We shouldn’t lose sight of the fact that, from a fiscal standpoint, many of the frontier economies remain in a privileged position. Many of them have the benefit of high levels of financial reserves to deal with the challenges of a difficult global economic environment. The sudden rise in the oil price also should help the numerous oil producers amongst them only further elevate their financial reserve levels.
As always, the world seems to be focused on the problems, not the opportunities. The disruption in Libya’s oil supply could be seen as an opportunity for countries like Nigeria to move into a better position in the global oil supply chain. Especially when considered that Nigeria produces a similar type of ‘sweet’ oil as was sought after in Libya. In addition, off-takers may also see this as an opportunity to diversify the sources further away from north Africa and the Middle East.
Egypt
The Egyptian market remains closed but is set to re-open any day now. Part of the reason for the delay could well be due to an ongoing exercise of auditing of the ownership of listed market assets. But now that a new cabinet has been sworn in the new measures suggested by the exchange can be approved. New Ministers were posted for Foreign, Justice Interior and Oil. After the ceremony, the Cabinet discussed the importance of restoring security and reviving the economy, by attracting investments. From what we can see, the Supreme Council of the Armed Forces is sticking to a short timetable to open a new chapter in modern Egyptian history. Currently, the game plan is for a parliamentary election in June to be followed by a presidential poll.
Tunisia
The Tunisian stock market resumed trading on Monday. Trading at the exchange was halted last week due to a sharp fall of nearly 10% due mainly to falls seen in the shares of banks which were involved in extending financial facilities to the former President, his family and other relations. The caretaker government may need to be replaced again, now that more ministers have resigned. Elections will be held on July 24 to choose a constituent council that will rewrite the constitution.
Gulf Region
Saudi is bouncing back with strength from the recent sell off in anticipation of a popular uprising. The rally was strengtehened by comments from Standard and Poor’s saying that Saudi Arabia may escape the popular unrest that is sweeping the Middle East, through it shares some of the conditions that caused it. While it is not a very large capital market in the region, Bahrain should be closely watched form a geopolitical standpoint. Authorities are trying to steer the situation towards a dialogue, but if the sunni-shiite differences escalate, it could further undermine sentiment in the Gulf. On the other hand, a positive resolution could be a positive catalyst to define a hard bottom for markets. Plotting the trajectory of political developments is nearly impossible but so far the risk premium seemed very generous, especially when considering that the unrest we have been seeing represents the desire for a transition to more modern economies. Volatility will probably remain, but it is a good time to start averaging in a position at the least.
Nigeria
With regards to Sub-Saharan Africa, after a drop of 3% in February, Nigeria remains in positive territory year to date at around +5%. The April elections are getting closer and it is likely that, ahead of the polls, the market activity will edge lower in the weeks to come. Currently, much attention is going to the Petroleum Industry Bill, which seeks to establish the legal and regulatory framework, institutions and regulatory authorities for the Nigerian petroleum industry. The main objective is to render the entire industry more transparent for all and more functional. Again, this is a very welcome development now that Nigeria may pick up part of the production that used to come out of Libya. While there was talk about a possible devaluation of the Niara, the Central Bank of Nigeria came out stating they are not considering such a move. Currently the focus lies on battling rising inflation.
Also worth observing is the fact that frontier fixed income markets have been relatively stable throughout this period. this only underpins the main theme about about reserves of this update, but it also implicitly shows that markets are essentially supportive of all this change.
Finally, another ‘Silk Road’ moment may be in the making as the Spanish savings bank scramble for funding under higher capital adequacy rules, I wonder who the buyers will be and how many of them will be from the Gulf region, looking to diversify their reserves…
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