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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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Note: Due to a scheduling conflict we were not able to send out last weekend’s newsletter so today’s extra-meaty offering includes content from the past two weeks. Normal service will resume next weekend.
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Africa
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Africa’s CEOs confident about regional trade pact. The vast majority—93%—of CEOs surveyed by the Pan-African Private Sector Trade and Investment Committee are optimistic about the impact of the recently implemented African Continental Free Trade Agreement on their businesses, according to a report by PAFTRAC.
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The trade pact has been signed by 54 of the 55 African Union states. 43 of the 54 signatories have submitted their instruments for ratification, a precursor to implementation. If enforced, the deal would see tariffs removed on 90% of goods traveling within Africa, creating the largest free trade area by number of participating countries. Eritrea is the lone African state yet to sign on to the deal.
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Impact that African CEOs expect AfCTA to have on their business. Source PAFTRA
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The AfCFTA is expected to help lift around 68 million people out of moderate poverty, according to the World Bank’s Chief Africa Economic Albert Zeufack. “Our survey clearly shows that the vast majority of African CEOs believe that the implementation of the AfCFTA will have a positive effect on the levels of intra-African trade, even as early as 2022-23,” PAFTRAC Chairman Patrick Utomi said in the report.
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Violence boils over in the Sahel. Rebel groups massacred hundreds of civilians in Ethiopia and Mali last week, the latest attacks in what has become a restive African region. The week before, insurgents killed 79 people in the northern Burkina Faso village of Seytenga.
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On Sunday, an Ethiopian rebel group killed 230 people belonging to the Amhara ethnic group, the Associated Press reports. The Ethiopian government and an opposing faction, the Oromo Liberation Army, have accused each other of the violence. The Horn of Africa country has been embroiled in civil war for much of the past two years, leaving the country divided along ethnic lines.
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Troops and civilians in Burkina Faso. Photo via Washington Post
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On Monday, Mali’s ruling military junta announced that a weekend attack by jihadist rebels had left 132 civilians dead in a central Malian village. Mali has been fighting Islamist extremists for the better part of the past decade, mostly in the country’s north. In recent months, violence has moved toward the middle of the country and in March, a junta-aligned group executed 300 civilians in the central Malian town of Moura, according to Human Rights Watch.
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China last weekend offered to mediate disputes across the troubled Horn of Africa region in a move that appears to be aimed at expanding decades of economic diplomacy into matters of war and peace, Nicholas Bariyo and Chun Han Wong wrote in the WSJ.
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Egypt wins EU gas deal. Officials in Egypt have agreed to a gas deal with Israel and the EU that will send more liquified natural gas to Europe. Under the arrangement, gas will move by pipeline from Israel to Egypt, where it will be liquified and exported to the EU.
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As part of the agreement, the EU will provide $104 million in relief to address food shortages in Egypt, France24 reports. Russia and Ukraine accounted for 80% of Egypt’s grain imports last year, according to the Guardian.
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A baker in El-Kalubia, north-east of Cairo. Photo: Mohamed Abd El Ghany/Reuters
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Once considered unlikely bedfellows, Israel and Egypt have expanded cooperation in recent years, with bilateral trade reaching $330 million in 2021, according to Al-Monitor.
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President of the European Commission, Ursula von der Leyen, touted the deal as marking an end to the bloc’s dependence on Russian fossil fuels, Al Jazeera reports. But critics have been skeptical of the high cost in money and years before the deal results in more natural gas reaching Europe, especially as the bloc aims to reach zero emissions by 2050.
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Asia
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Sri Lanka’s economy collapses, prime minister admits. The economy of the small island nation has “completely collapsed,” Prime Minister Ranil Wickremesinghe told his parliament on Wednesday. Sri Lanka has been in economic and political crisis for months, as dwindling foreign reserves have created shortages of food, fuel and medicine.
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Last week, the government instituted a mandatory work-from-home policy for government employees in a bid to reduce gasoline usage. Eleven people died waiting in gas lines this week, CNN reports. Colombo had previously reduced the work week for government employees to four days, encouraging government employees to use Fridays to grow crops.
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Protests erupt near Sri Lankan Prime Minister Ranil Wickremesinghe's private residence, amid the country's economic crisis, on June 22. Photo via CNN
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Sri Lanka has received billions in aid from India, but officials say more assistance will be needed to pay the country’s $500 million per month gas bill. The country has been attempting to secure funding from the World Bank, Asian Development Bank, China, and the US while it irons out a long-term bailout with the IMF.
