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Picture: ISTOCK

Emerging markets update from the WSJ

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
Picture: ISTOCK

This Week on the Frontiers, July 2017

Trade growth rates in frontier markets are picking up, according to new research from Fitch. Although economic growth in frontier markets slipped steadily from 5% in 2013 to around 3% in 2016, most of the frontier markets are now seeing faster growth in imports or exports compared with a year ago, the ratings firm said. Fitch noted that export growth from Asian markets, including Vietnam and Mongolia, has been particularly pronounced.

Pakistan’s currency devalued 3% last week, surprising many who had expected a gentle slide in the value of the rupee rather than an abrupt shift. Although the sharp drop was unexpected, analysts at London-based Exotix Capital described the change as “part of an orderly management of the FX rate, not the start of a collapse.” Renaissance Capital’s chief economist Charlie Robertson was similarly sanguine but noted that the currency remains significantly overvalued — a view shared by other Pakistan watchers.

The country’s stock market resumed its downward trend after a slight bump last week, ending the week down almost 3%. Zambia’s president has called for a country-wide state of emergency, as the political crisis in one of Africa’s most stable and mineral-rich democracies deepens, Nicholas Bariyo reports. President Edgar Lungu said in a televised address late on Wednesday that he would seek parliamentary approval for sweeping emergency powers, after months of violence following the jailing of opposition leader Hakainde Hichilema for treason. If approved by lawmakers, the legislation would give Lungu the power to censor the media and impose broad restrictions on freedom of assembly and movement.

Drought and a fall-armyworm invasion may cut Kenya’s 2017-2018 season corn output by about 25%, George Mwangi writes. The leaf-eating caterpillars, native to the Americas, have invaded farms and are expected to reduce the corn harvest by 5%, compounding the effect of erratic weather, which could cut the harvest by 20% this season, agriculture cabinet secretary Willy Bett said.

Nigeria’s oil production is surging, Obafemi Oredein writes, with officials now predicting that output will surpass the 2017 target of 2.2 million barrels of oil and condensate a day. The state-run Nigerian National Petroleum Corp. said Nigeria’s average daily production has already risen to about 1.88 million barrels a day.

Maikanti Baru, NNPC’s group managing director, said improvements in security and the resumption of production at the Forcados and Qua Iboe terminals’ pipelines have helped increase output. Baru said the Owowo field, discovered in October last year, has not started production but its proximity to Exxon-Mobil’s Usan field could allow for early production. The field, he said, added an estimated 1 billion barrels to the national crude oil reserves. Baru also said the Nigerian Petroleum Development Company’s flagship upstream company had raised production from 15,000 bpd to 210,000 bpd in June 2017 and cut costs of production from $27 per barrel to $22 per barrel.

The risk of unrest in Uganda is increasing as veteran leader Yoweri Museveni moves to amend the constitution to retain power beyond 2021, Nicholas Bariyo writes. According to South Africa-based NKC African Economics, Museveni, who will be 76 in 2021 and ineligible to contest under the current constitution, will likely “use the full force of his security apparatus to quash dissent” as he pushes to change the law. “We have decided to change our trend line on conflict levels from neutral to negative, due to the risk of protest action and accompanying violence to suppress it,” NKC said.

 Investors in neighbouring Tanzania are anxiously awaiting the government’s next move after parliament passed two of the three bills that would allow the government to tear up all existing mining contracts and negotiate new ones, Bariyo reports. The move fits into President John Magufuli’s “relentless pursuit of political theater and showmanship” through strict enforcement of tax laws, says Ahmed Salim, a vice president at Teneo Intelligence. The third bill was expected to be passed shortly.

Egypt’s central bank on Thursday raised key interest rates by two percentage points, a surprise move aimed at controlling inflation after the government increased the price of fuel and electricity, Nikhil Lohade reports. This is the second time the central bank has raised interest rates this year, after floating the currency in November and letting it fall sharply against the US dollar as part of a broader economic reform package. The value-added tax rate was also increased this month.

A weaker local currency has been one of the main reasons for inflation to jump above 30% this year. The central bank said annual core inflation was at 30.6% in May, but it hopes to lower inflation to about 13% by the end of next year and single digits after that.

The appointment of Mohammad bin Salman as the crown prince of Saudi Arabia “provides a big boost to the reform process” and should speed up diversification efforts in the kingdom, Kuwaiti investment company Kamco said in a note. The debt market doesn’t appear as enthusiastic, though, the Journal’s Tasos Vossos writes. Yields on Saudi Arabia’s 3.25% 2026 US-dollar bond are little changed since news of the appointment in June, while five-year credit default swap spreads have widened, implying a higher cost of protection against Saudi defaults.

Iran unveiled an ambitious port expansion plan that will triple annual container handling capacity to 15 million boxes by 2020, Costas Paris reports. Senior government officials in Tehran say the recent lifting of sanctions has triggered interest among dozens of shippers to move cargo from Europe directly to Bandar Abbas, the country’s biggest port, which can currently handle three million boxes, or 84% of the country’s container traffic. “Imports of manufactured goods are set to grow very strongly in the next couple of years and what’s missing is enough port capacity to handle them,” a Singapore-based broker said. Last year’s container volumes to Iran quadrupled year-on-year, but are still only one-tenth of their 2011 peak.

Government supporters armed with pipes and sticks burst into Venezuela's congress on Wednesday and severely beat several opposition lawmakers, Kejal Vyas and Anatoly Kurmanaev report. The violence started after dozens of backers of the president stormed the opposition-controlled National Assembly in downtown Caracas ahead of a legislative session to mark Venezuela’s independence day.

Some 300 congressional workers and journalists sought protection by barricading themselves for several hours inside the assembly, where lawmakers also were organising an unofficial July 16 ballot to counter President Nicolás Maduro’s plan to rewrite the constitution, which his critics say is an effort by the unpopular leader to forgo elections.

Car sales are surging in Argentina as consumers show signs of increased confidence in the economy, Taos Turner reports. Vehicle sales last month rose almost 40% from a year ago, according to Acara, a vehicle dealers’ association. June’s numbers capped a strong first half for the industry, which saw sales rise 33% from the same period a year earlier. Daily sales surpassed 3,800 units in June, the highest daily sales figure for any month since 2013.

Sharply growing tax revenues also provide evidence that Argentina’s economy is strengthening. Tax collection rose almost 30% in June from a year ago, surpassing inflation that economists say totals about 24% annually, Turner writes. Income from Argentina’s 21% value-added tax was also up nearly 30%. Argentine officials say the tax burden on people and businesses is far too high but that they have little room to cut taxes because of a gaping fiscal deficit, so they plan to reduce the latter first. 

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