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Picture: ISTOCK


Dan Keeler, editor of Frontier Markets on Wall Street Journal, co-ordinates the Journal's coverage of the world's frontier markets. Launched in early 2014, WSJ's frontier market coverage brings together a broad range of news and analysis, providing readers with a deeper understanding of some of the world's most dynamic and fast-growing economies.

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Picture: ISTOCK

This Week on the Frontiers, July 15th 2017

Frontier markets performed strongly in the first half of the year, with the majority seeing positive returns, Citi’s frontier analyst Andrew Howell said this week. In aggregate, the markets are up almost 13% in dollar terms in 2017, but, Howell noted, that number masks substantial divergence between markets. “Strong first halves for Argentina (+41%), Kazakhstan (+30%) and Romania (+22%) [were] juxtaposed against more lackluster numbers for Morocco and Bangladesh (+5% each) and a difficult start for Oman (-19%),” Howell said.

With August’s presidential elections in Kenya fast approaching, pundits are beginning to lay out their predictions. Africa-focused risk advisory firm DaMina is among the boldest, forecasting a landslide defeat for incumbent President Uhuru Kenyatta. “Facing a united opposition, which has re-branded itself as a calmer mature alternative, Kenyatta and [Deputy President William] Ruto are dogged by strong local perceptions of arrogance [and] entitlement,” DaMina analyst Sebastian Spio-Garbrah said.

Kenya’s capital, Nairobi. Picture: REUTERS/NOOR KHAMIS
Kenya’s capital, Nairobi. Picture: REUTERS/NOOR KHAMIS

Robert Besseling, executive director of risk consultancy ExxAfrica, believes the most likely outcome is that neither Kenyatta nor his leading opponent Raila Odinga will gain the 50% of votes needed to win in the first round. In the event of a run-off, Besseling said the chances of election-related violence become much greater. “Allegations of electoral fraud are the primary trigger for outbreaks of violence,” Besseling noted. “Despite some efforts to improve election transparency, there remains ample scope for vote rigging.”

Bitange Ndemo, who was permanent secretary to Kenya’s communications ministry when violence engulfed the country in the wake of the December 2007 elections, told the Journal he is optimistic there will not be significant turmoil, regardless of the result of this year’s election. “In 2008 we saw it building up, but now we are not seeing that. There are skirmishes but I’m not seeing the intensity we saw before 2008,” he said.

Ndemo also believes it is unlikely there will need to be a second-round poll. “We have eight candidates but I don’t think any of them can get enough votes to ensure neither of the leading candidates receives more than 50%. I don’t think we will have a run-off.”

Growing consumer spending is one of the trends that attract investors to Africa, but, according to consultancy Frontier Strategy Group, much of the information companies are using to assess the scale and growth of the consumer markets in sub-Saharan Africa is misleading. “Estimates of the scale of the consumer opportunity tend to be based on GDP and demographic growth data, [which] do not reflect how wealth trickles down through economy,” the firm said in a report.

The report is based on an FSG study that mines additional data points, such as education levels and welfare provision, to try to divine which countries in the region have the most conducive environment for growing consumption. Countries that appear among the leading markets in the survey include Senegal, Kenya, Rwanda and Ghana.

Shareholders in Atlas Mara, the African banking group co-founded by the former Barclays chief executive Bob Diamond and Mara Group founder Ashish Thakkar, approved the firm’s plan to sell a stake in the group to Canadian investment company Fairfax Africa. Fairfax is investing $200 million for a 35% stake in Atlas Mara, some of which will be used to fund the $55 million purchase of a 13.4% stake in Union Bank of Nigeria.

In an interview, Diamond told the WSJ he believes Fairfax’s commitment is symptomatic of an improvement in investor sentiment toward Nigeria and to sub-Saharan Africa as a whole. “It’s been a very challenging two years, with the commodity cycle, the currency cycle and with European banks pulling back because of Basle 3. But I do believe we’re seeing real progress, that sentiment is beginning to change,” he said.

“In a year or two we’ll look back and see this as a turning point when investment started to come back,” he added.

Nigeria’s stock market appears to be echoing his view: This week, it continued its strong performance, tacking on another 2.5% to take its year-to-date rise to almost 24%.

Ugandan lawmakers are being asked to pass a long-delayed bill to introduce genetically modified crops, as Africa’s leading coffee exporter seeks to boost harvests after back-to-back droughts, Nicholas Bariyo reports. The bill is back in parliament three years after it was shelved amid protests from opponents who insisted genetically modified organisms would wipe out Uganda’s organic farming sector. Christophe Kibazanga, the agriculture minister, says Uganda needs GMO technology to “fully exploit the potential of its agriculture industry.”

