Frontier Markets Weekly, November 20th 2022

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Libya ‘at risk of partition.’ The UN special envoy for Libya said on Tuesday that any further delay in Libya’s postponed elections could put it at “risk of partition.” Elections had been planned for December 2021 but were delayed amid violent protests.

Libya has been laboring through political instability since NATO-backed forces unseated long-ruling dictator Moammar Gadhafi in 2011. Since then, transitional Prime Minister Abdul Hamid Dbeibah has rebuffed calls to step down, leading the eastern Libya-based parliament to select a rival prime minister, Fathy Bashagha, who is supported by the country’s powerful military. Dbeibah said he won’t cede authority until a government is chosen by an elected parliament, Daily Sabah reports.

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In Benghazi, Libya, widespread destruction is a reminder of years of conflict. Photo: UNOCHA/Giles Clarke

Further political, economic and security instability seem inevitable, the Associated Press reports. Despite the heightened risks that come with rival governments continuously jockeying for power, the possibility of elections in the near term remains dim, according to the UN.   —Noah Berman

Egypt reduces domestic energy consumption to maximize gas export revenue. Egypt is turning off the lights as the government tries to conserve natural gas for export to Europe, reports the WSJ’s Chao Deng. The Egyptian government began scaling back domestic energy consumption this summer, reducing lighting on streets, public areas, and in government buildings. Officials are aiming for a 15% reduction in electricity demand that can free up gas to sell to Europeans who are paying top dollarfor liquefied natural gas. 

Prime Minister Mostafa Madbouly estimated early this year that such electricity savings would generate $450 million per month in extra gas exports. The war in Ukraine has prompted a near-fourfold increase in Egypt’s European gas exports, according to Oslo-based research firm Rystad Energy.

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Egypt wants to export more energy to Europe, where buyers are paying top dollar for liquefied natural gas. Photo: Amr Abdallah Dalsh/Reuters

The drastic move comes amid a worsening economic crisis that has seen over $20 billion in capital outflows this year. A strong US dollar, declining investor confidence and rising inflation have hit the country hard. While a $3 billion loan from the IMF and support from rich Gulf states has helped, Cairo will need billions more to pay for its substantial dollar-denominated debts.  —Ken Stibler

Peacekeeper withdrawal from Mali to accelerate. Continued political instability is promoting more countries to quit the international peacekeeping force in Mali, amid swelling jihadist violence and heightened Russian influence. On Tuesday, the UK’sdefense minister James Heappey announced that 300 British soldiers would be withdrawn from the country due to political instability, the BBC reports.

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Earlier this year UK troops seized rifles and ammunition from suspected Islamic State members in Mali. Photo: BBC

On Wednesday, Germany followed suit, announcing that it would end to its participation in the UN peacekeeping mission in the turbulent West African country by the end of 2023. Côte d’Ivoire also announced its withdrawal this week. EgyptFrance, and Sweden withdrew or announced commitments to withdraw from the mission earlier this year.

After two coups in three years, Mali’s government is estimated to control less than 15% of the country, Deutsche Welle reports. Western governments have also struggled to control the spread of the Wagner Group, a Russia-linked private military company that analysts say is operating alongside government forces.   —Noah Berman

Uganda to test Ebola vaccines. The World Health Organization is shipping three Ebola vaccine candidates to Uganda next week to help the country tackle what has become its second-worst outbreak ever. The WHO did not say how many doses will be shipped or used in clinical trials, but has said the number will be “sufficient,” Reuters reports.

If communities cooperate with the government, which is by no means assured in rural Uganda, the country could have the outbreak under control by April 2023, CNN reports.

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An Ebola treatment unit in Mubende, Uganda. Photo: CNN

A long-dormant strain of Ebola for which previous vaccines and treatment are ineffective began spreading in Uganda over the summer, and the country officially declared an outbreak in September. The so-called Sudan strain has caused 55 deaths from 141 confirmed cases, though the actual tally could be higher, according to the European Centre for Disease Prevention and Control.

Previous Ebola vaccines were developed against the Zaire strain of the virus, which resulted in over 11,000 deaths in West Africa between 2012 and 2014.  —Noah Berman 


Indonesia and Vietnam edge away from coal. At a series of global conferences this week, wealthy nations offered $31 billion in separate deals to wean Indonesia and Vietnam off coal, the most polluting fossil fuel.

  • Indonesia aims to cut emissions with $300 million coal-plant deal. (ImpactAlpha)

On the sidelines of the G20 summit in Bali, Indonesia on Tuesday, the USJapanCanada and several European countries agreed to provide $10 billion in grants and loans alongside $10 billion in private investment from multinational banks such as Citigroup and Bank of America to help the host country speed its transition to renewable energy. Indonesia promised to cut its emissions-reduction timeline by seven years and cap carbon dioxide emissions from its power sector at 290 million tons by 2030, the New York Times reports.

