Frontier Markets Weekly, September 24th 2023
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By Ken Stibler, Noah Berman and Nojan Rostami. Executive editor: Dan Keeler
Africa
Mozambique to seek $1.5 billion in ‘tuna bond’ trial
Mozambique will claim damages worth $1.5 billion at a trial in London next month over the alleged ‘tuna bond’ fraud that wreaked havoc on the country’s economy.
In 2013, Mozambican state companies issued $2 billion in loans for maritime projects, including a fleet of tuna fishing boats. The loans collapsed after hundreds of millions of dollars were pilfered. A court in the UK ruled on Wednesday that Mozambique could pursue damages from Prinvest, a Gulf-based company that supplied the boats, and Credit Suisse, which arranged the debt, the FT reports. Both companies deny the claim.
The default on the loans prompted the IMF and other international lenders to cut budgetary support, leading to a sovereign debt collapse with effects that are still being felt, CNBC reports. Three Credit Suisse bankers previously pleaded guilty in the case. The UK trial is expected to begin on October 3.
South Africa to host US-Africa trade summit
Johannesburg will host a summit between the US and its trading partners in sub-Saharan Africa, overcoming US calls for the conference to be moved amid accusations that South Africa had supplied Russia with weapons.
The summit will be held the first weekend of November and include the beneficiaries of the African Growth and Opportunity Act (AGOA). Gathered leaders are expected to discuss the future of the act, which provides tariff-free access to the US for most countries in sub-Saharan Africa, Reuters reports. AGOA is due to expire in two years.
US lawmakers had asked US President Joe Biden to move the summit elsewhere and consider revoking South Africa’s AGOA privileges. For now, those concerns appear to have been assuaged. “As President Biden has said, the future is Africa,” US Trade Representative Katherine Tai said in a statement.
Asia
Central Asian leaders look to tighten ties with US
In the first-ever meeting between a US president and all five Central Asian leaders, the heads of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan met with US President Joe Biden to discuss deepening business connections. After the meeting, held on the sidelines of the UN General Assembly in New York, Biden said the countries would collaborate to stimulate new connections with the US private sector, Voice of America reports.
Biden also noted the “potential for a new critical-minerals dialogue,” while the Central Asian leaders pledged to cooperate more closely on counterterrorism efforts.
The meeting did not include any reference to human rights, The Diplomat reports, potentially angering campaigners who have long encouraged the US to play a more active role in what has historically been among the world’s most repressive regions. US diplomacy in Central Asia will continue at an October USAID meeting that will promote sustainable economic development, according to the White House.
Malaysia sidesteps EU palm oil rules by exporting to China
Malaysia is planning to double its palm oil exports to China in an apparent rebuke of stringent EU anti-deforestation regulations, which have restricted some palm oil imports. The two countries have signed $4.23 billion in investment deals, Nikkei reports, including one involving Malaysia’s state-owned palm oil company, which will increase exports to China to half a million tons.
Malaysia is the world’s second-largest producer of palm oil, a key ingredient in food products and cosmetics. The turn to China comes amid an ongoing rift with the EU, which recently barred imports grown on land deforested after 2020.
Malaysia and Indonesia, the world’s largest producer of the commodity, initially filed a WTO suit against the EU over the rules. The countries have since joined a joint task force with the bloc to address their differences, Mongabay reports.
Pakistan schedules general elections for January
The Electoral Commission of Pakistan said on Thursday that long-awaited general elections will be held in the last week of January. Elections have been due since August, when the outgoing government finished its five-year term, but were delayed while the commission redrew constituency boundaries.
At an event at the Council on Foreign Relations on Thursday, caretaker Prime Minister Anwaar ul Haq Kakar said that all parties registered with the commission will be able to take part in the election. Outgoing Prime Minister Shehbaz Sharif is an early front runner to return to power, Reuters reports, with former Prime Minister Imran Khan unlikely to compete.
Pakistan has been in the throes of economic unrest for the better part of two years. The country narrowly averted an even worse crisis when it received an IMF bailout in July. Pakistan’s benchmark index rallied following the election announcement, although its dollar bonds slipped.