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Pakistan hikes gas prices amid blackouts. Pakistan raised fuel prices for the third time in the past month last Wednesday, continuing an excision of fuel subsidies that officials hope will help the country get an IMF bailout. Petrol reached a price of 234 rupees per liter as the rupee tumbled to a record low against the dollar, according to foreign exchange analytics firm XE.
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The latest hike marks the end of government subsidized fuel, Business Standard reports. The government will no longer take a loss on the sale of petroleum products, Finance Minister Miftah Ismail said.
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Pakistan’s rupee has fallen to a record low against the dollar. Source: XE.com
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Yet even the country’s unpopular decision to end fuel subsidies may not be enough to lure the IMF bailout, Bloomberg reports. Pakistan hopes to receive an immediate release of a $900 million tranche from the $6 billion IMF deal it signed in 2019. The IMF paused loan payments after former Prime Minister Imram Khan announced fuel subsidies, triggering a failure on the deal’s policy commitments.
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Pakistan’s foreign exchange reserves have now fallen below $10 billion. Ismail has said the country needs $41 billion to cover its obligations over the next 12 months, Daily Times Pakistan reports.
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Cambodia cracks down on democracy. Courts in Cambodia have convicted dozens of human rights activists of treason, the latest move in a yearslong clampdown on opponents of longtime Prime Minister Hun Sen. The following day, the ruling Cambodia People’s Party announced a lawsuit against a leader of an opposition party for alleging malfeasance in this month’s local elections.
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The move is part of a growing trend to use the judicial system to repress political dissent, which reduces the need to use force in the streets and is becoming a staple of democratic backsliding in the region, Professor John Ciorciari, an expert on the Cambodian court system, told Frontiermarkets.co.
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Cambodian-US human rights advocate Theary Seng was taken away by police after she was found guilty of treason Photo: Samuel/AFP
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“The ruling Cambodian People’s Party has dispensed with any real pretense of democracy,” Ciorciari said. “It makes little effort to disguise the fact that the courts are an arm of the country’s authoritarian leaders,” he said.
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The Cambodia People’s Party holds every seat in the country’s National Assembly. Hun Sen has led the country for 37 years and has signaled his intentions to stay in power until 2028. Recently, Cambodian and Chinese officials broke ground on a Gulf of Thailand naval base that Western officials say will be controlled by China.
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Default risk rises in Laos as higher import costs hit public finances.
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Laos is facing significant financial strain amid fuel shortages, rising food prices, and growing debt driven by surging commodity prices, reports the FT’s John Reed. Moody’s recently downgraded the country’s credit further into “junk” territory, while Fitch rates the country CCC, suggesting a high possibility of default given weak governance, high debt levels, and insufficient foreign exchange reserves.
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Queues at petrol stations in Laos. Photo: Reuters via FT
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Laos was already having trouble prior to the recent surge in global food and energy prices. Now, rising commodity import costs have created a shortage of foreign exchange. The country’s currency has fallen 23.5% against the dollar since December, and Laos has just $1.3 billion of reserves—only enough to cover about 2.2 months of imports, according to the World Bank.
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According to the World Bank, Laos’ debt has risen to $14.5 billion from $12.5 billion, jumping to 88% of GDP. About half of this debt is owed to China after Vientiane borrowed heavily to fund hydropower projects and a Chinese-built railway.
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With Russia distracted, Turkey makes inroads in central Asia. Since the invasion of Ukraine, Central Asian governments have avoided criticizing the Kremlin while reducing their reliance on Russia. The need to find alternative partners is growing as the impact of sanctions hits the regional economy and growth prospects dim.
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As Russia’s influence fades, Turkey is renewing its engagement with Central Asia, Radio Free Europe’s Reid Standish reports. Turkey has deep historical and cultural ties with Central Asia but has struggled to gain significant influence since the collapse of the Soviet Union.
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Ankara is now pursuing trade deals, signing defense agreements and stepping up arms sales. President Recep Tayyip Erdoğan recently conducted high-profile meetings in Kazakhstan and Uzbekistan, which yielded dozens of agreements and pledges to increase bilateral trade volumes by billions.
