Category Archives: Nigeria

An Apples-to-Apples Comparison of African Sovereign Debt

I’ve been meaning to do this for months now, and the FT’s Jonathan Wheatley has just done it for me. Herewith, a side-by-side comparison of 10-year African sovereign debt issues from the past 15 months:

Country Issue Date Tenor Size Yield at issue
Zambia Sep 2012 10 years $750 mm 5.625%
Rwanda Apr 2013 10 years $400 mm 6.875%
Nigeria July 2013 10 years $500 mm 6.625%
Ghana July 2013 10 years $750 mm 8.000%
Gabon Dec 2013 10 years $1.5 bn 6.375%

As Wheatley correctly points out, this is a Gabon story as much as it’s an Africa story. There are a lot of ways to slice this, the most immediate being yield differences. Wheatley:

Is Zambia, at 5.625 per cent (cheaper than Spain at the time), really in a different ball park from Ghana at 8 per cent? Yes and no. When Zambia came to market in September 2012, yields on US Treasuries were at their tightest and investors were scrambling for any deal that offered something better.

“There were opportunities to lock in great transactions,” says Samara. “But you still had to have a story to tell.”

Rwanda faced perhaps an even more inviting market, with investors getting so frustrated at low yields in the US they seemed willing to take almost any risk. Even in that environment, however, Rwanda had to pay a lot more than Zambia.

Nigeria and Ghana tell a similar tale of the post-tapering world: the decidedly less risk-on environment that followed comments in May by Ben Bernanke, chairman of the US Federal Reserve, suggesting the end of ultra-loose monetary policy was on the horizon. But Samara says that even in those more difficult circumstances, the right issuers have been able to get bonds away.

I would also point out the dramatic difference between these yields, and the indicative yields of their currencies at the beginning of this year, which I previously discussed here. Pasting those local currency yields into the above table gives us the following:

 

Country Issue Date Tenor Size Yield at issue Indicative FX yield as of Jan 2013
Zambia Sep 2012 10 years $750 mm 5.625% 9.80%
Rwanda Apr 2013 10 years $400 mm 6.875% 12.30%
Nigeria July 2013 10 years $500 mm 6.625% 14.40%
Ghana July 2013 10 years $750 mm 8.000% 22.90%
Gabon Dec 2013 10 years $1.5 bn 6.375% N/A

 

The debt yields are significantly lower than the FX yields reported in January (courtesy of Silk Invest). A lot has happened in the world this year to drive this divergence, but what this screams of more than anything to me is the benefit of borrowing dollars in the Eurobond market. 

Put another way, let’s use the example of Nigeria, which is far and away the largest economy of any of these. In an ideal world, an economy like Nigeria should be able to draw a far larger issue size than $500 million, and denominated in naira, but if they did, they would be paying much more than 6.625%. And even in dollars, the $500 million ticket size indicates that appetite is still fairly limited, despite all the currency risk being shifted onto Nigeria (which, having some 90+% of its economy dependent on oil, is less burdensome than the task facing, say, Rwanda).

I’m all for developing local currency financing mechanisms, but what this all says to me is that there’s still a VERY long way to go.

Frontier Markets Opportunities and Risks, Bloomberg Edition

As part of last month’s Bloomberg Dealmakers Summit in London, the following roundtable took place, featuring Timur Issatayev of Verny Capital, Parag Saxena of New Silk Route LLC and Danladi Verheijen of Verod Capital Management. It’s 22 minutes and all worth it, but if you want the single most profound statement for my time, fast-forward to 15:10, when Parag Saxena has the following to say when asked about investment risks in South Asia:

