Category Archives: Zambia

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.

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

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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Chart of the Day: Frontier Markets Fixed Income Yields

We would be wise remind ourselves first of the definition of the impossible trinity: it is impossible to have (a) a fixed exchange rate, (b) absence of capital controls and (c) an independent monetary policy.

Remember that. I’m going to come back to that.

So Silk Invest has this going on:

“The chart on the right hand side compares currencies in terms of Purchasing Power Parity. What the graph tells us is that the adjusted value of the Brazilian Real is similar to the US$, while most frontier market currencies are systematically undervalued.”

2013.01.23.Frontier Markets yields

The problem I’ve always had with Purchasing Power Parity is that it assumes equivalent standards of living across markets when in fact that is very rarely the case. Put another way, a dollar may buy more in Brazil than in Vietnam, but this says nothing about what the average citizen in either of those countries needs to sustain a living.

But that’s an argument for another time and another context. Otherwise, this is a very compelling chart. A couple things off the top of my head:

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There’s one word for Emerging Markets Debt. And one way to hedge it.

2013.01.11.Emerging Markets debt bubbleEuromoney leads an Emerging Markets debt bubble story with this teaser:

“International money is flying into emerging market sovereign bond markets with frontier credits, such as Zambia, Mongolia and Bolivia, now boasting low yields. The jury is out on whether there is a bubble brewing in developing bond markets in hard currency.”

Um…personally, the jury is in if you ask me. It’s been in for quite a while and I don’t think anyone doubts that there is a bubble. The only question is when it’s going to pop. I mean, seriously folks. Disregard whatever spin you’re hearing from compromised money managers. The facts speak for themselves:
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“Zambia is an Argentina without a Christina Kirchner”

Everything here I consider of equal importance but the fact of how we digest information is that something must come first. So let’s start with that headline quote, which came from Michael Power of Investec Asset Management in this 12 minute interview. Lest you don’t have 12 minutes to watch it (which is what I’m here for), the short version of what Mr. Power has to say is that Investec rejects the broad categorization wrought by the terms “emerging markets” and “frontier markets” for something Investec has taken to calling “horizon markets”.

Yes, you read that correctly. Pardon me if I’m late to this party, but this is the first I’ve heard of this. Horizon markets apparently includes “second tier” emerging markets, which consists of a handful of countries less prominent than the BRICS but with investable entry and exit points far ahead of any failed state. Here’s a chart Investec included in London-based Clear Path Analysis’ recently released overview of Frontier Markets investing:

Also noteworthy from the video interview, Investec likes the following when it comes to investing in Africa:
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Untangling Zambia’s Currency Controls And Implications For Copper ETFs

A variety of conflicting signals from Zambia in recent weeks demands a closer look at what’s driving its economic policy and the implications for Global X Copper Miners ETF (COPX), First Trust ISE Global Copper Index Fund (CU) and Market Vectors Africa (AFK).

The confusion kicked off with an announcement from President Michael Sata’s government that a plan to rebase the currency by three decimal places has since been put on hold. Meanwhile, it has outlawed the use of foreign currency in domestic goods and services transactions, with penalties for transgression that include up to 10 years in prison. The immediate upshot of this measure was a short-term appreciation for the kwacha as Zambians rushed to sell dollars through official channels. Continue reading

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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Transcript: Nick Francis Discusses ‘When China Met Africa’

I had the pleasure of attending a film screening earlier this week at the Foreign Policy Association in New York of a documentary entitled, “When China Met Africa”, by Nick and Marc Francis. This isn’t like anything I’ve ever seen before on film, though I’ve been following the China-Africa dynamic for a couple years now, ever since the 2006 summit China hosted for several African heads of state. And as it turns out, footage from that very summit happens to open When China Met Africa.

The film’s website is here but to quickly summarize, Continue reading