potential counterbalance to China’s economic heft in the region and beyond. The US is the second biggest export destination for ASEAN, and the bloc is the fourth-largesttrading partner of the US, according to the Office of the United States Trade Representative. China is ASEAN’s largest trading partner.

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Joe Biden walks past Balinese dancers on his arrival for the G20 Summit in Bali, Indonesia. Photo: Made Nagi

Biden and Chinese President Xi Jinping are expected to discuss opportunities for regional cooperation on the sidelines of the G20 on Monday at their first in-person meeting since the former took office. US officials have emphasized that expectations for deliverables from the meeting are low, Voice of America reports.  —Noah Berman

Europe

Ukraine’s Zelensky sets conditions for ‘genuine’ peace talks with Russia president. Ukrainian President Volodymyr Zelensky said he was open to “genuine peace talks” with Russia, following pressure from Western backers to signal readiness for negotiations amid concerns about the rising costs of the eight-month war, Matthew Luxmoore, Laurence Norman and Marcus Walker report in the WSJ. Zelensky said Ukrainian conditions for talks included returning Ukrainian control over its territories, compensating Kyiv for Moscow’s invasion and bringing to justice perpetrators of war crimes.

In an address late on Monday, he said that efforts should focus on “stopping Russian aggression, restoring our territorial integrity and forcing Russia into genuine peace talks.” There are scant prospects of imminent peace talks, as both sides still believe they can win. 

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Ukrainian soldiers fired toward Russian positions outside Bakhmut in eastern Ukraine. Photo: Bulent Kilic/AFP

Ukraine has made significant gains on the battlefield in recent months and is pressing for more. Russia believes it can outlast the West and sap Western support for Kyiv, and Western capitals say the Kremlin is escalating the war, rather than seeking openings for talks.

US and European officials have said it is up to Ukraine to define the terms of any acceptable settlement.

Latin America

Possible China debt purchase boosts El Salvador as it cuts Taiwan trade ties. El Salvador’s debt, which traded as low as 25 cents on the dollar in July, has rebounded amid government buybacks and the potential for Chinese refinancing, report Bloomberg’s Alonso Soto and Esteban Duarte. The Central American country has been trying to stave off default amid investor skepticism, a difficult external environment, and a cryptocurrency rout that has seen the country’s bitcoin holdings plunge in value.

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Facing the prospect of a January default on $800 million, President Nayib Bukele ordered the government to buy back $1.6 billion in 2023 and 2025 bonds. The move eased concerns of immediate default, with short-term debt recovering to 93 cents on the dollar. Investors generally remain skeptical about San Salvador’s future, though, with markets demanding an a risk premium as high as 28% for holding long-term government debt, one of the highest rates in the world and well over the 10% threshold for distress. 

The announcement reflects the budding relationships China has cultivated in the region, a fact embodied by San Salvador’s Thursday decision to end its free trade agreement with Taipei and negotiate a new arrangement with Beijing.  —Ken Stibler

Nicaragua ruling party cements control after sweep in local elections. The regime of President Daniel Ortega completed its takeover of Nicaragua in local elections this week, gaining control of all 153 municipalities. International observers and human rights groups widely denounced the elections as fraudulent amid allegations of voter intimidation, opposition disqualification, and low turnout that the government attempted to hide by ordering public employees to remain in polling stations.

The sweep ended all formal political opposition, taking the last 12 municipal seats away from aligned parties and formally establishing the Sandinista National Liberation Front’s single-party status. The slide further into open despotism comes on the heels of a longstanding crackdown on civil society and media organizations, which triggered US sanctions in October.

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Daniel Ortega merchandise is sold on a street in Managua. Source: Getty Images.