“If you stay away from purely government-granted things you can probably do all right but sometimes that is where the opportunity is so it’s hard. To me the big surprise that I learned in India, having been in the investment business for 31 years and thinking that I have made already most of the mistakes that I was going to make in my investment life, the one that surprised me in India, and I know it’s true in Pakistan and Bangladesh too, is the lack of talent. So when I invest in the U.S., which I continue to do, I know that even for a pretty tough to fill job, in 120 days to 180 days I can fill almost any job. And so typically now at my age, I get resumes from my friends’ children. I used to get them from my friends at one point and now I get them from my friends’ children. And in the US I think it’s going to be hard to actually place them because there is so much talent available for a limited number of jobs. In India, I find myself grabbing every resume because I can hire baristas for somebody that wants a summer internship job, we have a restaurant company and cellular tower company and we need CEOs, so I can hire CEOs for those companies, and everything in between. So the biggest surprise to me, and the opportunity, is training for lower level jobs. And that’s a real unexpected risk, because time is the enemy of internal rate of return and if it’s going to take you more time to fill these slots and you can’t get stuff done, you have a real problem.”

Here’s the video in full:

Making Sense Of Angola Stock Exchange Plans

Africa Stock Market Cap FiguresBloomberg had a story out late last week about plans for an Angola Stock Exchange, entitled, “Angola Plans 6th-Biggest Africa Bourse With Value at 10% of GDP”. Since we (and by we, I mean you and me, in an apparently small minority) are resolved to have a realistic approach in discussing economic prospects anywhere, here are the main points of interest from the article once we strip away all the spin and optimism:

  • Angola, Africa’s second-biggest oil producer, expects its stock exchange to have a market value of 10 percent of gross domestic product within 18 months of its startup, making it at least the continent’s sixth biggest.
  • The capitalization of the exchange, set to start in 2015, would be a minimum of $11 billion based on last year’s output of $114 billion.
  • The Angolan government is forecasting economic growth of 7.1 percent this year, down from 7.4 percent in 2012.
  • A secondary bond market will start this year to help develop a yield curve.
  • South Africa’s bourse is the continent’s largest at $842 billion, more than double its GDP.
  • Angola ranks 157th out of 176 countries on Transparency International’s 2012 Corruption Perceptions Index.

The investment bank Imara just put together this brief which summarizes some key data points for other stock markets in Africa. There’s some good trading info in there but missing is any indication of market capitalization figures. I should add that this isn’t Imara’s fault necessarily as this data is generally pretty hard to come by.

The thing is, this isn’t the first time Angola has made efforts at opening a stock exchange. In December 2007, allAfrica.com ran a story entitled, “Angola: Stock Exchange Opens in 2008”, but I definitely remember hearing about this before then, though not as far back as 2003, which is when this article dates the beginning of the process.

In any event, here’s a more “recent” take on the Angola stock exchange prediction, from How We Made It In Africa in 2010. Apparently, Angola’s planned exchange was then expected to be the third largest in Africa. Particularly striking from the 2010 article was this little snippet:
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Chart of the Day: Sub-Saharan Africa’s Mobile Phone Market

Lots of room to run here. What this doesn’t give us a clear view of though is undersubscription relative to absolute market size. Nigeria would obviously be the winner on that front.

2013.03.18.Sub-Saharan Africa Mobile

How Oil Divides The Economies Of Africa Into Winners And Losers

I can’t get this article from the FT’s William Wallis out of my head. The headline is “Currencies pressed by trade imbalances” but this really only captures a small slice of the picture. Check it out:

With import demand outstripping export growth in some of the continent’s fastest expanding economies, rising trade imbalances are putting pressure on currencies. African and international investors hedge against this by spreading risk – one factor that is driving African banks and businesses across borders.

But even an expansive footprint is not always enough. MTN, the continent’s leading telecoms provider with a presence in 21 African countries, announced that currency swings had weighed heavily on its earnings.

More broadly says Razia Khan, head of Africa research at Standard Chartered Bank, widening current account deficits are the result of an investment and consumption boom, new resource exploration activity and “the scaling up of output”. Ghana fits into this category. It is also on the risk radar this year as heavy investment in oil and gas infrastructure continues, with only modest increases forecast for oil output.

A weak currency does not help those African countries with limited capacity to ramp up exports in response. Kenya cannot for example suddenly double tea production. So, it is forced to defend its currency to avert importing inflation.

Loose monetary policy in major developed economies has driven a rush of short-term funds into African markets. David Cowan, Africa economist at Citibank, says the way in which central banks defend their currencies and the margins that foreign investors earn will be one determining factor in how long the appetite endures.

