Algeria takes big leap backwards

Algeria has created an investment fund to nationalize subsidiaries of foreign groups who would decide to leave the country. Fifteen years after having liberalized its economy, Algeria is taking a step backwards. Algeria has stiffened conditions for foreign investment and for transfer of capitals, and appears ready to nationalize certain foreign companies. The Egyptian group Orascom, whose Algerian subsidiary Djezzy, has been targeted. Algiers notified Orascom of a tax adjustment of nearly USD600 million for the years 2005, 2006 and 2007. The Egyptian group is accused of having transferred hundreds of millions of dollars in dividends.

Besides Orascom, other foreign groups, particularly French ones, could be affected by partial or total nationalization moves, such as French banks Société Générale and BNP Paribas as well as Renault and Peugeot.

Shortage of currency in Malawi

A shortage of foreign currency in Malawi is beginning to undermine the fixedexchange rate policy that has been in place for more than two years.The kwacha has weakened slightly against the dollar. On the black market, the currency is trading at 190.

The shortage of foreign currency means Telekom Networks Malawi, the country’s second largest mobile phone operator, has halted expansion of its network because it was unable to import equipment.

Oil in Kenya?

Now they are even exploring for oil in Kenya. Africa Oil Corp's Bogal-1 oil exploration well operated by China owned CNOOC spudded on October 28, 2009. The well is expected to reach total depth of 5,500 meters within approximately 6 months.

Block 9 covers an area of 27,778 square kilometers in the centre of the Anza Basin. The Anza Basin is a NW-SE trending rift basin along trend with the prolific Mesozoic play of southern Sudan. The basin is over 580 kilometers long and 150 kilometers wide with a potential prospective area in excess of 50,000 square kilometers. Experts believe they may have proven the existence of natural gas and possibly oil.

Angola to open up new oil exporation

Angola plans to start exploring for onshore oil in the enclave of Cabinda sometime next month, according to state-owned oil company Sonangol. Sonangol will first carry out seismic studies in the regions of Necuto and Buco Zau to determine the existence of oil. Sonangol recently partnered with Esso to study the possibility of exploring for oil in the basin of River Kwanza, where studies had shown the existence of about 6mn barrels of oil. Earlier in the year, Sonangol said it was considering exploration in the Cassanje and Okavango river basins. Prior to the Angolan civil war, which began in 1975, Angola pumped around 80,000 bpd from the Kwanza river basin, but the war ultimately forced a halt in production.

Angola to

Angola plans to start exploring for onshore oil in the enclave of Cabinda sometime next month, according to state-owned oil company Sonangol. Sonangol will first carry out seismic studies in the regions of Necuto and Buco Zau to determine the existence of oil. Sonangol recently partnered with Esso to study the possibility of exploring for oil in the basin of River Kwanza, where studies had shown the existence of about 6mn barrels of oil. Earlier in the year, Sonangol said it was considering exploration in the Cassanje and Okavango river basins. Prior to the Angolan civil war, which began in 1975, Angola pumped around 80,000 bpd from the Kwanza river basin, but the war ultimately forced a halt in production.

Frontier markets update

The MSCI World Index of advanced -nation equities has surged 65% from this year's low on March 9, while the MSCI Emerging Markets Index has leaped 96%. The Reuters/Jefferies CRB Index of 19 commodities has added 33%.

Emerging markets have outperformed and have seen massive amounts of inflow. But when your main stream markets like Brazil (Bovespa +68%), China (Shangahai +64%), Russia (RTS +83%), South Africa ( Top 40 +24%), start to mature and look top heavy, investors will start looking towards 2nd tier and 3rd tier frontier markets that have been on the back burner. These frontier markets such as Ghana ( GSE -46%), Nigeria (NSE All Share -30%), Kenya (NSE -14%), Morocco (Madex -3.3%), should attract some fund interest and more inflow.

Ukraine - over the worst

Ukraine's economy is now recovering from a very low bottom, and real economic growth is likely by November. Ukraine's international reserves are at around $29 billion, one quarter of GDP. Ukraine runs no risk of default for the next year, even without IMF money. Its budget deficit is below the limit of 6% of GDP for this year. The bank country's restructuring is proceeding.

The only concern is that without a November IMF disbursement, financing the deficit will present a challenge.

Ukraine is approaching presidential elections. The two dominant presidential candidates are Yanukovych and Tymoshenko, while the voters have given up on the erratic Yushchenko, who regularly vetoes almost all government decisions even when they correspond to his own policies. The conventional wisdom is that Yanukovych will win the first round with a large but not absolute majority, while Tymoshenko is best placed to win the second round.

Ivory Coast acts on defaulted debt

The Ivory Coast has reached a deal to restructure Euro 2.2bn of defaulted sovereign debt with the London Club of commercial creditors. Holders of the six Brady bonds will be able to swap the debt for a new USD denominated bond maturing 31 December 2032. The exchange is scheduled to take place no later than 31 March 2010 and follows an agreement with the Paris Club of sovereign creditors earlier this year.

The Ivory Coast is going to offer a discount of 20 percent on the exchangeable debt. There will be 34 semi-annual payments on the new bond, starting from 30 June 2016. Interest will begin to accrue from 31 December 2009. The outstanding debt consists of three Euro-denominated and three dollar-denominated bonds maturing in 2018 and 2028.

