Africa News blog

Buy on the Nigeria rumour, sell on the Niger fact

Confusion over the names of two similar-sounding African countries may have helped boosted oil prices to near $80 a barrel this week as traders rushed to buy oil after reports of a military coup.

A Reuters reporter received a flustered phone call from a hedge fund partner who had heard animated discussion in the market about an incident in Nigeria, only to realise that traders had muddled up Africa’s biggest oil producer with its neighbour Niger.

“Markets took off at around the same time a Reuters story came out about gunfire erupting in the Niger capital in an apparent coup bid, mistaken by many as being Nigeria,” said Tom Bentz, analyst at BNP Paribas Commodities.

Reuters first broke news of heavy gunfire and a coup in Niger’s capital, Niamey, on Thursday. Prices jumped to a one-month high of $79.29 a barrel during the day.

While a coup in Nigeria would almost certainly rock crude oil benchmarks, a coup in Niger  — which has yet to produce oil — would almost certainly not, barring linguistic confusion.

Traders said that an oil market version of the game “Chinese whispers” rather than poor geography may have been behind the jump, as some scrambled to call the market amid mounting confusion over the titles of the two countries which share the same first five letters. The fact that Nigeria’s main oil producing region is called the Niger Delta and is an area of political unrest probably also stoked the rumours. A popular trading mantra is “buy the rumour, sell the fact”.

But far from being a costly mistake, the decision to buy oil on the Niger coup was a flash of fortuitous genius for some as oil prices continued rising afterwards to within cents of $80 a barrel on Thursday, spurred by other factors such as tension over Iran’s nuclear programme and a weaker dollar.

Where should Africa turn for funds?

A few days back, I had the pleasure to moderate a lively debate on investment prospects in Africa involving private sector panellists and representatives of the World Bank and International Monetary Fund.   The tone was upbeat, but discussion turned heated when it came to debt restructuring in Ivory Coast.   While it might sound obscure (and I won’t go into all the details) it raised broader questions about the role of the international financial institutions in Africa and how that may be reinforced by the global financial crisis.   The concern of some in the private sector was that foreign investors with exposure to local debt in Ivory Coast looked set to suffer the same restructuring terms that holders of foreign debt would have to bear – with the approval of the IMF. Their argument was that this would discourage foreign investors from buying local bonds in Africa.   The IMF came back robustly, saying it was only playing by the rules in Ivory Coast and suggesting that investors make closer checks before putting in their money.   But private sector participants were unclear where this might leave them in future, particularly at a time many African states are eyeing bond markets again.   Some voiced broader concern over how the international financial institutions see the private sector’s role.   Before the credit crisis, a number of African countries had begun turning to international capital markets. But Eurobond plans were put on hold when global markets seized up and the institutions stepped back in to provide emergency help to hard-hit countries. Amounts have been substantial even compared to the $10 billion in concessional financing promised by China over three years. The IMF board approved a $1.4 billion standby loan arrangement for Angola this week.    The question now is how this may change the longer term balance in sources of finance for African states.   Is the private sector overly wary of institutions that are simply doing their best to give emergency help now and fend off future debt crises? Or are those institutions muscling back in to impose their dominance in telling African states how they should go about managing their debts and getting the finance they need? How will Chinese money affect the balance?

Pictures: A money dealer counts the Nigerian naira on a machine in his office in the commercial capital of Lagos, January 13, 2009. REUTERS/Akintunde Akinleye; Dominique Strauss-Kahn, managing director, International Monetary Fund (IMF), is introduced at the International Economic Forum of the Americas conference in Montreal, June 8, 2009. REUTERS/Christinne Muschi

Time to stop aid for Africa? An argument against

Earlier this month, Zambian economist Dambisa Moyo argued that Africa needs Western countries to cut long term aid that has brought dependency, distorted economies and fuelled bureaucracy and corruption. The comments on the blog posting suggested that many readers agreed. In a response, Savio Carvalho, Uganda country director for aid agency Oxfam GB, says that aid can help the continent escape poverty – if done in the right way:

In early January, I travelled to war-ravaged northern Uganda to a dusty village in Pobura and Kal parish in Kitgum District. We were there to see the completion of a 16km dirt road constructed by the community with support from Oxfam under an EU-funded programme.

The road is bringing benefits in the form of access to markets, education and health care. Some parents say their daughters feel safer walking to school on the road instead of through the bushes. Many families have used the wages earned from construction work to pay for school fees and medical treatment. This is the impact of aid.

Having lived and worked in east Africa, I have witnessed the positive effects of aid. But done badly, it can be very limiting and even has the potential to create more harm. To avoid this, it must be provided within an enabling environment in which it is used as a catalyst for change and not as an end in itself. Governments must show leadership through an accountable system.

For individuals, access to resources – including aid – is like an investment. Aid can build up poor people’s assets, support good governance and enhance skills and capacities to bring about transformation. But it can become a bane when it makes communities dependent, lazy and hopeless. Governments, aid agencies and the United Nations need to ensure the delivery of aid is well planned and coordinated, leading to higher self-reliance among poor communities.

Aid is also beneficial when trade is fair. There are several examples in Africa, like the case of coffee farmers in Uganda, where aid has been used effectively to improve the overall quality of the coffee seeds, thereby giving farmers better prices for their produce. When they have access to markets at home and abroad, they generate income which is ploughed back into increased output, better access to health and education, and overall improvement in the quality of their lives. To make this happen, developed countries need to stop procrastinating and put in place fair trade practices.