Chile’s president Gabriel Boric called for a multilateral effort against the regime, suggesting regional governments will pay more attention to Nicaragua after years of inaction. Their efforts might be tempered, however, in the wake of the failure of international efforts in Venezuela.  —Ken Stibler

Global

IMF and World Bank climate finance overhaul could catalyze $2 trillion private investment. As the threat posed by global warming grows increasingly palpable, world leaders gathering at the COP27 climate summit are debating who will pay for the trillions needed to mitigate climate change, adapt to its increasing risks and pay for the destruction it is causing, Amy Cortese writes in ImpactAlpha. At the summit, which is taking place this week and next in Egypt, traction is growing for proposals that would make more money available faster for developing countries, many of which are more susceptible to the extremes of climate change.

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Kristalina Georgieva, director of the International Monetary Fund, center, at the COP27 summit on Wednesday. Photo: Sean Gallup/Getty Images

The reforms being considered would offer low-income countries lower interest rates and allow them to pause payments following climate disasters. If implemented, they would constitute the largest mobilization of international finance in history, the New York Times reports.

The proposals are in line with the Bridgetown Initiative, a program promoted by Prime Minister of Barbados Mia Mottley. Avinash Persaud, a Barbados economist who helped conceive the plan speculates that an initial IMF grant of $650 billion could stimulate an additional $2 trillion in private investment, the Guardian reports

At the conference, both IMF and World Bank leadership demonstrated an openness to the plan, Foreign Policy reports.  —Noah Berman

What we’re reading

DR Congo trains 3,000 new army recruits amid Rwanda tensions. (AP)

Glencore-led creditors reach agreement on Chad debt revamp. (Bloomberg)

Uganda struggles to contain its second-deadliest Ebola outbreak. (WSJ)

Egypt’s food supply in danger as farmers struggle to adapt to climate change. (WSJ)

UN warns of worsening food crisis in Sri Lanka amid economic woes. (Al Jazeera)

Thailand’s businesses prepare to face the storm of climate change. (Nikkei)

North Korea fires short-range missile, continuing recent spree of weapons tests. (WSJ)

ASEAN banks face sharper debt risks as interest rates rise. (Nikkei)

Weak global growth weighs on Southeast Asia’s manufacturing sector. (FrontierView)

Russia becomes India’s top oil supplier as sanctions deflate price. (FT)

Uzbekistan lobbies EU to lift sanctions on Alisher Usmanov. (FT)

Uzbekistan mulls offering citizenship for investments into its economy. (Radio Free Europe)

Turkey raises $1.5b in dollar bonds as emerging market sell-off eases. (FT)

IsraelJordanUAE plan to swap solar energy for desalinated water. (Times of Israel)

Israel hits suspected Iran weapons convoy in Syria with airstrikes. (WSJ)

Iran issues first known death sentence for protester. (WSJ)

Saudi and Gulf-state trade with emerging Asia to rise 60% by 2030. (Nikkei)

China’s Xi Jinping plans visit to Saudi Arabia. (WSJ)

Ukraine seizes control of five ‘strategic’ companies from oligarchs. (FT)

Pummeled by Russian rockets, Ukraine’s power grid sputters and Ukrainians struggle. (Radio Free Europe)

Russia looks to private militia to secure a victory in eastern Ukraine. (NYT)

EU announces $250m package to help Moldova tackle energy crisis. (Radio Free Europe)

Hungary infuriates EU with block on €18B Ukraine aid. (WSJ)

Why the Dutch are blocking Schengen entry for Bulgaria and Romania. (Radio Free Europe)

Reports of China’s overseas ‘police stations’ spark controversy, denial in Hungary and Serbia. (Radio Free Europe)

Lithuania tests the EU’s resolve on Chinese economic coercion. (FT)

Central American journalists create united front against state-sponsored attacks. (El Faro)

US criticizes moves against Guatemalan judges, prosecutors. (Reuters)

Venezuela opposition leader Juan Guaidó vows to fight on. (WSJ)

Amazon destruction woes overshadow Brazil’s farming advances. (FT)

Argentina to create yet another dollar exchange rate. (MercoPress)

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