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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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Africa
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Kenya picks a president. Kenya’s Deputy President William Ruto declared victory in the country’s presidential election last week, putting a temporary cap on a contentious presidential contest. But before the race was called, opposition candidate Raila Odinga rejected the result, vowing to pursue all legal options to challenge the election’s outcome.
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Kenya’s electoral commission chairman declared Ruto the victor last Monday, but four of the seven members of the commission walked out, causing pandemonium in the electoral hall. This morning (Monday) Odinga formally filed a petition challenging the result, CNN reports, extending the uncertainty.
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Supporters of President-elect William Ruto. Photo: Getty Images, via the BBC
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Despite its liveliness, this year’s election saw lower turnout than previous contests. Turnout fell from 80% in 2017 to 65% this year, according to Bloomberg. As Ruto begins to form a transitional government, the country will aim to avoid the confrontation that has historically plagued Kenya’s presidential elections. After Odinga—who has now lost five presidential elections—lost the 2007 contest, ethnically motivated violence left over 1,200 dead.
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Africa becomes geopolitical battleground. US Secretary of State Antony Blinken toured Africa last week, with stops in Rwanda, Democratic Republic of Congo and South Africa. The trip comes as the continent emerges as the latest theater for great-power rivalry, with visits from French Prime Minister Emanuel Macron and Russian Foreign Minister Sergei Lavrov.
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The primary aim of Blinken’s trip was to counter Russian and Chinese influence on the continent, CNBC reports. In a speech last week, Blinken said Western states should no longer “dictate” to Africa, an about face from previous Western attitudes toward the continent.
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Antony Blinken with Rwandan President Paul Kagame. Photo: Andrew Harnik/Pool via Reuters
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Blinken also reinforced Biden administration priorities, including support for clean energy, human rights and democracy. In Kinshasa, Blinken announced that American and Congolese officials would collaborate to examine a proposed oil and gas extraction plan that has been vilified by environmental activists. In Kigali, Blinken urged militias on the DRC-Rwanda border to respect territorial sovereignty.
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Sierra Leone moves toward fairer land-rights laws. Under new land-rights laws passed last week, companies seeking to do business in Sierra Leone will need to gain permission from local communities before using their land, Reuters reports. Sierra Leone has historically been a rich source of natural resources for commodities companies, even as 53% of people live below the national poverty line, according to the World Food Programme.
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Land cleared for a palm oil plantation in southern Sierra Leone. Photo: Simon Akam/Reuters
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As foreign companies have profited from Sierra Leone’s palm oil, sugarcane and diamonds, locals have complained of environmental damage and under-compensation. Under previous laws, landowners got a state-negotiated rent of $2.50 per acre per year. Under the new law, landowners will negotiate the value of their land directly with investors.
The law has been lauded by environmentalists and land-rights activists. Critics of the legislation have said that it will make investment in Sierra Leone expensive and therefore less desirable, Politico SL reports.
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France withdraws from Mali. French troops have officially exited Mali, marking the end of a nine-year mission that traversed the realm of public perception from popular protector to colonialist scourge, Al Jazeera reports.
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French troops entered Mali in 2013 at the request of the country’s government to help fight an existential jihadist threat. As French presence in the country expanded, the jihadist insurgency coursed south from its stronghold in the country’s north toward the center and across the Sahel region.
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The last soldiers belonging to France’s operation in Mali have left the African country, the French military said. Photo: Thomas Coex/AFP
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But after Mali’s military took power in a coup last year, public attitudes toward the French soured. France announced its intent to withdraw from Mali in February, as mercenaries from the Russia-affiliated Wagner Group began popping up with Malian officials.
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The Sahel region, a semi-arid strip that spans across the continent along the south edge of the Sahara Desert, has become a hotbed of instability in recent years. More than 2.5 million people have been displaced in the past decade, according to the UN. Some 2,000 civilians were killed in the first six months of this year, according to AfricaNews.
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Asia
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Laos debt downgraded. American credit rating agency Fitch Ratings has downgraded Laos’ issuer default rating, a sign of investor skepticism that the landlocked Southeast Asian country will be able to make its looming debt payments. The downgrade to CCC- from CCC—already well into junk territory—comes amid a deepening debt crisis that has brought Vientiane within arms-length of default.
