Estimated reading time: 6 minutes

The Middle East, strategically situated at the crossroads of Europe, Asia, and Africa, with its substantial oil reserves, has long been a central player in global trade. 

Today, this tricontinental hub not only maintains its strategic positioning but also boasts robust infrastructure and government-backed initiatives aimed at economic diversification, paving the way for significant growth and development.

However, despite this potential, global concerns such as persistent inflation and geopolitical tensions weigh on the region’s economic outlook. 

While the GCC countries find some refuge in high oil prices and solid balance sheets, the wider Middle East remains susceptible to these trends.

In this episode of Trade Finance Talks, TFG’s Deepesh Patel spoke with Robert Besseling, CEO at Pangea-Risk to explore the current landscape of the Middle East region, shedding light on the opportunities, challenges, and evolving economic prospects in the face of the ongoing events.

The tale of Middle Eastern economies: Shocks, struggles and stability   

Enduring a series of global shocks since the 2020 pandemic, Middle Eastern economies have demonstrated exceptional resilience, painting a positive economic outlook for the region. 

As Besseling said, “Everything was steering towards regional stability, regional growth, opportunity, and peace.” 

However, on October 7th, this sentiment shifted dramatically with the onset of the Israel-Palestine conflict. The sudden escalation of the events has raised concerns that the repercussions could extend beyond the immediate conflict zone and potentially ensue across the entire region. 

Besseling noted, “When you take a step back and look at how quickly the events are moving, it makes one wonder, where is the region going to be in the next three to six months?”

Yet, amidst this turbulence, the long-term trajectory points towards a broader normalisation of relations between Israel and the Arab states. 

Shortly before the recent conflict, the Israeli-Arab normalisation of relations reached a significant milestone, particularly with the potential for Saudi Arabia to normalise its ties with Israel—a move that could not have been envisioned since 1948.  

In light of this, Besseling expressed his optimism about the Middle East’s future economic stability. He confidently stated, “Probably by early 2024, the crucial geopolitical agendas of the GCC, Israel and the US will realign. I think we’ll get back to where we were just a week ago.”

Beyond oil: Economic diversification in the GCC

In an era of economic uncertainty, a national economy reliant on a single, non-renewable source of income is inherently vulnerable. The states of the Gulf Cooperation Council (GCC) are therefore ramping up their efforts to achieve economic diversification, underpinned by their National Visions. 

At the forefront are the Gulf’s two prominent pioneers: Saudi Arabia, the world’s leading oil exporter, and the United Arab Emirates, the region’s premier trading hub. Both have been progressively turning their focus towards the non-oil sector. As Besseling asserted, “These are the two real trendsetters in the GCC region.”

Saudi Arabia, in particular, distinguishes itself with its robust diversification ambitions driven by the country’s ‘Vision 2030’ strategies. 

Since its launch, the government has been implementing several economic and social reforms including reducing restrictions on women’s employment, the cultivation of new economic sectors, and the establishment of several special economic zones. 

Through Saudi Arabia’s determined effort to swiftly put its vision into action, the nation achieved a stellar GDP expansion of 8.7% in 2022 and is currently witnessing signs of its successful economic diversification plans. 

Furthermore, Besseling outlined the kingdom’s strategy to decouple its economy from its hydrocarbon dependence stating, “Saudi Arabia has implemented OPEC production caps which has slowed down regional economies. It has done so deliberately to allow non-oil sector sectors to grow and it’s working for Saudi Arabia.” 

Presently, Saudi Arabia’s dependency on hydrocarbon revenues is lower than the regional average among other GCC countries, indicating a promising course towards a more balanced economy.

The blueprint for this transformation closely mirrors the successful model adopted by the UAE. As Besseling pointed out, “The UAE has done the same and focused on economic diversification, bringing in more services, manufacturing and logistics sectors.” 

Progressively reducing its reliance on hydrocarbons, the country’s non-oil sector has experienced tremendous growth, with the UAE’s Prime Minister, Sheikh Mohammed Bin Rashid Al Maktoum, revealing that the UAE’s non-oil foreign trade skyrocketed to 1.239 trillion dirhams (approximately $337.5 billion) in the first half of 2023. 

Besseling said, “The non-oil sector growth has been remarkable and it is driving up the entire country’s economic output.” The UAE’s success story vividly demonstrates the power of economic diversification in driving sustainable growth and stability.