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Middle East
Saudi Arabia hosts Oman-brokered peace talks with Yemen’s Houthis
Saudi Arabia this week invited Yemen’s Houthi rebel leadership to Riyadh for peace talks, the first official visit to Saudi Arabia by Houthi officials since war broke out in 2014, Reuters reports. The visit marks the latest round of peace talks organized by Oman acting as mediator between the warring neighbors, which run parallel to but not in contradiction to the ongoing UN process—which has successfully negotiated a ceasefire but failed to produce peace.
A Saudi Arabian official said the government wants to “reach a permanent and comprehensive ceasefire in Yemen and a sustainable political solution acceptable to all Yemeni parties.” However, leaders of Yemen’s southern independence movement, the Southern Transitional Council, says that it has been “pushed to one side” in the talks, rejecting the premise that the Houthis speak for a united Yemen and taking issue with a Saudi-Houthi resolution on oil resources in the south.
The head of Yemen’s Presidential Leadership Council told the UN General Assembly in New York that peace would be possible only if the flow of arms and resources to the Houthis were to stop and a single, unitary government be recognized.
Iran’s president speaks of goodwill and risks in first UN General Assembly speech
Iranian President Ebrahim Raisi gave his first address to the UN General Assembly this week, touching on topics ranging from Saudi-Israel relations, US sanctions and the war in Ukraine. Raisi, warned that a normalization deal between Saudi Arabia and Israel would be a “stab in the back of the Palestinian people” and could imperil the China-brokered Iranian-Saudi detente.
Raisi also spoke on the possibility of a nuclear deal, asking the US to return to the original 2015 deal—which the US unilaterally exited in 2018—as a show of “goodwill and determination.” The comments come after the completion of a deal with the US on Monday exchanging US citizens held in Iran for some $6 billion in frozen Iranian oil and gas revenues, as well as reports of Qatar-brokered nuclear talks—both apparent signs of progress in Iran-US relations.
Oil and gas IPOs expected to boost Middle East markets
A slew of IPOs is set to turbocharge markets across the Middle East, Bloomberg reports. Several regional oil and gas national champions are slated to come to market, while Saudi national oil drilling champion ADES Holding, which is backed by the nation’s sovereign wealth fund, drew $76.5 billion in orders for its $1.2 billion offering this week. This follows the early-September IPO of Saudi rental car giant Lumi, which was even more heavily oversubscribed, drawing some $27 billion in orders for its $290 million listing.
Both offerings conducted on the Saudi market set the stage for the anticipated Saudi Aramco follow-on offering of some $50 billion, which was put on hold earlier this year but is now reportedly back on the table. Following these moves, Oman’s OQ Gas Network—a natural gas supplier to regional power plants—is looking to raise some $772 million through the sale of 49% of its shares.
The IPO pipeline extends beyond the oil and gas industry, with the UAE’s commercial retail chain Lulu Group announcing plans to come to market early next year. Jordan’s national champion, real estate developer Abdali, is also looking to an IPO to fund anchor investments in hotels, conventions centers, and commercial office space.
Europe
Armenian forces surrender after 24-hour assault by Azerbaijan
Ethnic Armenian forces in Nagorno-Karabakh have agreed to disband as part of a Russia-brokered ceasefire following a 24-hour assault by Azerbaijan on the separatist enclave that resulted in at least 32 deaths and 200 injuries. The surrender represents a significant blow to Armenia’s control over the region, which is internationally recognized as part of Azerbaijan but has been effectively held by Armenia since the Soviet Union’s collapse.
Thousands of ethnic Armenians sought shelter at an airport used by Russian forces, fearing further attacks and what Armenia describes as ethnic cleansing. The ceasefire, ending the worst escalation since the 2020 war between Armenia and Azerbaijan, will see Russian-brokered talks on the future of ethnic Armenians in the region.
Azerbaijan’s victory, backed by Turkey, is expected to cause political turmoil in Armenia, which has already seen protests. The Kremlin, which has peacekeepers in the region and brokered a 2020 ceasefire, did not stop Azerbaijan, leading to criticism from Armenia. Russia’s peacekeepers are now tasked with protecting Karabakh’s civilian population.