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Like many other frontier markets, Laos has been hit hard by inflation, spiking commodity prices and a harsh environment for international finance. In June, inflation in Laos reached a 22-year high of 23.6%, according to macroeconomic data firm Trading Economics. The country’s debt has snowballed to $14.5 billion, bringing the country to the brink of default, Le Monde reports.
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Inflation in Laos has hit a 22-year high, causing a scarcity of essential commodities like fuel. Photo: AFP via DW
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More than half of Laos’ foreign debt is owed to neighboring China. Laos has been a key focus of China’s Belt and Road strategy, with new China-funded railroads and hydropower plants dotting its landscape. While China will be eager to recoup its loans, analysts say a Lao debt default could harm China’s reputation as a partner for the developing world and feed allegations of debt-trap diplomacy, Deutsche Welle reports.
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Myanmar democracy curbs continue. A court appointed by Myanmar’s ruling military junta convicted former state counselor and de-facto leader Aung San Suu Kyi of four corruption charges, adding six years to 11-year prison sentence handed down in June. Suu Kyi led Myanmar from 2016 until the military deposed her in a February 2021 coup.
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Over 15,000 people have been arrested in Myanmar for opposing the military, and 70 have been sentenced to death, according to the Assistance Association for Political Prisoners. Last month, the junta executed four prominent democracy activists in the first state executions in 30 years.
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After being barred from ASEAN meetings last month and a visit from Russian Foreign Minister Sergei Lavrov, Myanmar announced plans to import Russian oil beginning in September, Reuters reports. Earlier this year, Frenchenergy giant Total and American Chevron announced their intentions to pull out of Myanmar, citing human rights abuses.
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Chinese ‘research’ ship docks in Sri Lanka. A Chinese research vessel landed at Sri Lanka’s Hambantota port last week amid concerns from India and the US about the ship’s mission. The vessel, Yuan Wang 5, planned to arrive the previous week but postponed the visit after India voiced concerns. India has denied that it pressured Sri Lanka to delay the vessel.
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Chinese navy vessel Yuan Wang 5 arriving at Hambantota International port in Hambantota, Sri Lanka. Photo: Reuters, via The Guardian
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Sri Lanka is in the midst of the worst debt crisis in the island nation’s history. As its foreign currency reserves shrunk to zero, Colombo defaulted on its debt, and restructuring talks with the IMF have stalled.
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China and India are two of Sri Lanka’s largest creditors, and the arrival of the research vessel has drawn Colombo into a delicate balancing act, The Guardian reports. India has sent its island neighbor $4 billion in aid this year, and Chinese loan forgiveness is expected to be a prerequisite for an IMF bailout.
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The boat left after staying six days, NDTV reported.
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US holds off returning Afghan funds. Washington ruled out releasing $3.5 billion in frozen Afghan funds last week, extending the uncertain timeline for returning money the Biden administration has designated for supporting the needs of the Afghan people. The funds are half of $7 billion Washington froze after the American withdrawal from Afghanistan immediately led to a Taliban takeover.
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While a mechanism for returning the funds to the people of Afghanistan without having them reach the Taliban was never established, the recent assassination of al-Qaeda leader Ayman al-Zawahiri in Kabul will likely slow down the release of the money, Politico reports.
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The US’ withholding $3.5 billion from Afghanistan could harm the country’s most vulnerable as its economy continues to crumble. Photo: Ebrahim Noroozi/AP, via Politico
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The Afghan economy has crumbled since the Taliban regained control over the country’s government. Over 97% of Afghans are expected to fall below the poverty line this year, according to the United Nations.
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Middle East
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Gulf countries in line for trillion dollar windfall from higher oil prices. Higher energy prices are set to deliver a $1.3 trillion oil windfall for Middle East economies over the next four years, according to IMF data. The additional cash is likely to replenish sovereign wealth funds that have invested billions during the pandemic, but it could also ease the pressure to diversify and decarbonize, the FT’s Andrew England reports.