I don’t disagree with any of this but would point out that this is all just the tip of the iceberg and there are a lot of ways to slice this.

One is that just six of Africa’s 53 countries account for two-thirds of the entirety of Africa’s $2.0 trillion economy. In descending order of nominal GDP: South Africa, Nigeria, Egypt, Algeria, Angola and Morocco. I think a pie chart best demonstrates this relationship:

2013.03.20.Africa 2013 GDP composition

Another is to think about how much of Africa’s total economy is driven by oil exports. Let’s try the following table to demonstrate this:

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Know Your Audience, China-Africa Edition

2013.03.07.Fitch-net-FDI-inflows-sub-Sarahan-AfricaThis has been building for a long time. The latest is this CNN interview with Dambisa Moyo, she of “Dead Aid” fame, entitled, “China Can Transform Africa“. A couple of comments caught my eye:

“Ultimately, the responsibility of how China engages in Africa is really at the domain of the African governments. We would not be worried about the risks of neo-colonialism or abuse, environmental abuse and labor issues, if we trusted the African governments to do the right thing.”

“I’m an eternal optimist. I’m probably the wrong person to ask, because I do believe that the structural and fundamental structures of Africa right now are poised for a very good few decades. If you look at an economy through the lens of capital, which is basically money; labor, which is basically how many people do you have and what skills do they have; and productivity, which is just, how efficiently they use capital and labor, the trend is very clearly in favor of Africa.”

I don’t disagree with anything in this statement or really anything else Moyo says in the interview. What occurs to me though is the big “IF” that is buried in there: “…if we trusted the African governments to do the right thing.” Moyo objects to the broad characterization of Africa as a giant war zone replete with disease and hopelessness and corrupt dictators, and I object to that too. But the bottom line remains that so much of forward development, not just in Africa, but Latin America too, hinges on trusting governments to do the right thing. Maybe this is a glass half-empty/half-full debate, but I personally don’t think we need any more evidence of governments being unable to do the right thing, whether in Africa, Latin America, the US, Europe or really anywhere.

Actually, elsewhere on the CNN website, this is a pretty realistic breakdown of the continent.

Related to this, Bill Clinton was apparently in Nigeria recently to give a speech about the challenges Nigeria faces. Some quotes from that story:

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Countries Succeed And Fail According To Leaders’ Choices

May seem obvious, but sometimes we need to be reminded of the blindingly obvious. I challenge you to find a more worthy way to spend the next three minutes of your time. Here we have Nasir El-Rufai, former Minister of the Federal Capital Territory under Obasanjo, who has just published a memoir, “The Accidental Public Servant.” For those of you in London, here’s a schedule of his appearances there this week. For those of you more accustomed to the American political format, imagine that the mayor of Washington, DC was appointed by the president and that it was a cabinet-level position and you have an idea of El-Rufai’s role in the Obasanjo Administration.

Hype, Truth and Something In Between, Nigeria Edition

2013.02.07.Nigeria truth hypeDiscussing the prospects of investing in Africa seems to invite a rising level of dissonance between people with something to sell—be it product or ideology—and people with some perspective still stuck in the colonial era.

So when I saw that US News published something entitled, “Why Africa Is Essential to America’s Future,” I came into it expecting the former, but was surprised at how much space the author took to remind everyone of all the reasons to be scared:

There are wars and rumors of wars every day. Sudan and South Sudan not only have difficulty accepting one another, they both have internal schisms to bridge. Somalia is still a divided and dangerous land. The Eastern Congo is plagued by marauding and competing armies and bands that call themselves armies, though they are little more than semi-organized thugs, robbers, rapists, and murderers, often sponsored by governments, local or national. Madagascar continues to be run by a coup-inspired government that has allowed its country to be open to international pilferage leading to the obliteration of their green environment and unique wildlife. Continue reading

Caravel Management makes a case for Frontier Markets

You may have heard by now that the jig is up on the BRIC acronym as an investment class. But we’ll all still have to spend at least another couple years discussing how it doesn’t work, so if you’re just getting used to BRIC, fear not, you can still throw that one around and give the appearance of knowing what you’re talking about.