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Kazakh President Qasym-Zhomart Toqaev (right) with Turkish President Recep Tayyip Erdogan in Ankara during a state visit in May. Photo via Radio Free Europe
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While the size of the Turkish economy limits the size of its potential involvement, greater trade relations from a culturally compatible partner would offer a welcome replacement for Russian investment and a counterbalance to China and the US. Displays of Turkish hard power during the Nagorno-Karabakh war and now in Ukraine have also helped boost its image in the region.
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Middle East
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Saudi crown prince’s visit to Turkey marks turning point after Khashoggi killing. Saudi Crown Prince Mohammed bin Salman appears to be finding his way back into the international fold, almost four years after the killing of journalist Jamal Khashoggi prompted international isolation for Saudi Arabia, Stephen Kalin and Jared Malsin report in the WSJ. Mr. Khashoggi, a critic of the Saudi leadership, was killed and dismembered inside the Saudi consulate in Istanbul by men close to Prince Mohammed.
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The murder evoked international condemnation of Saudi Arabia and led countries and businesses around the world to shun the crown prince and his government. Now, major world leaders are once again beginning to embrace Prince Mohammed, who runs Saudi Arabia’s daily affairs on behalf of his aging father, King Salman.
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Turkish President Recep Tayyip Erdogan and Saudi Crown Prince Mohammed bin Salman during a welcome ceremony in Ankara. Photo: Umit Bektas / Reuters
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Next month, President Joe Biden is set to visit the kingdom to meet Prince Mohammed, having previously refused to deal with him directly as US-Saudi relations sank to their lowest point in decades. And this week he visited Turkey as part of a tour of Middle Eastern nations, marking a turning point in his efforts to gain international acceptance.
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Europe
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Armenian currency appreciates with inflow of Russians, leads to mass layoffs. Armenia’s workers are facing wage cuts and widespread layoffs amid rapid currency appreciation, Radio Free Europe’s Tony Wesolowsky reports. After weakening as Russia invaded Ukraine, the Armenian dram has rallied 13% against the dollar and 22% against the euro in recent months.
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Workers at the Gloria textile factory in Vanadzor. Owner Bagrat Darbinian has told the company’s workers they would need to accept a 30% reduction in wages or risk being sent on unpaid leave or losing their jobs altogether. Photo via RFE
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Analysts believe the dram’s increased value partly reflects a flood of Russians into one of the few countries still open to its flights. Armenia’s pro-Russian stance, visa-free travel, and open skies have prompted over 100,000 Russian citizens and dozens of Russian tech companies to move in. Among these, over 25,000 opened bank accounts between February 24 and the end of March, leading to a sharp rise in demand for the local currency.
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A more expensive currency hobbles Armenian exporters, though, and risks dragging the country into the same deindustrialization beginning to emerge in Russia. Meanwhile, the central bank has resisted calls to weaken the dram as its strength offers an anchor against 8% inflation and makes many imported goods cheaper.
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EU opens membership path for Ukraine. The European Union has opened the way for Ukraine to one day join the bloc, taking a significant step toward one of the central demands of Ukrainian President Volodymyr Zelensky, Laurence Norman reports in the WSJ. The European Commission, the EU’s executive body, recommended that member states make Ukraine—as well as Moldova—a candidate for EU membership, the first step of what could be a decadeslong process to seek to join the bloc.
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Ukraine, Moldova and Georgia all made formal applications for EU membership in the first weeks of the war, as Ukraine successfully fought off a Russian advance on Kyiv and forced Moscow to regroup its forces in the country’s east.
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A woman grieves beside a destroyed school in a village near Lysychansk, Ukraine. Photo: Anatolii Stepanov/AFP
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“Ukrainians are ready to die for the European perspective,” European Commission President Ursula von der Leyen said. “We want them to live with the European dream.” Mr. Zelensky welcomed the commission’s move, saying on Twitter that it was the first “step on the EU membership path that’ll certainly bring our Victory closer.”
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Latin America
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Colombian president-elect’s economic revamp faces cost crunch. As a presidential candidate, former leftist guerrilla Gustavo Petro promised to modernize Colombia’s poverty-stricken countryside, end the US-backed war on drugs and replace oil production with solar and wind farms. But with inflation and the budget deficit around their highest levels in two decades, and the US, Colombia’s top trade partner, facing the risk of recession, the question is how President-elect Petro expects to pay for his proposals, Kejal Vyas reports in the WSJ.