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The IMF forecasts that growth in the large oil producers—Saudi Arabia, the UAE, Kuwait, Bahrain, Qatar, and Oman—will accelerate to 6.4% this year. The Fund’s assessment highlights how the Gulf oil producers are riding high while much of the rest of the world faces inflation, recession, and balance of payments crises. These excess funds are likely to fund a wave of domestic mega-projects and overseas investments via some of the world’s biggest sovereign wealth funds.
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The Gulf is home to some of the world’s biggest oil and gas exporters, and some of its largest and most active sovereign wealth funds. Photo: Ahmed Jadallah/Reuters
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The prevalence of SWFs reflects the Gulf’s continued struggle with high volatility and pro-cyclical economies where oil revenues magnify the business cycle. This reality has been especially impactful following the 2014 oil downturn and recent Covid-related price collapse, which forced reduced public spending, raised debts and decreased headline growth.
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Europe
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Poland veers toward recession as Eastern Europe’s growth prospects darken. Poland, Eastern Europe’s largest economy, has flashed a warning to investors after GDP fell 2.3% in the third quarter. The surprise contraction highlights how Eastern European economies are rapidly losing momentum in the face of a likely German recession and Russian aggression, the FT’s Raphael Minder and Marton Dunai report.
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Inflation in Poland is at a 25-year high of 15.6%, driven by soaring food and energy prices. Photo: Bartek Sadowski/Bloomberg, via FT
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The severity of the Polish contraction surprised analysts, wiping out all of 2022’s growth so far. Consumer confidence has also fallen to its lowest level since March 2022 as inflation over 15% hits household finances just as state support is removed. In response, the central bank has continued to tighten lending conditions despite its further contribution to falling confidence.
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The situation in Poland is reflected across the region, as post-Covid momentum fades amid higher import costs, low consumer confidence and contracting public spending that make a regional recession likely. While countries such as the Czech Republic, Hungary, and Romania haven’t experienced contractions yet, growth has continued to fall from high single digitals. The worst is likely ahead as winter energy availability remains uncertain and early indicators like manufacturing and consumer spending begin to flash red across the region.
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Ukrainian grain sails to Ethiopia. A vessel carrying 23,000 metric tons of wheat set sail toward Djibouti last week as part of the first Ukrainian grain shipment bound for Africa. Chartered by the World Food Program, the cargo is expected to arrive in Ethiopia in two weeks as part of an effort to distribute grain to countries whose food supplies were most affected by Russia’s invasion of Ukraine.
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Following the invasion, Ukrainian grain exports fell to under 800,000 tons a month, compared to over 4 million per month last year, according to the International Food Policy Research Institute. African states, previously heavily dependent on Russian and Ukrainian grain, have been especially affected.
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A cargo ship is loaded with corn at the Port of Odessa, Ukraine, before the war. Source: Shutterstock, via IFPRI
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In July, Ukraine and Russia reached an agreement, brokered by Turkey and the UN, to allow the export of 20 million tons of grain that has remained in Ukrainian silos since the war began. A total of 24 ships have left Ukrainian ports under the deal, Reuters reports. Kiev expected to export 3 million tons of grain in September, according to deputy infrastructure minister Yurik Vaskov.
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Latin America
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Colombia’s Petro launches first salvo against military, forcing 52 generals to retire. Colombia’s newly installed President Gustavo Petro forcibly retired 52 generals in the biggest sweep in Colombian history. Immediately after Petro’s inauguration, the generals were asked to step down to make way for younger officers that have “zero corruption, zero violation of fundamental rights,” Petro said during a news conference.
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President Gustavo Petro during his inauguration speech in Bogota, Colombia. Photo: Fernando Vergara/AP
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The changes come after nearly two decades of lax oversight during right-wing rule and over six decades of corruption scandals and human rights abuses. A former member of the M-19 guerrilla group, Petro has promised to reform the armed forces by prosecuting human rights abuses in civilian courts, separating the police from the defense ministry, and rooting out deeply entrenched corruption.
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Such proposals have engendered deep distrust from the armed forces and the right-wing opposition. Opposition politicians and ex-defense staff have urged the new leader to be cautious, but observers say an attempted coup is unlikely. Despite Petro’s public announcement that the drug war has failed and must end, the country still faces a tenuous security situation and six active conflicts between a militarized state, right-wing paramilitaries, drug cartels, FARC dissidents, Marxist guerrillas, and organized crime groups.