In any event, I have a new investment theme acronym. This is better than CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa), MIST (Mexico, Indonesia, South Korea, Turkey), PIIGS (Portugal, Italy, Ireland, Greece, Spain), CASSH (Canada, Australia, Singapore, Switzerland, Hong Kong) and even SWAG (Silver, Wine, Art, Gold).

Ready? Here it is: VIMBENT.

You heard that here first.

Vietnam
Indonesia
Mexico
Bangladesh
Egypt
Nigeria
Turkey

These, apparently, are the countries New York-based Caravel Management is invested in, according to a Bloomberg interview with portfolio manager Caglar Somek earlier this week:

There’s only so much one can fit into a six-minute segment, so to the credit of both interviewer and interviewee, here’s what seem to be the main ideas behind the VIMBENT strategy:
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Chart of the Day: The top 10 stock exchanges of 2012

This is actually going to be a few charts, because the first chart as you can see looks ridiculous:

Top 10 Frontier Market stock exchanges v DJIA

It should go without saying that there’s something very wrong with this picture, and indeed Miguel Octavio sums it up better than anyone I know here, but the long and short of it is that runaway inflation and an ass-headed capital controls regime has wildly overstated the “returns” in Venezuela. So let’s get rid of Venezuela and look at how the rest of these stack up against the Dow Jones Industrial Average. Here’s what we get:

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Global Remittances Zig, Mexico Zags

First came a report from BBVA that remittances to Mexico have decreased for five consecutive months, with the $1.695 billion recorded in November apparently 5.1% lower than in November 2011. Furthermore:

“Among the factors explaining the fall in remittances to Mexico over recent months are: the weak employment situation of Mexican migrants in the U.S., associated with the uncertainty regarding the future of the US economy, with alternatives being sought to adjust the major fiscal deficit. There is also a comparison effect with November 2011, when annual growth in remittances was 9.4%.”

But let’s let the pictures to the talking:

2013.01.10.Mexico remittances

Then comes this article from This Day in Nigeria:

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Rapid Growth Markets: Behold THE FUTURE

I’ve just spent way too much time playing with Ernst & Young’s interactive spider graph thingy that allows you to compare their 25 “rapid-growth” markets across a range of macroeconomic indicators. According to E&Y, these 25 countries possess the most promising “long-term potential to generate strong business opportunities.”

So since a picture is worth a thousand words, here’s how all 25 of these economies will change from 2011 to 2016 from the meta-macro view, compared against each other:

Okay! Is everybody ready to go out and make some money?
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9 Emerging and Frontier Markets Uncle Sam wants YOU to export to

On the heels of the latest update to the World Bank’s annual Doing Business index, I thought I would use this opportunity to try a different take on the usual blather surrounding this study about which country did or didn’t move up five spaces in the shareholders’ rights category.

I recently happened to attend a function sponsored by the US Export-Import Bank that was part of its Global Access for Small Business Initiative. In the interest of not getting bogged down here by too much bureaucratese, the nutshell of this initiative can be summed up as such:

“Increasing exports and access to foreign markets is a proven tool for strengthening our economy and creating durable jobs. The United States is well positioned to capitalize on the types of products and services that fast-growing markets around the world are demanding. Ex-Im Bank is committed to ensuring that American small businesses can compete in this global climate.”

For those not in the habit of tuning in to this sort of thing, this initiative basically is targeting American small businesses looking to export to emerging and frontier markets. At first glance, this isn’t too far off from what the Overseas Private Investment Corporation (OPIC) does, but the focus here is less about investing overseas and more on businesses looking to export overseas. Where exactly overseas? Officially, anywhere, but Ex-Im representatives made a point of letting the audience know that those looking to export to the following nine countries would receive special attention, determined by “a variety of macroeconomic indicators”:
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Roosevelt Investments’ Tim Ramsey likes Nigeria, Pakistan, Kazakhstan and Argentina (sort of)

Worth a few minutes for the commentary. Note his explanation in particular of Argentina–it’s about relativity:

Source link is here.