Aid works well if governments are accountable – in other words, when they are responsible and encourage active citizenship. On this continent, civil society is still weak and needs to be nourished. But stopping aid will not resolve frustrations about poor governance, which is partly a result of weak public scrutiny. Aid should be used to help fight corruption and promote accountability through active input from ordinary people.

Is Africa a good bet?

For those looking to invest in Africa, the best prospects are in Nigeria and Ethiopia according to a new index of potential investment destinations published this week.

But should anybody want to put money into Africa at a time the global financial crisis and falling prices for export commodities, on which the continent is so reliant, have discouraged investors who had begun to see some African countries as promising frontier markets?

“Africa is going to overtake the Middle East to become the second fastest growing region in the world after emerging Asia. It will be affected by the global financial crisis but it is much less exposed than many places,” Katharine Pulvermacher, chief executive of business consultancy African Rainbow said this week on the launch of its Star of Africa index.

The index’s creators told my colleague Peter Apps that potential growth in energy, water and communications consumption could amply reward investors taking the risk in Africa. South Africa, Mauritius and Tanzania took third, fourth and fifth place respectively on the index. Somalia, Chad and Eritrea were the least appealing countries for investors.

The International Monetary Fund’s most recent forecast of economic growth for Africa this year was 3.3 percent – much slower than the 5-6 percent of recent years but good by the standards of Western countries in recession. A senior IMF official noted recently, however, that African growth could be sharply lower than its forecasts.

“Remittances, tourism revenue and even aid, we feel could fall further,” said the IMF’s Africa Department Director Antoinette Sayeh.

The African markets that had attracted most foreign investment in recent years – not only developed South Africa but also countries such as Nigeria and Kenya – are among those that have so far been hardest hit, while smaller economies that may not have had so far to fall have been less touched.

How will Africa weather financial storm?

Isolation might seem like a good idea when it comes to the storm sweeping global finance and there is no doubt that African countries are among the most isolated in the world economy.

Avoiding the impact seems unlikely, though, particularly at a time when Africa as a whole has been enjoying its fastest growth for decades and the continent has become an increasingly popular investment destination – not only for Asian countries in search of resources but for frontier investors willing to take higher risks for higher returns.

The African Development Bank’s chief economist told Reuters that Africa should withstand the first round effects of the financial crisis but that export demand and access to finance could be hit in the longer term.

Although some still see Africa’s isolation as a measure of protection, the enthusiasm of frontier investors has been fading too. The impact can be seen on stock exchanges from Lagos to Lusaka. Ghana has postponed a new debt issue due to the global conditions.

Such things might not appear to have much direct impact for most people in Africa, but rising world prices for food and fuel are being felt even in the remotest villages. If the prices of Africa’s export commodities fall because of global turmoil then that pain is likely to be felt too. If rich countries can afford less aid, that could also be damaging for some dependent states.

How will Zuma’s resumed court battle affect South Africa?

Jacob Zuma, the embattled leader of South Africa’s ruling African National Congress (ANC) launched a big fight for his political life on Aug. 4, asking the  Pietermaritzburg High Court to dismiss a graft case against him that could stop him becoming president next year. If his application is rejected, a full corruption trial could follow later this year and South Africa could head into a protracted period of tension and uncertainty. Read the following insights from leading analysts and have your say on how the legal process could affect South Africa:

Keith Gottschalk, the University of the Western Cape (see full analysis)

“Jacob Zuma’s Zuma’s legal team has already proved, year after year that, if you have a bottomless pocket such as taxpayers, you can protract litigation, U.S.-style for the better part of a decade.”

Rainette Taljaard, Helen Suzman Foundation (see full analysis)

“If the arms deal was the loss of innocence for South African’s ruling party, the Zuma trial will be the collateral damage to constitutional structures with long-term consequences.”

Adenaan Hardien, Cadiz (see full analysis)

“If anything is giving market participants sleepless nights, then it has to be what Reserve Bank Governor Tito Mboweni and his Monetary Policy Committee will decide when they meet next week.”

Markets shrug off Zuma case

Adenaan Hadien, Cadiz Holdings

Pietermaritzburg may well have been brought to a standstill with the resumed corruption case of Jacob Zuma in the High Court, but I suspect the same would not be true for local markets.  Certainly, if last week’s market performances are anything to go by, then reactions are likely to be muted.  Last Thursday, the Constitutional Court dismissed all four of Zuma’s appeals to prevent the state from using potentially damaging evidence against him in his corruption trial.  On Monday, Zuma’s legal team submitted an application for a permanent stay of prosecution, arguing that his constitutional rights have been violated.  This application and the round of appeals which may follow if, as is expected, it was rejected, would again delay things. On the week, the local currency gained over 4% against South Africa’s trading partners’ currencies and bonds enjoyed gains last seen in the late-1990s.  Equities put in a more mixed performance on the week, due to the oscillating woes of resources against financials and industrials.  The performances of bonds were even more impressive, given the higher-than-expected consumer inflation figures released on Wednesday.  Granted, Thursday’s producer inflation numbers were more encouraging.

It is not that the Zuma trial is not important.  That the leader of the majority political party is on trial for corruption is certainly a big deal.  But the saga has dragged on for so long that there is a sense of numbness creeping in.  There is also a positive spin to all this.  Notwithstanding vitriolic noises sometimes made by allies, and while there have certainly been casualties in a brutal battle for succession in the ruling party that has extended to key political institutions, South Africa’s democracy remains firmly intact.  If anything is giving market participants sleepless nights, then it has to be what Reserve Bank Governor Tito Mboweni and his Monetary Policy Committee will decide when they meet next week.  Last week’s performances suggest that there isn’t too much sleep being lost at the moment.