MSCI Frontier Emerging Markets Index

The annual country review for the MSCI Frontier Emerging Markets and MSCI Frontier Emerging Markets APEX Indices is upon us. There will be no changes in the country composition of the MSCI Frontier Emerging Markets Index.

Following improved trading liquidity, Mauritius will be added to the MSCI Frontier Emerging Markets APEX Index, while Nigeria will be deleted from the index due to the introduction of restrictions and low liquidity in Nigeria's Foreign Exchange Market.
The MSCI Frontier Emerging Markets APEX Index is a tradable proxy index reflecting investment opportunities within the frontier markets and lower size spectrum of the emerging markets. It is designed to serve as a liquid proxy to the broader MSCI Frontier Emerging Markets Index.

Oando grows top line 59% y/y.

Oando reported better-than-expected results. Sales grew 12.9%59% y/y. Oando’s Q2 PBT ws N2.8bn as a result of a sequential increase in the PBT margin of 11 basis points. A higher-than-expected tax rate of 30% meant that net earnings actually only grew by 8.7%.

The upstream businesses as well as Gas & Power helped offset slight weakness in the marketing business.

Five bank CEO's fired in Nigeria

In a dramatic move, the Central Bank of Nigeria has fired the CEOs of 5 banks for allowing margin lending exposure to get out of hand. It has indicated that these banks will be recapitalised with a total of NGN 400bn in tier 2 capital. The affected banks are Intercontinental Bank, Union Bank of Nigeria, Oceanic International Bank, Finbank (First Inland Bank) and Afribank. .

Nigeria to support indigenous oil industry

Proposals in draft nigerian legislation designed to encourage “indigenous” producers looks set to become law. The change will effect the re-licensing some of the more than 300 fields that have been discovered but not yet developed.

It is expected that, the Nigerian company, Oando will be the biggest beneficiary.

Total output in Nigeria’s oil sector, sub-Saharan Africa’s largest, is at about 1.7mb/d at most, cut to just over half of capacity by unrest and funding issues.

Sugar continues to hit new highs

The sugar price is now close to its ‘81 Peak. Damaged crops from India to Brazil mean the world won’t have enough sugar for a second straight year. Global demand will exceed output by as much as 5 million metric tons.

Mauritius to introduce futures trading

A giant leap for a frontier market. The Stock Exchange of Mauritius will soon start trading in futures. The first futures contracts will be on the SEM-7 index and on some of the most liquid stocks traded on the official market. The SEM-7 is made up of the largest companies by market capitalization, including Mauritius Commercial Bank, Naiade Resorts, New Mauritius Hotels, and State Bank of Mauritius.

Nigeria sees decline in telephone lines!

This is not something that we have seen before. Nigerian active lines actually declined in April. If you consider this as a proxy for household consumption, that is not good news. Admittedly the fall was just 75,000. That said, we are used to hearing the number going up. In the previous months there had been increasesaroungg the one million level.

The Case for Frontier Market Fixed Income

Working Paper Series
Date posted: August 01, 2009 ; Last revised: August 01, 2009

Abstract:
Frontier market debt is becoming increasingly attractive as an asset class, supported by the economic development of the less developed emerging markets. Analysis of the constituents of this off-benchmark asset class shows that allocation to it can potentially result in higher yield and better diversification. The authors argue that frontier fixed income should be included in strategic asset allocation using a technique known as reverse asset allocation.

Keywords: Emerging Market, Debt, fixed income, frontier markets, asset allocation

JEL Classifications: B00
Citation

Broby, Daniel P. and, Bates, John., White Paper: The Case for Frontier Market Fixed Income(July 31, 2009). Available at SSRN: http://ssrn.com/abstract=1441894

Investment in Serbia

There are only seven companies in Serbia that rank in the top 500 in Eastern Europe. Investors look for more choice. Maybe with the future IPO's of JATA, Telekom and Galenika that will change. Of the 800 joint stock companies, which are listed on the BSE, only 34 have sufficient trading volume. For example, if I would now like to buy Messer Technogas, on the basis of the current valuation on the BSE, one would need a year to build a small position of around 100,000 dollars. This will change when Serbia develops active domestic investors, who buy and sell regularly. In the meantime, why would anyone buy such an illiquid company although it has value?

On the positive side, six-month bonds issued by the Ministry of Finance with a yield of 13.99 percent is not bad.

To see the rest of Daniel Broby's (CIO of Silk Invest) interview with Blic, Serbia's leading newspaper, see the following link.

http://www.blic.rs/ekonomija.php?id=101139

Silk Invest sees renewed bond issuance in Nigeria

The Nigerian banks are starting to pile into their local bond markets. Guaranty Trust Bank is seeking approval for a N200bn ($1.3bn) debt issue. This follows similar plans at First Bank (N500bn) and marks a much anticipated return for the banks who have dormant in issuance for three years. Likewise, Access Bank has also drafted plans to issue debt.

We would caution that a major credit risk is the potential for over-issuance of debt. In the interim, however, we look forward to observing the development of a much needed yield curve in Nigeria which will enable the banks to see longer term business objectives met as well as the potential for investors to play relative value investment strategies.

Global recession not impacting frontier markets

This is an interesting visual from the Economist..

Zimbabwe sees strong trading volumes

Accordins to Renaissance Capital, Zimbabwe is now the third biggest equities market in sub-Saharan Africa, based on turnover. Volume has jumped from USD 50,000 to USD 1.3 million per day. The market value of shares listed has jumped from a bargain basement USD 1bn to USD 4bn in seven months.