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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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I recently joined ImpactAlpha.com as senior editor so you might notice a slight bump in the number of stories with an impact-investing theme. It’s a very natural transition for me because the gateway drug that got me hooked on frontier markets way back in 2010 was, in fact, what subsequently came to be known as impact investing: putting money to work to make not just a financial return but also a return for people and planet.
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If you have not yet explored ImpactAlpha and you have any interest whatsoever in learning about the phenomenal work many investors are doing to tackle some of the world’s gnarliest problems with thoughtful deployment of capital, check it out!
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Africa
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Peace talks in Ethiopia. Warring Tigray rebels and the Ethiopian government agreed to peace talks mediated by the African Union in South Africa this weekend, but the planned meeting was quickly delayed. The talks would mark the first formal negotiations between the two sides since the onset of the conflict in November 2020.
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The Ethiopian government accepted the invitation on Wednesday. Ethiopian National Security Advisor Redwan Hussein wrote on Twitter that the invite was in line “with our principled position regarding the peaceful resolution of the conflict and the need to have talks without preconditions.”
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A child in the Tigray region suffering from malnutrition. Photo: AP
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On Friday, it became clear that the meeting would not occur at the weekend, with Tigrayan authorities seeking clarity on the structure of the talks as well as security assurances for travel, the Washington Post reports. A new date is yet to be set.
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Tigrayan troops began clashing with the Ethiopian army again in August. The two sides had agreed to an informal ceasefire in March. The conflict has left five million people in need of humanitarian assistance.
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Africa feels impact of Indian rice restrictions. Last month, India imposed hefty duties on rice exports. Today, large rice importers in Africa are feeling the brunt of these export restrictions.
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In West Africa, where jollof rice reigns supreme, many countries depend on Indian rice for a significant portion of their staple food consumption. The export restriction—a complete ban on broken rice and a 20% duty on all non-basmati varieties of rice—adds to inflationary pressure in the region, where surging inflation has threatened to make certain foods unaffordable. Staple food prices in sub-Saharan Africa have grown by almost a quarter since 2020, the IMF estimates.
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A worker unloads bags of rice at a wholesale market in Chandigarh, northern India. Photo: Ajay Verma/Reuters
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India provided 55% of Senegalese rice imports last year, amounting to about $160 million in trade, The Africa Report writes. Senegal is the world’s second largest consumer of broken rice, according to MIT’s Observatory of Economic Complexity. India also accounts for over half of rice imports in Côte d’Ivoire and Benin, the world’s seventh largest rice importer and Africa’s largest, and over 80% of imports in Guinea.
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Asia
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Unrest escalates in Central Asia. A simmering conflict between Kyrgyzstan and Tajikistan has escalated in recent weeks, creating instability in the region to where more Russians are fleeing as refugees.
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Gunfire erupted on the undemarcated Kyrgyz-Tajik border last month and recently resumed after a brief period of ceasefire. The two post-Soviet states have long squabbled over the borders drawn after the collapse of the Soviet Union. Since the Russian invasion of Ukraine, the states have sought to maintain territorial sovereignty without angering their northern neighbor.
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A burned-out house in the village of Kapchygay, near the Kyrgyz-Tajik border. Photo: Vyacheslav Oseledko/Afp Via Getty Images
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While President Emomali Rahmon rules Tajikistan autocratically, the democratically-elected leadership in Kyrgyzstan has strained its relationship with Russia, Foreign Policy reports. Kyrgyz President Sadyr Japorov said this week that Russian citizens fleeing the mobilization were welcome in his country, the New York Times reports.
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The influx of Russian refugees has triggered some discontent, although ethnic Russians made up a significant percentage of Kygryzstan capital Bishkek’s population, even before the war, according to the Carnegie Endowment for International Peace.
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Malaysia to curb energy output. Malaysia has announced a series of measures that will limit the amount of energy it exports, including a cut in its daily crude oil output by 27,000 barrels a day to 567,000. The move is part of a bid by OPEC+, the group of countries that coordinates to influence global oil supply, to raise oil prices by collectively cutting two million barrels per day.