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He says he will curtail the output of oil and coal, the country’s two largest exports. He aims to build a railroad to neighboring Venezuela, offer free university education, extend public pensions to those who didn’t pay into the system and have the state create jobs for millions of unemployed citizens. But Petro’s coalition of left-wing political parties lacks a majority in Congress, putting into question the support for his plans of steering the economy toward a more state-led model.
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A tax overhaul initiated by Colombian President Iván Duque led to nationwide protests last year. Photo: Juan Barreto/AFP
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Petro’s proposals would mean a radical shift for this country of 50 million people and Latin America’s fourth-largest economy. Since the 1920s, Colombia has embraced policies based on a consensus of conservative fiscal management and respect for property rights, as it grappled with decades of guerrilla- and drug-fueled conflict. “Those [economic] elements are at risk of being modified in a Petro presidency,” Jorge Restrepo, economics professor at Javeriana University in Bogotá, said.
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Global
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At BRICS summit, China touts its governance model and Russia pitches creating an EM currency. At the 14th BRICS Summit, Beijing took the opportunity to promote its governance and development models while railing against unilateral sanctions. At the virtual summit, Chinese President Xi Jinping called for promoting “true” multilateralism, boosting security cooperation, and trying to forge stronger trade ties.
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Unaffiliated countries such as Argentina expressed interest in joining the bloc of large and independently-minded emerging markets. Additionally, Russia led discussions on creating a BRICS reserve currency in the face of US sanctions, which have prompted preemptive resilience efforts by China.
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A CCTV news broadcast of Chinese President Xi Jinping speaking during the BRICS summit. Photo: Reuters
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In an environment where dollar appears to be gradually losing its status as the global reserve currency, the BRICS’ moves would mark a serious challenge to the IMF’s special drawing rights (SDR) system and the US’s power within the institution. A basket of BRICS currencies would effectively formalize a sphere of influence and unit of currency within that sphere. This would serve Russia especially well in an effort to address the mounting pressure on its capital account.
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What we’re reading
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Burkina Faso to create military zones to fight jihadi rebels. (AP)
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Ghana fuel shortage looms as central bank rations dollars. (Bloomberg)
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After the war ends, can Ethiopia’s economic ‘miracle’ get back on track? (FT)
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DRC welcomes Kenya proposal to deploy regional force to fight rebels. (Al Jazeera)
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Ex-spymaster’s claims threaten Cyril Ramaphosa’s image as South Africa’s reformer. (FT)
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Philippines’ economic tsar brushes aside fears of ‘cronyism’ under Marcos Jr government. (FT)
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Military recruitment reform sparks furious protests across India. (FT)
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Council of Europe rates Turkey’s progress on reforms ‘unsatisfactory.’ (BalkanInsight)
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Taliban appeal for more aid as death toll from Afghan earthquake mounts. (The Guardian)
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China’s defense minister says nuclear buildup is justified. (WSJ)
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A year after Raisi election win, Iranian protests grow over living conditions. (Radio Free Europe)
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How Iran tapped international banks to keep its economy afloat. (WSJ)
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Satellite Images Show Russia Shipping Grain From Occupied Ukraine To Syria. (Radio Free Europe)
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Lebanese lenders claim IMF plan to seize assets breaks the law. (FT)
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Facing elections, Turkey and Greece play with fire in the Aegean. (BalkanInsight)
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Georgians turn against government after being put in EU accession slow lane. (FT)
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European bank lends Moldova €300m to boost energy security as Ukraine war rages. (Radio Free Europe)
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Bulgarian government ousted in blow to EU enlargement hopes. (FT)
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Sanctions push Russia near first foreign default since revolution. (WSJ)
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Ukraine intensifies strikes against Russian-controlled areas. (WSJ)
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Official: Eight more die as Haiti prisons lack food, water. (AP)
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Brazil’s Bolsonaro, stuck in election race, plans bigger cash handouts. (Bloomberg)
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EU diplomat warns Paraguay needs to avert becoming a narco-state. (MercoPress)
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Unconventional production boosts oil and gas output in Argentina. (MercoPress)
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Chile workers end strike at world’s largest copper producer. (France24)
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Indigenous uprising in Chile tests new leftist leader. (WSJ)
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