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Piles of coal on barges in Samarinda in East Kalimantan, Indonesia. Photo: Adek Berry/AFP

Meanwhile, at the COP27 climate summit in Egypt, officials from Vietnam neared an arrangement to shift its own economy away from coal as part of an $11 billion financing package from donor countries led by the EU and the UK. The deal is expected to be finalized at the EU-ASEAN summit on Dec. 14, with a roughly equal split between public and private financing, Bloomberg reports.  —Noah Berman

Myanmar releases prisoners. The ruling military junta in Myanmar announced this week that it would free nearly 6,000 people from prison. State media described 712 of those released as political prisoners, the Guardian reports, but the Assistance Association for Political Prisoners, an independent monitoring group, was able to confirm the release of only 53 identified political prisoners.

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Confusion remains over how many political prisoners were released this week. Photo: AP

The military seized power in a coup in February 2021 and quickly launched a brutal campaign repressing criticism. Western diplomats and academics were caught in the junta’s crosshairs: An Australian academic, a Burmese-American citizen, and the former British ambassador to Myanmar were among those released this week. 

The releases come one week after the ASEAN summit, the second that barred attendance from Myanmar’s military leadership. Remaining in prison is the 77-year old former de-facto leader of Myanmar Aung San Suu Kyi, who is serving a 23-year term and facing charges that could stack 105 years to her sentence.  —Noah Berman

Malaysia heads for hung parliament. Malaysians headed to the polls to elect a new parliament Saturday, hoping to bring an end to the political turmoil that has embroiled the nation since Prime Minister Ismail Sabri Yaakob called for early elections in October. With all seats but one called on Sunday, the result appeared to be a hung parliament, the country’s first in its political history.

Opposition leader Anwar Ibrahim’s Pakatan Harapan coalition led the pack with 82 seats out of a possible 220. Former Prime Minister Muhyiddin Yassin’s National Alliance party was close behind with 73 votes.

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Voters wait in line at a polling station during Saturday’s election in Malaysia. Photo: Annice Lyn/Getty Images

The results pointed to an apparent flop for Yaakob, who had called for snap elections in the hope of solidifying a stronger advantage for his ruling coalition, which includes the United Malays National Organization. UMNO ruled for Malaysia for 61 years from the country’s independence until 2018. The party has retaken power twice since, but after this weekend’s vote, it is unlikely to be in the next ruling coalition, CNN reports.  —Noah Berman

Middle East

Iraq threatens ‘high-level response’ to Iranian attacks on bases in Kurdistan.Iranian security forces launched ballistic missile and drone attacks at opposition bases in Iraqi-Kurdistan after Baghdad refused Tehran’s request to expel opposition groups, the New York Times’ Jane Arrad and Sangar Khaleel report. The Kurdistan Democratic Party of Iran said two of its members were killed and eight wounded Monday after five of its bases were hit by Iranian Fateh-110 ballistic missiles.

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Members of a left-wing Kurdish Iranian opposition group near Sulaimaniya in the Kurdistan Region of Iraq. Photo: Emily Garthwaite for NYT

Iran blames the Kurdish groups for fueling protests that began after the September death in custody of a Kurdish-Iranian woman. Monday’s were the first since multi-day attacks on opposition bases across the semi-autonomous Kurdistan region. Several armed Iranian Kurdish opposition groups have maintained bases near the Iran-Iraq border for years, claiming to protect the Iraqi border, while Iran accuses the bases as a staging area for terrorist attacks. 

Iraq’s foreign minister, Fuad Hussein, condemned the attacks as a blatant violation of Iraqi sovereignty and decried the dangerous and unjustified “hostile escalation.” In addition to making Baghdad’s displeasure known to the Iranian foreign minister on Monday, Hussein has promised additional high-level diplomatic measures in response.  —Ken Stibler


Romania, Croatia and Bulgaria ‘ready to join Schengen.’ The European Commission (EC) this week said Romania, Bulgaria, and Croatia are ready to join the so-called Schengen Zone, Romania Insider reports. Bulgaria and Romania successfully completed the Schengen evaluation process in 2011, and although the Council recognized the completion of the evaluation process, it failed to take a decision on the lifting of the internal borders, the same source explained.

After a recent fact-finding mission, the EC said Schengen membership for the three countries should move forward as quickly as possible. Romania, though, is facing opposition from political parties in other European nations that could see its membership application stalled. 

Other risks persist for Romania, too, according to research firm Capital Economics. The firm said Romania’s current account deficit, which is already among the largest in the emerging markets, continues to grow and now exceeds 9% of GDP. “The leu remains vulnerable to a decline in investor risk appetite and, alongside high inflation, it is a reason to think interest rates will stay high for some time,” CapEc said in a note this week.

Latin America

Cuban president goes on a rare foreign trip to drum up support for battered economy. President Miguel Díaz-Canel left Cuba on a rare international tour meant to generate support for an economy battered by hurricane-induced energy shortages and the aftershocks of Covid. The high-level delegation, which included the vice president, foreign minister, and ministers of trade, investment, energy, and health, began the trip in Algeria and will proceed to Russia, Turkey, and China. 

