The global commodities rout from mid-2014 brought with it severe market volatility that reshaped the growth trajectories of most economies, especially commodity-dependent economies such as those in sub-Saharan Africa. Countries such as Zambia, Angola, Nigeria and Ghana have experienced the effects of this first hand.
In periods of heightened volatility, the response mechanism of central banks becomes a vital factor that either compounds or abates the problem. This point is exemplified by how the various central banks across sub-Saharan Africa have dealt with rapidly weakening currencies and the subsequent rise in inflation. The policy response adopted by central banks in Zambia and Ghana, for instance, has erred on the side of minimum direct intervention in currency markets. In contrast, Nigeria and Angola have applied a heavy hand in defending their currencies. The two approaches have resulted in the formation of two types of risks: volatility and ‘jump’ risk. Read more
In 1986 The Economist magazine famously created its Big Mac Index, a guide to the fair value of a currency based on the principle of purchasing-power parity, which states that exchange rates should adjust to bring prices of identical goods into line across national boundaries.
But Big Macs are not sold everywhere. Seeking a similar mechanism applicable to countries in Africa, we have created our Milk Index, based on the price of a gallon of milk. Read more
The death of Michael Sata, Zambia’s president, could delay an International Monetary Fund visit to the southern African nation and, consequently, any Fund support package.
Africa’s second largest copper producer turned to the IMF in June as the kwacha hit record lows against the US dollar and the government battled a wide fiscal deficit after Sata’s administration reaped the fruit of what was seen as excessive public spending. Read more
African dollar bonds are increasingly gaining mainstream acceptance as the continent’s brisk economic growth and low interest rates in the developed world help buoy demand for high-yielding debt.
The size of Africa’s dollar-denominated debt market, not including South Africa, is now more than $20bn, accounting for 6 per cent of JP Morgan’s EMBI index. In sub-Saharan Africa, issuance of international sovereign bonds hit a record $6.9bn this year, with offerings from Kenya, Ivory Coast, Senegal, Ghana, Zambia and South Africa.
But amid the excitement over Africa’s growing role in international capital markets, some are beginning to question just how healthy the dollar borrowing spree is. Read more
By Kevin Daly, Aberdeen Asset Management
Africa is set to be a focus of the International Monetary Fund (IMF) and World Bank’s agenda at meetings next week. But observers need to be discerning: for too many the temptation is to think of Africa as one entity (or even country, if you are certain US politicians). This is frustrating for Africans. It is downright foolish for investors.
The 54 nations of the African Union speak over a thousand languages, are home to over a billion people and hold vast quantities of natural resources. Most maps, based on Gerardus Mercator’s 1569 projection, do not help by distorting land masses which gives the impression Africa is roughly the same size as Greenland.
It is in fact 14 times larger and easily large enough to fit China, India, the USA, Japan and a slew of European countries inside its land mass. The differing attitudes towards adversities suffered by Zambia and Ghana present a lesson in the continent’s contrasts. Read more
The number of middle class households in 11 key sub-Saharan African countries – excluding South Africa – are set to triple to 22m by 2030, creating a burgeoning consumer market for items such as vehicles, insurance policies, property and health products, according to a Standard Bank research report.
Simon Freemantle, senior political economist at Standard Bank and author of the report, said the prospective boom in middle class households – those earning between US$8,500 and US$42,000 a year – is also likely to be complemented by a swelling in the number of lower middle class households that earn between US$5,500 and US$8,500 annually. Read more
Following a decade in which Chinese largesse has helped to transform Africa’s prospects – and challenged the supremacy that western companies once enjoyed over the continent’s natural resources – Beijing has sent word to Washington that the world’s two biggest economies might combine their efforts to generate some much-needed electricity in one of the poorest.
The Democratic Republic of Congo, an expanse the size of western Europe that perennially ranks among the worst countries in which to do business, has known little but conflict and penury for decades. World Bank-backed plans to build a third dam at Inga are part of a broader vision for a dam complex capable of generating 40,000MW – twice the size of the Three Gorges dam in China. Read more
When Zambia last week approached the International Monetary Fund for financial help, another cash-strapped African country was surely watching: Ghana.
Lusaka and Accra face similar problems: runaway fiscal deficits – the result of electorally-driven increases in public sector salaries – and a swelling current account deficit that is pressuring the exchange rate.
