EMTA Forum on Sub-Saharan Africa (London) - Sept. 19

EMTA FORUM ON SUB-SAHARAN AFRICA
Tuesday, September 19, 2017 

Hosted by
  
20 Gresham Street
London, EC2V 7JE 

3:45 p.m. Registration 

4:00 p.m. Panel Discussion
Opportunities and Challenges for Sub-Saharan Africa
Phumelele Mbiyo (Standard Bank) – Moderator
Kevin Daly (Aberdeen Standard Investments)
Andreas Kolbe (Barclays)
Giulia Pellegrini (BlackRock)
Neville Mandimika (Rand Merchant Bank)

5:00 p.m.
Cocktail Reception 

Additional support provided by Barclays and Rand Merchant Bank.

Analysts Search for Value at EMTA Sub-Saharan Africa Forum 

Moderator Phumelele Mbiyo (ICBC Standard Bank) led a discussion of Africa specialists at EMTA’s Sub-Saharan African Forum.  The event was held in London on Tuesday, September 19, 2017 and hosted by ICBC Standard Bank.  125 market participants attended.  Barclays and Rand Merchant provided additional support. 

Mbiyo started the panel by asking for analyst picks and pans.  Neville Mandimika (Rand Merchant Bank) expressed strong reservations over “the indiscriminate allocations of credit across the continent.  From a dollar-bond perspective, valuations are very stretched...so it’s a matter of who remains standing when the tide turns.”  From his point of view, the countries which appear most attractive include Ghana, Zambia, Cote d’Ivoire and Senegal, while he had greatest concerns for Gabon and Mozambique.  

BlackRock’s Giulia Pellegrini took an opposing view on the Cote d’Ivoire, cautioning that the fiscal accounts could be vulnerable to political pressures as the 2020 presidential election draws nearer (a view seconded by Kevin Daly of Aberdeen Standard Investments).  Her favored credits in the region included Angola, which she stated had a relatively easy Presidential election, as well as long-dated Nigerian paper.   

Daly reiterated his bullish stance on Ghana, espousing the new administration’s credibility, while acknowledging that change from the bearish view he expressed at EMTA’s first Sub-Saharan African panels.  Daly believed that Zambia was moving closer to an IMF deal, which would be an improvement from the government’s reliance on the local treasury market to close their continuing fiscal deficits.  (He also criticized Moody’s B3 rating with a negative outlook on Zambia as too pessimistic.) 

Finally, Barclays’ Andreas Kolbe concurred that the rally in Sub- Saharan African debt made picking credits difficult.  He joined Mandimika on the more positive side on Cote d’Ivoire, as well as speaking constructively on Ghana and Zambia.  

The panel expressed slightly different views on Gabon.  Pellegrini listed positive factors such as IMF support, the recent upswing on oil prices, and the possibly stabilizing political situation following last year’s election.  “Challenges remain, however, but we still have an overall positive view.”  Mandimika was less enthusiastic.  Having to rely on IMF support, “was almost like training wheels…we prefer that countries run their economies themselves." 

Mbiyo followed up by asking speakers if IMF involvement was a good thing.  Kolbe thought so.  “It provides a policy anchor…it’s sort of the policy police; so I think the market is right to value IMF involvement.”  Daly concurred, and while noting that there are various levels of IMF involvement,  the Fund generally resolved problems, and promoted investor confidence.

The surprise decision by the Kenyan Supreme Court prompted little market reaction, Pellegrini observed, while admitting that, if it had, she would have made opportunistic purchases.  Policies were likely to remain the same regardless of the eventual winner, and a speedy conclusion of the election would be positive, as there remains the potential for logistical delays. 

Mandimika expected no new major ideological changes under the new Angolan president.  Angolan debt prices remain highly correlated to oil, which makes it suitable for investors with a bullish oil forecast.  Kolbe questioned if the government could continue to implement unpopular policies if oil prices moved downwards.   

Daly considered Nigeria to be potentially turning a corner, with the economy coming out of a recession.  “If they can keep oil production at current levels, maybe the naira is at fair value now,” he speculated, adding that Nigerian treasuries now offer positive real rates.   

Speakers also addressed the Ethiopian economy.  Mandimika described the economy as being on solid footing, although social unrest remained a potential issue.  Kolbe stressed that, “the long-term selling point is the manufacturing sector which is supported by Chinese FDI; it makes me much more comfortable when Chinese FDI goes into manufacturing sectors, rather than into the natural resource sectors as it does in other African countries.” 

Daly highlighted the lack of market coverage of Ethiopia.  Positive factors included its strong growth rate, large workforce, important energy potential and, “fairly capable” government.  However, political issues were among his concerns, and with the same debt/GDP ratio to Kenya, he preferred the latter on a relative value basis.  Daly noted he has scaled back his position of Ethiopian debt, and expects new supply in the near to medium future.     

In Kolbe’s view, prices on South African debt had not yet fully adjusted to reflect the credit downgrade cycle (in contrast to Namibia, which he believed correctly reflected the loss of its investment-grade rating).  Debt dynamics have deteriorated, and the political situation overhangs the credit.  The potential additional loss of the country’s local paper investment grade rating could lead to further downside, Kolbe warned. 

Finally, little optimism was expressed for a quick resolution of Mozambique’s default.  Pellegrini saw little room for upside and was, “not holding her breath; any movement by the government will be very slow,” she affirmed.