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Miguel Diaz-Canel. Photo: Alain Jocard/AFP/Getty Images

The Caribbean island has faced blackouts for months as higher energy prices and aging electrical infrastructure have failed under the stress of the September hurricane and decades-old sanctions. Weakening global growth, slowing tourism and high electricity costs have forced Cuba to cut its 2022 growth forecasts from 4% to 2%, according to Chamber of Commerce president Antonio Carricarte. 

The president’s trip, which comes amid political instability at home, highlights the severity of Cuba’s crisis and its difficulty in attracting foreign support. The Ukraine war, property sector woes, and anemic oil output have sapped the will of formerly generous backers such as Russia, China and Venezuela to support the battered regime in Havana.  —Ken Stibler

Brazil’s Lula forced to moderate spending plans after markets balk at increased fiscal risk. Brazilian president-elect Lula da Silva was forced to walk back planned spending increases after markets sold off on fiscal fears. The benchmark Bovespa index fell by 10%, and the real shed 2.4% following comments that the government needs to start talking about “social responsibility rather than fiscal responsibility.” 

Lula initially doubled down, mocking the markets’ reaction and criticizing the effects of “speculators.” His transition team had also sparked debt and inflation concerns after proposing a constitutional change to exempt $32 billion in social spending from the country’s main fiscal rules.

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Lula has little room for maneuver with much of next year’s budget already earmarked. Photo: Joedson Alves via FT

The backlash was swift, with former central bank chief Arminio Fraga, former Finance Minister Pedro Malan, and economist Edmar Bacha, one of the architects of the plan that ended hyperinflation in the 1990s, publishing an open letter saying that fiscal responsibility isn’t an obstacle to social progress. The transition team responded with the resignation of Guido Mantega, former finance minister and a key aide, and comments from other key advisors about the importance of fiscal responsibility and cutting expenses.   —Ken Stibler


Pay-for-nature deals gain traction. Emerging and frontier markets are taking the leadin promoting strategies to encourage investment from governments, donors and private investors to protect nature, Jessica Pothering writes in ImpactAlpha. The SeychellesBelizeBarbados and other counties are cutting deals to trim their debt burdens and free up funds to conserve natural resources.

Gabon, home to a large swath of the carbon-crucial Congo Basinis turning to the voluntary carbon markets to finance forest conservation. Incoming Brazilian presidentLuiz Inácio Lula da Silva has promised to halt widescale destruction of the Amazon rainforest, in part by subsidizing credit to farmers who adopt sustainable practices.

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Photo: Cédric Frixon

Germany this week committed €15 million to the UN’s International Fund for Agricultural Development to pilot pay-for-nature projects with farmers and rural communities in LesothoEthiopia and Brazil.

Next up could be Ecuador, which is discussing an $800 million debt-for-nature swap.

What we’re reading

Biggest devaluation in six years may be on the cards for Nigerian currency. (Bloomberg)

Niger is in a tough neighborhood. So how does it remain resilient? (The Africa Report)

Kenya: Ruto, boxed in by IMF, may slash civil service and hike taxes. (The Africa Report)

Rwanda agrees on ‘immediate ceasefire’ in eastern DR Congo. (Al Jazeera)

Rumors of rebel advance cause panic in eastern DR Congo. (AP)

South Korea and Saudi Arabia to boost ties on energy and defense. (Reuters)

How North Korea became a mastermind of crypto cyber crime. (FT)

Philippines to accelerate US defense deal on base access. (Nikkei)

Sri Lanka budget designed to impress IMF earns mixed grades. (Nikkei)

India and Bangladesh crank up pressure for more climate funding. (Nikkei)

Afghanistan: Taliban leader orders Sharia law punishments. (BBC)

‘Old-style election’ casts doubts on Toqaev’s ‘New Kazakhstan.’ (Radio Free Europe)

Turkey strikes Kurdish targets in Iraq and Syria after Istanbul bombing. (WSJ)

Iraq reels from $2.5b tax ‘heist of the century.’ (FT)

Biden administration says Saudi crown prince has immunity in Khashoggi trial. (WSJ)

UN General Assembly calls for Russian reparations to Ukraine. (Reuters)

Moldovan official suggests abandoning military neutrality. (Balkaninsight)

Montenegro to pay $4 million Yugoslav-era debt to Libya. (Balkaninsight)

Papua New Guinea and Singapore ink agreement on carbon markets. (Ecobusiness)

China circles El Salvador’s economy as country struggles with crypto plunge. (The Guardian)

Dominican Republic steps up Haitian deportations, raising tensions. (Reuters)

US embassy convoy attacked in Haiti. (CNN)

Cubans and Nicaraguans drive illegal border crossings higher. (AP)

Venezuela after Guyana’s oil claiming border dispute in The Hague. (Mercopress)

Guyana: A nation in the crosshairs of climate change is ready to get rich on oil. (Bloomberg)

Peruvian Amazon indigenous leaders to lobby banks to cut ties with state oil firm. (The Guardian)

Argentina strikes $5 billion China currency swap extension. (Reuters)

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