Latin America
Foreign investors reap profits as they dump their Colombian bond holdings
Foreign investors are reducing their exposure to Colombia’s bond market as the Colombian peso experiences the world’s most substantial currency rally. In the past month, major institutional investors including Norway’s sovereign wealth fund, the Saudi central bank, and Citigroup sold 1.4 trillion pesos ($369 million) worth of peso-denominated government bonds.
At the same time, local pension funds in Colombia have been scooping up the bonds, adding 1.2 trillion pesos to their holdings. They are attracted by the high yields, juiced by Colombia’s benchmark interest rate, which stands at 13.25%—the highest in the region.
- Cocaine set to overtake oil as Colombia’s main export (Bloomberg)
The Colombian peso has appreciated by 24% this year, making it the top-performing currency among over 140 currencies tracked by Bloomberg. The rally has been fueled by higher prices for oil, a significant Colombian export, and relief stemming from the failure of President Gustavo Petro’s costly welfare reforms in congress.
What we’re reading
Mali, Niger and Burkina Faso establish Sahel security alliance (Al Jazeera)
Kenya extends fuel-supply deal with Gulf oil firms through 2024 (Bloomberg)
EU temporarily holds back food aid in Somalia after UN finds widespread theft (Reuters)
Chinese loans to Africa ‘plummet to near two-decade low’ (Reuters)
Nigeria’s Flutterwave FX sourcing product points way to easing shortages (The Africa Report)
Political crisis shakes Senegal’s image of stability in a volatile region (FT)
Vietnam seeks closer US economic ties post-diplomatic upgrade (Bloomberg)
Singapore energy appetite fuels ASEAN’s renewable power grid (Nikkei)
Laos debt at ‘critical level’ with China payments still opaque (Nikkei)
Italy turns to Kyrgyz shepherds to revive Sardinian farming (FT)
ASEAN countries remain priority for China’s BRI investment (Nikkei)
ADB trims developing-Asia growth outlook on China risk (Nikkei)
China vows to boost Southeast Asia imports as growth slows (Nikkei)
China’s Xi hails ‘strategic partnership’ with Syria in Bashar al-Assad visit (France 24)
Analysis: Qatar pursues US-Iranian nuclear steps after detainee swap (Reuters)
Russian defence minister tours missile and drone display on Iran visit (Al Jazeera)
Cristiano Ronaldo gets massive welcome in Iran ahead of closed-doors match (Al Jazeera)
Iraq leader says he’s meeting with US companies in gas investment push (Bloomberg)
Iranian misery index hits new high as unemployment and inflation rise (Radio Free Europe)
Syrian leader expected to seek China’s support in rebuilding economy (South China Morning Post)
Migrant workers in Middle East and Eastern Mediterranean endure blistering heat (WSJ)
Erdogan asks Musk to build Tesla factory in Turkey (Reuters)
How the Ukraine war hit Eastern Romania’s economy (Radio Free Europe)
Ukraine’s Zelensky cleans house in corruption-plagued defense ministry (NYT)
Wheat prices fall as bumper Russian crop replaces Ukrainian supplies (FT)
Billions of dollars in Western profits trapped in Russia (FT)
Poland issues environmental permit for first nuclear power plant (Reuters)
Poland’s ruling party under pressure over broadening visa scandal (FT)
EU warns Kosovo and Serbia of repercussions if deals not implemented (BalkanInsight)
Kosovo is attracting more FDI, but not where it’s needed (BalkanInsight)
Costa Rica battles violence as cocaine trade grows (LA Times)
US will allow nearly 500,000 Venezuelan migrants to work legally (NYT)
Haiti and Kenya establish diplomatic ties (Voice of America)
Poor nations being dragged into ‘abyss’ by foreign debt, Cuba leader says (Miami Herald)
Bolivia’s Arce open to EU lithium tie-ups to rev battery metal output (Reuters)
France’s Total plans to drill for gas offshore Argentina’s Tierra del Fuego (Mercopress)
Energy giants place tentative bets on oil finds in ‘wildcat’ Uruguay (Reuters)
Peru declares state of emergency in parts of capital after crime spike (Reuters)
G77+China: Cuba summit lets emerging countries bond in America’s backyard (Nikkei)