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Cuba opens up to foreign investment amid economic crisis. Facing economic hardship and a shortage of hard currency, the Cuban government opened the country up to foreign investment for the first time in 60 years, AFP’s Leticia Pineda reports. The reform allows international investment in domestic wholesale and retail trade in a surprising effort to confront growing shortages of critical goods. Until now, such investments have been allowed only in services and domestic production.
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The lack of foreign currency, raw materials, and capital have aggravated perpetual shortages of food, medicine, and fuel and prompted once-rare protests on the communist-ruled island. Such challenges come at an inopportune time for the regime, as a pullback in tourism, the rise in oil prices and the continuation of Trump-era sanctions has forced inflation to over 30% this year. Shortages also have pushed Cuban consumers increasingly onto the black market, which has exacerbated consumer inflation that reached 70% in 2021.
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Centro Habana, Cuba. Photo:Lucas Vallecillos/VWPics via AP
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Such hardships have triggered protests across the country—and prompted a surge in immigration to the US that tops both the 1980 Mariel Boatlift and the 1994 Balsero Crisis, according to The Center for Democracy in the Americas. In response, the government began exploring limited reforms, authorizing solo entrepreneurs, and then allowing small and medium-sized companies to operate in the hope that liberalization will boost domestic industry without sacrificing all state control.
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However, ministers have made it clear that friendly investors will be prioritized while many investments will require state approval and partnership with local firms, making it unlikely the reforms will attract enough investors to counter the severe lack of foreign exchange amid elevated energy import costs.
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What we’re reading
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History shows Ghana cedi’s fall may extend even after rate hike. (Bloomberg)
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Emirates suspends Nigeria flights over failure to repatriate funds. (FT)
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Buhari’s Exxon sale flip-flop imperils Nigeria’s oil reform. (Bloomberg)
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DRC opens oil and gas auction round to carbon-credit and crypto groups. (FT)
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Amid energy crisis, EU plans to help gas-rich Mozambique boost security. (Reuters)
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Zimbabwe offers target-beating incentive for biggest gold miners. (Bloomberg)
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Unequal and divided, Angola braces for tense election. (Reuters)
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Confident Algeria rides gas high. (Reuters)
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Pakistan army to provide security for 2022 FIFA World Cup in Qatar . (ProPakistan)
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Bangladesh anger over fuel prices echoes that in Sri Lanka and Pakistan. (Nikkei)
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Growing debt is ‘biggest risk’ for East Asia: World Bank. (Nikkei)
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Afghanistan shows the limits of China’s Belt and Road. (Nikkei)
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Solomon Islands secures $92m Chinese loan for Huawei deal. (Straits Times)
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As Iraq’s political crisis deepens, US influence dwindles. (Middle East Eye)
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Saudi Arabia renews $3bn deposit to Pakistan. (FT)
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Israel and Turkey restore full diplomatic ties. (Haaretz)
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Surge in Turkish exports to Russia raises western fears of closer ties. (FT)
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Russia’s Black Sea fleet struggling with effective sea control, UK says. (Reuters)
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Russia ministry says economic slump less severe than feared. (AlJazeera)
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Russian embassy accuses West of ‘NATOization’ of Bosnia. (BalkanInsight)
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NATO seeks to ease Balkan tensions as Kosovo and Serbia warn of tough talks. (FT)
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Bomb threats put Moldova on edge. (AP)
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Extradition and election pose test of Bulgaria’s EU commitment. (BalkanInsight)
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Montenegro government toppled by no-confidence vote. (BalkanInsight)
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Haiti sees spike in weapons smuggled into country from US. (BBC)
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El Salvador extends ‘state of exception’ in war on gags. (AP)
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Colombia and Venezuela working to coordinate border reopening, minister says. (Reuters)
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Paraguay vice president backtracks on resignation pledge. (AP)
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Argentine exports reach historic highs. (MercoPress)
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In Argentina, mass protests demand higher wages, lower inflation. (Reuters)
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