Sub-Saharan Africa is still leading the world in the growth and development of mobile money services, according to GSMA, a global grouping of mobile phone operators. In its latest report on mobile money trends, the group said the region accounts for more than half of all mobile money deployments worldwide. In seven countries—Gabon, Ghana, Kenya, Namibia, Tanzania, Uganda and Zimbabwe—more than 40% of adults use mobile money. Although East Africa is still leading in terms of value transacted, mobile money use in West Africa is growing strongly, GSMA said.

Picture: ISTOCK
Picture: ISTOCK

Mobile-enabled insurance, savings and credit products are also spreading rapidly. By June 2016, there were 60 mobile money enabled insurance services in 17 countries in the region.

In a separate report, GSMA noted that subscriber numbers are growing faster in sub-Saharan Africa than anywhere else and predicted the number of mobile phone subscribers across the region would reach 535 million by the end of this decade, up from 420 million at the end of 2016.

Pakistan’s prime minister rejected calls to resign and will continue to fight allegations of corruption, after a criminal investigation found that he and his children were living beyond their means, Saeed Shah and Qasim Nauman report. The prime minister’s aides dismissed the report as “not based on any evidence.”

The report sets the stage for a prolonged legal and political battle that could undermine the country’s already struggling stock markets. “If political uncertainty increases or affects other cabinet positions, it could have significant implications for domestic financial markets,” Standard Chartered senior economist Bilal Khan said.

Moody’s appears unfazed by the latest developments. The ratings firm on Tuesday announced it had affirmed Pakistan’s B3 credit rating, citing what it sees as a “strong” medium-term growth outlook.

Vietnam’s central bank surprised markets this week with a 0.25 percentage point cut in the refinancing rate to 6.25%, the first such move in three years, Guearav Raghuvanshi reports. The move comes after the IMF had suggested Vietnam should keep interest rates on hold. Vietnam, among the fastest growing economies in the world, needs to contain rapid credit growth to become more efficient, the IMF said. Vietnam is chasing a 6.7% growth in GDP this year, though many analysts predict the nation will fall short. The central bank said the move was aimed at supporting business and economic growth.

Sri Lanka has significant scope to broaden its tax base and increase revenues, Moody’s said this week, noting that total government revenues are among the lowest of its similarly rated peers. In a report on the South Asian nation’s credit quality, the ratings firm also noted that Sri Lanka’s government had relatively high levels of debt and large borrowing requirements. Those vulnerabilities, though, are balanced by the economy’s “robust medium-term GDP growth prospects, relatively large economy, and high income levels.”

Christine Lagarde, head of the IMF, this week congratulated Egypt on its economic reform program. Lagarde was speaking after the multilateral approved the disbursement of $1.25 billion as part of Egypt’s bailout package. “The government and the central bank have taken the right measures to rein in inflation, reduce the budget deficit, and set the Egyptian economy on a path to stability and growth,” she said.

Romania’s new government, which took office in late June, has upset the country’s business community with a proposed fiscal overhaul that could see tax revenues rise sharply in an attempt to plug a growing hole in the government’s budget. Although the government has struggled to gain traction for its reform program—and has backpedaled on some if its key tax proposals—analysts at London-based Capital Economics believe its policies could undermine Romania’s status as one of the fastest-growing economies in Europe. “The onset of tighter fiscal policy—coming alongside likely interest rate hikes—supports our view that the Romanian economy will suffer a marked slowdown in 2018-19,” the firm said in a note this week.

US Secretary of State Rex Tillerson on Sunday met Ukrainian President Petro Poroshenko, a visit that telegraphs US support to Kiev, Thomas Grove reports. In an appearance with Poroshenko in Kiev, Tillerson said the Trump administration was looking for a fresh solution to the crisis in the country, which is locked in a conflict with separatists in the eastern Donbas region.

The US, Tillerson said, was committed to restoring “Ukraine’s territorial sovereignty and integrity,” adding, “It is necessary for Russia to take the first steps to de-escalate the situation in the east part of Ukraine” by encouraging separatists to pull back heavy weaponry.

Venezuela’s opposition plans to hold a vote Sunday that its leaders hope will reject President Nicolás Maduro’s strategy to rewrite the constitution and possibly dissolve the national legislature, Ryan Dube writes. The vote, open to Venezuelans at home and abroad, is unauthorized and will almost certainly be denounced by the government. But opposition leaders are betting that a mass repudiation of Maduro’s plan will undermine its legitimacy.

Polls show that 80% of Venezuelans are against the Socialist government’s plan for a national vote to be held on July 30 that would pick a 545-member special assembly. The body that would have powers to remake Venezuela’s charter and its political system, including dissolving the opposition-held National Assembly.

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