Street Markets 101: How to fly from point A to point B in Nigeria

Welcome to what I hope to be an ongoing segment on this blog, called “Street Markets 101”. The idea behind this is to document the practical considerations of conducting business on the street level in underdeveloped countries. I’ve been thinking about this for a while now but the general inspiration behind it is reading a few too many research reports hyping [insert country, market, region or economy here] as the next big thing while completely ignoring the details of what it actually takes to make something happen when physically in certain countries. I could go on at length about transparency, rule of law, bureaucracy, unemployment, petty corruption and many more things, but I will stop this introduction here in the interest of keeping it succinct and hopefully forthcoming entries under this tag over time will speak for themselves. I’m working on sourcing other contributors to this effort, so if you live in or have plans to visit somewhere you think would be appropriate for this column, please contact me. In the meantime I thought I’d kick off the inaugural piece here myself.

I was in Nigeria for a project last month and on my third day there landed in the undesired but not unforeseen position of having to arrange a domestic flight from Lagos to Abuja for myself and my colleague, a white American man I shall henceforth refer to as Tommy Big Game. Following is the full play-by-play of what was required to successfully book passage for the two of us on a Monday morning flight in August following Ramadan: Continue reading

Wasatch’s Laura Geritz likes Kenya, Nigeria, Sri Lanka

Maybe this is just my bias, but there’s something about the way Fox Business News discusses frontier markets funds and investing that makes me wonder why they even bother. But then, I suppose something is ultimately better than nothing. Anyway the real focus of this is Wasatch’s Laura Geritz out of Salt Lake City. Notice her counter to the awkwardly phrased BRIC question, as well as what draws Wasatch to frontier markets: low debt/GDP ratio and strong domestic consumer economies:

Original source link here.

Renaissance Asset Managers’ Sven Richter likes Kenya, Nigeria, Zimbabwe

From ABN’s power lunch, July 27. Specifically, Richter likes Kenya for its banks, consumer goods and its status as a hub in the best integrated region in East Africa, Nigeria for its telecom potential and Zimbabwe for its progress with political sanctions from the EU. Also, direct investment in Africa makes more sense than proxy investment through companies headquartered in developed countries that claim activity in Africa. The full video is eight minutes and overall a pretty good summary of the general macro outlook in African markets. Original link here.

When bad people do good things, Nigeria edition

The difference between blogs and “traditional” news reporting is simple: blogs are supposed to express something closer to an unvarnished opinion. And so it is with Latitude News’ compellingly titled, “Half of Google’s Nigerian traffic happens here,” about the American University of Nigeria in Yola. Catchy, right? Unfortunately this obscures an equally important element to this story, which reveals itself halfway down the page:

The Nigerian school, which opened its doors to students in 2005, was the brainchild of Nigeria’s former Vice President, Atiku Abubakar, who credits the Peace Corps for inspiring him to found the school. As a child, Abubakar was orphaned in a town near Yola, right around the time Nigeria gained independence from the UK.

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What Higher Oil Prices Mean for Sub-Saharan Africa

I just finished reading Alterio Research’s new Frontier Africa report, “Surging oil prices – gift or curse?” which frankly could quite easily be renamed, “Dutch Disease by any other name”. The report (available for free here) attempts to measure the impact of rising oil prices on inflation, fiscal stability and economic growth on the following countries: Angola, Botswana, Ghana, Kenya, Namibia, Nigeria, Tanzania and Zambia.

The essential takeaways here that I see are the following:
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Fact and Fiction in Nigeria’s Central Bank Reserves

The announcement last week from Nigeria’s central bank that it has begun converting foreign exchange reserves into Chinese yuan comes at an opportune moment for the country. The price of oil is back up to where it was a year ago, China is gradually increasing the flexibility of its exchange rate, and ongoing uncertainty in both the U.S. and Europe is leaving the developing world’s stewards of monetary policy as skittish as ever.

But for all the reasons this move is worth paying attention to, the general state of panic surrounding global economic conditions makes it easy to overthink what’s really going on here.
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