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The cut is expected to take effect in November and last until December 2023. Malaysia’s status as a net exporter of crude well positions the country’s currency for a boost, The Edge Markets reports.
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Photo: Zahid Izzani Mohd Said/The Edge
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Malaysia also announced this week that it will reduce liquified natural gas shipments to Japan this winter, after a pipeline burst allowed Petronas, which is owned by the Malaysian state, to declare force majeure. Malaysia is the second largest source of Japan’s LNG imports, according to the International Trade Administration.
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Middle East
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Iranian protests continue. Protests over the death of Mahsa Amini at the hands of Iran’s morality police stretched into their fourth week. The women’s rights protests have brought Iranians into the streets in a rare display of widespread anti-establishment sentiment, The Washington Post reports.
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Female protestors have removed their hijabs, chanting “women, life, freedom.” Fuel was added to the protests when multiple teenage female protestors died at the hands of law enforcement.
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Photo: Ozan Kose/Agence France-Presse/Getty Images
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Iranian president Ebrahim Raisi condemned the protests as being orchestrated by the regime's enemies, a familiar position for Iran’s government in the face of uprisings, most recently in 2017. The government has limited internet access throughout the country and sacked university professors sympathetic to the protests. The US announced new sanctions on top Iranian leaders, while the EU parliament has called for a renewed round of sanctions.
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Syrian cholera outbreak spreads to Lebanon. A cholera outbreak that already claimed dozens of lives in Syria has spread to neighboring Lebanon, Al-Jazeera reports. Lebanon’s infrastructure has been weakened by a dwindling water supply, a financial crisis, and a disastrous 2020 explosion in Beirut’s port, and experts question whether the nation can handle the waterborne disease.
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A Syrian refugee child holds a water bottle at an informal tented settlement in Akkar, Lebanon. Photo: Walid Saleh/Reuters
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On Monday, Lebanese news outlet 961 reported that 14 new cases of cholera had been registered according to health ministry sources. Three of the new cases have led to hospitalization, six are mild and the remaining five have no symptoms.
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Three-quarters of Lebanon’s population lives in poverty, according to the UN.
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Latin America
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Opec+ cut forces US to consider negotiation over Venezuelan oil industry. The Biden Administration is negotiating with Caracas to loosen sanctions on the oil sector as a response to OPEC+ cuts that risk exacerbating inflation, the WSJ’s Patricia Garip, Vivian Salama, and Kejal Vyas report. The sanctions relief would allow US oil giant Chevron to resume operations there and unfreeze hundreds of millions in frozen Venezuelan assets.
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In return, President Nicolás Maduro would agree to resume negotiations with the country's opposition to ensure the upcoming 2024 presidential elections are free and fair. The proposal is stoking fury among some of the regime’s most strident foes, who say the strategy would allow Maduro to maintain his authoritarian grip on the country with few concessions, the Journal reports.
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President Nicolás Maduro maintains an authoritarian grip over Venezuela. Photo: Getty Images
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Some analysts believe Venezuela could double its current 450,000 barrels per day oil production within months if the sanctions were lifted. However, even under ideal conditions, the Venezuelan oil industry faces substantial challenges that will likely constrain total production under a million BPD, according to consultancy Rapidan Energy.
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Brazil’s surprise right-wing performance calms market concern over Lula’s return. Brazil’s right-wing incumbent President Jair Bolsonaro won 43% of the vote in last weekend’s general elections, surprising pollsters who had projected a landslide—and a possible first-round win—for left-wing former president Lula da Silva. Bolsonaro’s allies also performed much better than projected in congressional and local elections, raising the prospect of a fragmented congress that could frustrate Lula even if he wins the second round.
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Jair Bolsonaro did better than most polls predicted, forcing a run-off against his rival, Luiz Inacio Lula da Silva. Photo: Ueslei Marcelino/Reuters, via Al Jazeera
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Markets and businesses alike were optimistic about the prospect that a strong right wing would force Lula—still expected to win in the runoff—to moderate his policy goals, as seen with left-wing leaders in Chile, Peru and Colombia. In response to the results, the benchmark Ibovespa index rose 3.7%, with state-run oil producer Petrobras rallying 8%, Bloomberg reports.
