Additional support provided by Barclays and Rand Merchant Bank.
Registration fee for EMTA Members US$50 / US$695 for non-members.
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Ghana, Nigeria and Zambia Dominate Panel Discussion on Africa
An over-capacity crowd at EMTA’s 5th Annual Sub Saharan African Forum proved interest in the region remained strong. Over 100 EM professionals attended the session, which was sponsored by ICBC Standard Bank. The event took place at the firm’s London headquarters on Wednesday, September 21, 2016.
Standard’s Phumelele Mbiyo led speakers through a variety of topics, with special focus on Ghana, Zambia, Nigeria, Angola and South Africa. In his opening comments, Mbiyo noted that, as the commodity markets remained weak, the question for investors was whether African leaders had taken sufficient action to address economic challenges.
Following the oversubscription of its recent bond issue, Ghana was a first panel topic. Kevin Daly (Aberdeen Asset Management) was encouraged by progress in the country’s financials, and its adherence to its IMF program. He praised officials for their fiscal consolidation actions in 2015, and highlighted the improvement in Finance Ministry communication to investors.
Other panel views were largely positive. Giulia Pellegrini of BlackRock agreed that Ghanaian officials had shown willingness to adopt the policies prescribed by the IMF. The lack of fiscal slippage even in the country’s pre-electoral cycle served to boost investor confidence, argued Nema Ramkhelawan-Bhana (Rand Merchant Bank). However, she noted that restrictions on local participation in the domestic market limited Ghana’s resources to refinance maturing debt, compelling the finance ministry to pursue a balanced borrowing approach. Barclay’s Andreas Kolbe highlighted the country’s improved debt dynamics, believing that its debt/GDP ratio would eventually decrease.
Nigeria was of greater concern to speakers. Daly called 2Q oil production numbers “shocking on the downside,” and the FX regime “dysfunctional,” despite the devaluation earlier this year. “Nigeria is facing a clearly deteriorating macro environment…there could be a couple more quarters of bad macroeconomic data to come,” he affirmed. Pellegrini largely concurred, commenting that, “while some progress has been made by the government on the currency, current levels don’t give me enough confidence that it’s time to buy the naira.” On the broader reform picture, Pellegrini voiced disappointment that more actions, and a more pragmatic approach, had not been adopted, even after two years of low oil prices.
Kolbe repeated panel views that more currency flexibility was warranted, pointing out the large spread between the official and parallel naira markets. Finally, Ramkhelawan-Bhana observed that the lack of policy coordination between the Central Bank and the Finance Ministry wasn’t helpful. “We need a Finance Ministry that is clear in what it needs to accomplish,” she declared, and a two-to three-year structural adjustment was needed to set the foundation for economic growth.
Strong Zambian debt levels were somewhat of a surprise to several panelists, and bond prices were vulnerable should an IMF deal not be concluded. Daly noted that energy and fuel subsidies had not yet been reduced, “and this won’t be easy for the new government; we will have to see what their sense of urgency is.” He labeled Zambian debt a “decent story.”
Kolbe added that that market consensus appeared to suggest that Zambia would conclude an IMF deal. If that proved true, Zambian debt could offer a potential turnaround story although “hard work lies ahead.” Kolbe expressed confidence that the country’s electricity situation was likely to improve, which would foster growth [and in contrast to panel concerns over Zambia’s electricity issue at the 2015 panel]. Zambia remained vulnerable, however, to any hiccups in IMF negotiations and remained highly dependent on copper pricing.
Ramkhelawan-Bhana argued that Zambia was likely now in the spot where Ghana was in early 2015, i.e. that Ghanaian debt levels had priced in an IMF deal well before its actual signing. It was a welcome sign that both parties in the recent elections had expressed a willingness to work with the Fund, although the new president is unlikely to cut subsidies on maize. Finally, Pellegrini underscored the challenge Zambia faced in reducing its fiscal deficit, while acknowledging the government has committed to address it.
Turning to Angola, the country’s debt prices compensated investors for their risk, in Daly’s assessment, although he cautioned that, “one never really gets comfortable with Angolan debt…the country’s debt levels are rising at an unsustainable rate.” He also believed that the currency remained over-valued despite its recent weakness.
Pellegrini believed that, should conditions necessitate, Angola would turn to IMF financing. Upcoming elections meant the country would soon be facing budgetary pressures; however, Pellegrini considered the current leadership to be pragmatic, and stated that it had a good working relationship with the IMF.
Finally, the panel turned to South Africa, reviewing recent local elections and last year’s Finance Ministry changes. Ramkhelawan-Bhana projected 0% economic growth “at best,” while categorizing South Africa as “tainted by politics, rather than policy.” Kolbe pointed out that a downgrade of South Africa to below the investment-grade level would result in forced selling by many accounts, as well as a shrinking of the investor base; and thus represented a major risk.
The rand would rebound to 16 per dollar should President Zuma be forced to resign, in Daly’s opinion. “Investment grade status is probably becoming more and more untenable;” he anticipated South Africa would lose its investment grade status by September 2017.
A slightly-more optimistic note was sounded by Pellegrini, who asserted that a credit downgrade was not an inevitability. Finance Minister Gordhan “has not lost the battle yet,” she argued. “Labor reforms continue, and potential good news could emerge in the minimum wage battle,” although she acknowledged the challenge of economic growth.
Additional support for the program was provided by Barclays and Rand Merchant Bank.