Two developments that frontier investors have been eagerly anticipating came at once this week. On Tuesday, index provider MSCI announced it will reclassify Pakistan from frontier- to emerging-market status. And on Wednesday, Nigeria’s central bank abandoned the currency peg that many have complained is suffocating the country’s economy.
Pakistani Finance Minister Ishaq Dar.AGENCE FRANCE PRESSE In response to MSCI’s decision, Pakistan’s benchmark KSE 100 index, which had already been on a tear this year, jumped by almost 3% to hit a record high, Qasim Nauman reports. The KSE 100 edged higher on Thursday and has now risen 18.2% so far this year, making it one of the best-performing markets in the world. Pakistan will account for 0.2% of the emerging-market index after the change takes effect in May 2017, according to MSCI.
- Nigeria’s market performed an even more athletic leap in the wake of central bank governor Godwin Emefiele’s revelation, springing up more than 3% on Wednesday.
Economists and businesses had long blamed the peg for exacerbating a slide toward recession in Africa’s largest economy, Patrick McGroarty and Gbenga Akingbule report. Emefiele said the country’s naira currency will trade at a market-determined rate beginning Monday, rather than the 197-per-U.S.-dollar level the bank has mandated for more than a year.Nigeria’s market continued to surge throughout the week, settling on Friday around 8% higher thanTuesday’s close. Lest anyone get too excited, Capital Economics pointed out that Nigeria’s economy had contracted in the first quarter of 2016 and prospects for recovery were faint, at least in the near term. “While the move to a market-determined exchange rate is surely welcome, it will do little to turn the economy around in the short term,” the firm said.Africa-focused economic and investment advisor Aubrey Hruby was more upbeat: “This…could help move Nigeria onto the road to economic recovery. After a short period of struggle and recovery by the Nigerian people, investment will return, the market will correct years of mismanagement and Nigeria can resume its place as an economic powerhouse in Africa.”Analysts at brokerage Exotix said the move should help Nigeria’s beleaguered banks and “re-opens the investment debate” on Nigeria. Ratings agency Fitch agreed that the move could boost growth but warned “establishing the new framework’s credibility will be key to its effectiveness in attracting portfolio flows and FDI.”Mauricio Macri. ASSOCIATED PRESS
Wednesday also saw another move, perhaps not quite so eagerly awaited but certainly overdue: Argentina released inflation figures. Not just any figures, they were the first to be released since December, when newly elected president Mauricio Macri suspended the publication of economic data because it was so badly discredited, Ryan Dube writes.
Initial response to the new data was lukewarm, though, with analysts noting that it is not yet a nationwide index and provided only one month of inflation data. Some were even downright negative about the move, Julie Wernau reports.
Pakistan and Nigeria are key components of a new index created by advertising firm Ogilvy & Mather of what it calls velocity markets. Frustrated that groupings such as BRICs don’t accurately reflect the commercial opportunities in emerging markets, the agency created an index focused on the speed of growth of the consumer base.
“It seemed we were doing more and more in markets that were being given no attention at all, such as Bangladesh,” Ogilvy’s chairman Miles Young told the Journal. Ogilvy tasked a team of demographers to work out which countries had the fastest growing middle class and then layered over data on key factors such as the growth rate of internet penetration. The result shows which countries will experience the largest gain in the numbers of middle class in the next 10 years.
Of the 12 countries, six—Vietnam, Bangladesh, Egypt, Myanmar, Pakistan and Nigeria—
are frontier markets. And Young’s overall conclusion? “Soon, this world is going to be more female, much more Muslim, and much more urban.” The World Bank approved $130 million in funding to help Vietnam tackle the impact of climate change on a decidedly non-urban part of the Mekong Delta region, Vu Trong Khanh writes. The project supports better climate-focused planning and land and water management practices. The Mekong Delta contributes half of Vietnam’s rice output, 70% of its aquaculture products and a third of Vietnam’s gross domestic product but it has also been identified as one of the most vulnerable deltas to the impacts of climate change.
Egypt’s Central Bank. BLOOMBERG NEWS
Egypt’s central bank raised key interest rates by one percentage point each to a multiyear high on Thursday, Dahlia Kholaif reports. The move—the second increase this year—is part of the central bank’s effort to contain rising inflation caused in part by a weaker currency. In March, the central bank, in a surprise move, devalued the Egyptian pound by about 13%.
Egypt’s core inflation annual rate last month soared to 12%, up from 9.5% in April and the highest since January 2008, according to the central bank.
Mark Zuckerberg’s newly formed $48 billion venture announced this week that its first bet is on Africa, Deepa Seetharaman reports. The Chan Zuckerberg Initiative is backing Andela, a New York-based startup that trains software developers in Lagos, Nigeria and Nairobi, Kenya. Others participating in the funding include GV, the venture capital arm of Alphabet, previously known as Google Ventures.
Uganda’s central bank cut its key lending rate for the second time this year on Monday, Nicholas Bariyo reports. The bank said the decline in inflation, which dropped to 5.4% in May from as high as 9% in December 2015, was a key factor in the decision to cut rates. The bank “believes that there’s scope to continue easing monetary policy,” central bank governor Emmanuel Tumusiime-Mutebile said.
Investment into Ethiopia is highlighting regional differences between investors, writes Ed Ballard. While Chinese funds are pouring money into the country, according to Farhad Abasov, chief executive of Ethiopia-based miner Allana Potash, US institutional investors remain wary about investing in agriculture projects in Ethiopia. UK-based investors were much more receptive than their American counterparts, he added.
The Democratic Republic of Congo plans to build a 240 megawatt hydropower plant as it moves to ease chronic power shortages in its main copper mining region, Nicholas Bariyo writes. The $660 million plant will be financed by two Chinese companies–Sinohydro and China Railway Group–and is part of a $6 billion minerals-for-infrastructure deal signed between China and Congo in 2008.
The power plant will provide 170MW to the Sicomines copper project with the remainder flowing into the national grid.
Iranian oil exports almost hit pre-sanctions levels, Miriam Malek reports. According to a report from the International Energy Agency, exports hit 2.1 million barrels a day, up from 2 million b/d the previous month. Pre-sanctions levels were around 2.2 million b/d.
Riyadh’s financial disctrict. BLOOMBERG NEWS - Saudi Arabia needs to make it easier for foreign investors to access to its stock market, MSCI said this week. The kingdom opened its $404 billion stock market to international investors in June 2015, seeking to attract more foreign capital in its push to diversify away from its dependence on oil revenue, Nikhil Lohade writes. But foreign investments in the Middle East’s biggest market have been slower than most expected due to some restrictive rules.
Recently announced moves, including reducing foreign ownership limits, could help Saudi Arabia get closer to emerging-market accessibility standards, MSCI said.
Muhammadu Buhari Op-Ed
In an editorial in the Wall Street Journal this week Nigeria’s president Muhammadu Buhari laid out his vision for his country. Buhari said he was focusing on restoring trust, rebalancing the economy and regenerating growth. He also defended his record: “I am optimistic that our actions are providing the breathing room Nigeria needs during this period of fundamental change,”Buhari said
Dan Keeler
Editor, Frontier Markets
The Wall Street Journal