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As most currencies across emerging markets continued to slump versus the supercharged dollar, the Brazilian real surged 5% on Monday, adding to recent gains. Only the real and Mexico’s peso outperformed the dollar in September.
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Global
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Emerging markets face record bond outflows as developed markets tighten rates. Emerging markets have seen a record $70 billion in outflows as rising interest rates and a strong dollar ratchet up pressure on developing economies, the FT’s Jonathan Wheatly reports. The strong outflows, including $4.2 billion from bonds last week alone, come despite an $86 billion wall of dollar-denominated debt maturities EM governments will pay by the end of 2023, according to Dealogic data.
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An expedited tightening cycle led by a hawkish Fed has prompted investors to pile into the Treasury market and other developed markets, which have been forced to follow US monetary policy. As EM assets have become relatively less attractive, JP Morgan revised its yearly outflow projections from $55 billion to $80 billion. The hit has been broad and deep, with just seven weeks of inflows for the entire year and outflows hitting local and foreign currency bonds alike.
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- Yellen flags need to mind ‘global repercussions’ of tightening. (Bloomberg)
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As volatility and illiquidity haunt debt markets globally, the risk of financial stress for EMs, which also have to contend with more expensive imports, has risen substantially. These risks led the UN to urge global central banks to halt increases before a full-fledged debt crisis hits developing economies.
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What we’re reading
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A $150 million fund aims to curb food waste by investing in Africa’s cold chain. (ImpactAlpha)
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West Africa bloc mediator 'satisfied' after meeting Burkina Faso’s new military leader. (Reuters)
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Junta set to stay in power after Chad delays elections by two years. (Reuters)
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Kenya lifts 10-year ban on genetically modified crops. (AfricaNews)
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OPEC+ production cuts may add additional stress to African oil importers. (The Africa Report)
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Vietnam’s export machine is upgrading. (WSJ)
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Thai banks’ interest rate hikes spark economic concerns. (Nikkei)
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Asian Development Bank to provide $2.5 billion to flood-ravaged Pakistan. (AP)
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Pakistan foreign minister: China debt is price of development. (Nikkei)
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Southeast Asia and Gulf nations draw closer as US-China row deepens. (Nikkei)
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Kazakh interior minister says 200,000 Russians have entered country since mobilization. (Radio Free Europe)
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Turkey’s Erdogan and Putin discuss improving ties, ending Ukraine war. (Reuters)
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Georgians bristle as country becomes reluctant refuge for fleeing Russians. (FT)
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Asian economies are in trouble but a 1997-style crisis is unlikely. (CNN)
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UAE hopes to attract skilled professionals with new visa rules. (AlJazeera)
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Saudi sovereign-wealth fund joins 100-year bond club. (WSJ)
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Israel rejects Lebanon’s changes to draft maritime deal. (Axios)
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Depositors storm Lebanese banks, demanding their own money. (AP)
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US accuses Russia of exploiting Africa’s resources to fund Ukraine war. (Reuters)
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Belarus bans consumer price rises in bid to tame inflation. (Reuters)
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Ukraine’s ex-central bank chief served with ‘notice of suspicion’. (FT)
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US intelligence agencies said to believe Ukrainians were behind killing of Russian nationalist’s daughter. (Radio Free Europe)
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Moldova struggles to find consensus on curbing Russian propaganda. (BalkanInsight)
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Moldova’s dependence on Russian gas plays into Putin’s hands. (FT)
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Vucic denies Serbian involvement in oil firm ‘espionage’ in Romania. (BalkanInsight)
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Unlike Chile’s Boric, Colombia’s Petro is off to an AMLO-like start. (MorningConsult)
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Argentine judge launches probe into Nicaragua abuse claims. (AP)
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Argentina, Brazil, Mexico not siding with OAS on Russia statement. (MercoPress)
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