The market response to Zambia’s request should convince Ghana to seek help, too. Read more
To see how China is managing its growing clout over trade and investment around the world, it might help to take a look at how an economic hegemon evolved in the past – Britain’s colonists in eighteenth and nineteenth-century India.
In reality, China is still in the East India Company stage of global economic strategy – opportunistic and pragmatic rather than ideological and intellectually coherent. (It is something of an irony that the one-party autocracy of China is proving itself eclectic while the open-market democracy of the US has been doctrinaire.) And while there are some signs that China’s economic statecraft is moving towards the transparent and plurilateral, most of its policies towards other emerging markets are opaque and self-interested. Read more
The Zambian kwacha has been one of the weakest currencies against the US dollar this year, losing more than 8 per cent of its value against the world’s reserve currency during the past month alone.
Source: Thomson Reuters
Mining may get a bad press in Africa, but there’s no denying the potential – and it’s importance. Nearly one quarter of the continent’s GDP is now based on extractive resources, the highest ratio among all regions, and between 2000 and 2008 alone, the value created from natural resources in Africa rose from $39.2bn to $240bn.
Yet this is all achieved despite a huge deficit in infrastructure, especially in rail. So a new Grindrod rail network deal in Zambia should be good news – if it can be delivered. Read more
Sometimes you get lucky – the International Finance Corporation certainly did when it picked Thursday to launch its first local currency bond in Zambia.
As the US Federal Reserve confounded analysts by announcing that it will keep its quantitative easing programme steady at $85bn a month, prompting a rally in emerging market assets, the private sector arm of the World Bank issued a $150m ($28.5m) kwacha-denominated note at 15 per cent. The four-year “Zambezi” bond is the first issued by a foreign organisation in Zambia’s domestic market, and will raise money for IFC’s local operations, officials told beyondbrics. Read more
Zambia’s plans to make companies repatriate foreign currency export earnings back to Lusaka are part of an effort to crack down on tax avoidance, particularly in the mining sector.
But are they going to be enough? Perhaps not, according to the country’s vice president Guy Scott. Read more
When Ethiopia set up its commodity exchange in 2008, few observers foresaw the demand it would generate. But five years on, the ECX has shown that a bourse can help tackle food insecurity in poor nations, and countries are now falling over themselves to replicate its successes. Read more
Zambia’s second bourse is hoping to kick off trading “in weeks”, giving investors a chance to trade derivative products alongside the bonds and equities available on the main Lusaka Stock Exchange (LuSE).
Peter Sitamulaho, deputy chief executive of the Bonds and Derivatives Exchange Zambia, or BaDEx, said the bourse is just waiting on getting its first clearing member, which would guarantee trades: “When the first bank signs, we will be able to trade.” Read more
The China-Africa debate is never far away. Lamido Sanusi, governor of Nigeria’s central bank, recently wrote in the FT of a whiff of colonialism. Much has been said about the two countries’ unequal relationship, based on China’s supposedly insatiable desire for African raw materials and for control of its mining assets.
But perhaps a bigger problem is not China’s dominance but China’s slowdown. What happens when the country doesn’t want so many of Africa’s exports? That moment may be coming sooner than you think. Read more
Zambia’s government is the latest in sub-Saharan Africa to propose measures to claw back a bit more of the wealth extracted by foreign mining companies. But this time it’s not the proceeds of a major commodity like copper that are in the spotlight, but the rather more niche trade in emeralds.
Zambia is the third largest producer of the gemstone after Colombia and Brazil, and last Friday Yamfwa Mukanga, mining minister, gave mining companies a jolt when he said that any emeralds dug up in Zambia will have to be auctioned there from now on, too. Read more
It began 20 years ago, carting meat around Lusaka in the back of an ageing Land Rover. Since then, Zambeef has grown into one of the largest companies in Zambia’s booming economy. Now it hopes to replicate its success in west Africa.
The FTSE AIM traded company, whose primary listing is on the Lusaka Stock Exchange, is a curious entity in the modern food industry: a near fully vertically-integrated operation which produces, processes, distributes and retails, all in-house. Read more
Zambia announced on Wednesday that it had revoked the licences for a controversial Chinese-owned coal mine in the south of the country in response to violations of safety and environmental laws and a failure to pay mineral royalties.
Mining minister Yamfwa Mukanga said the government had taken over the mines and would operate them “until a suitable investor is found”. The decision highlights the sometimes troubled relationship between China and Zambia. Read more