Tapping into growth: Opportunities and challenges for the Middle East

Occupying a pivotal geographical location, and facilitating access to markets in Europe, Africa, and Asia, the Middle East is a central hub in the worldwide movement of goods. Located within this global crossroads lie some of the world’s most important trade routes including the Suez Canal, the Straits of Gibraltar and the Straits of Hormuz. 

Building on this advantageous geographical position, Middle Eastern nations are leveraging their strategic geographic centrality to explore uncharted territories, with a keen eye on neighbouring Africa. 

This is exemplified by the decision of Saudi Arabia, the UAE and Egypt to join the expanded BRICS group, starting in 2024. The BRICS group, currently comprising Brazil, Russia, India, China and South Africa, collectively represents around 40% of the global population. 

Joining the BRICS group is therefore pairing major Middle Eastern countries with the developing world’s biggest consumers and linking them with a huge source of raw materials needed for their manufacturing and industrial plans. 

As Besseling stated, “For these economies to grow and diversify their sectors, it is crucial to engage in more beneficiated trade with African countries.”

In addition to exploring new economic frontiers, it is crucial to address the current challenges that some Middle Eastern nations are facing, especially concerning sovereign debt risks. 

While a considerable number of the oil-exporting countries within the Middle East have effectively managed to avert immediate sovereign debt risks, the picture is much more challenging outside the borders of the GCC. 

A major debt crisis is potentially brewing in the region with Egypt and Iraq at risk of defaulting on their sovereign debt obligations. Such a scenario can lead to catastrophic consequences for their economies. 

As Besseling said, “The oil-producing emerging markets, particularly Iraq and Egypt, are facing foreign exchange shortage and that is impacting their debt servicing as well as their imports balance.”

For instance, Egypt, the most populous nation in the Middle East, finds itself in a critical position, grappling with a heavy debt load, rising interest rates and a depreciating currency. The country is facing a profound economic crisis that threatens to disrupt not only its domestic economy but also its foreign policies. 

The Russia-Ukraine war further exacerbated the situation, laying bare Egypt’s economic vulnerability due to its longstanding reliance on fuel and food imports which have become too costly for the country to afford. In addition, short-term foreign currency financing has also become increasingly expensive, further compounding the challenge. 

In his view, Besseling emphasised the urgency of implementing a fiscal austerity agenda and undertaking a complete liberalisation of the Egyptian pound. According to him, “In 2024, it is key for Egypt to implement a fiscal austerity agenda and to completely liberalise the Egyptian pound. Only then can the country avoid a sovereign default scenario.”

The post VIDEO | The Middle East in focus: Between resilience and turbulence appeared first on Trade Finance Global.

A spree of military coups in fragile West and Central African states is raising concern of contagion to other regions and more stable countries. Military interventions can indicate sudden policy shifts, such as in Mali, Niger, and Burkina Faso, or trigger civil conflicts such as in Sudan, which expose investors and businesses to a multitude of contract risks and insecurity.

Chaotic transfers of power trigger contract cancellations, currency shortages, expropriations, civil unrest, and even sovereign defaults. On the other hand, managed coups like those in Guinea, Chad, and Gabon appear to stabilise governance and provide protections for investors, often replacing unpopular, authoritarian, and kleptocratic regimes.

Pangea-Risk routinely updates its forecast of African countries that face a high probability of military unconstitutional intervention. Based on the latest assessment, which for the first time also includes the Middle East, half of the 68 countries in these regions are exposed to either Severe or High risk of a military coup in the one-year outlook, according to proprietary risk scoring methodology.

Cameroon and Equatorial Guinea have the highest probability of military transfer of power, while our assessment also includes usually politically stable states such as Benin, Togo, Rwanda, Uganda, and Egypt.

As geopolitical stability and international trade have always been inherently linked, the fallout from these coups has the potential to impact the greater African continent and disrupt global supply chains as well. The political and economic world will be waiting to see the large-scale impact that will emerge from this potential contagion.

The post Half of African and Middle Eastern states face severe or high coup risks appeared first on Trade Finance Global.

The MENA region has a long and storied history, and its political and economic developments have far-reaching implications not just for the countries in the region, but for the wider world as well. We hope that this breakdown can help readers make sense of the complex and ever-changing landscape of the region by providing an in-depth analysis of key issues and trends shaping the political and economic landscape. From the ongoing conflicts in Syria and Yemen to the evolving relationship between Iran and the US, to the rise of new economic powers like the UAE, the region is more complex but relevant than ever.

Meet the experts

John Miller

John W. Miller (JM) is a writer and filmmaker from Brussels. He is currently working on his first book, The Last Manager (Avid Reader/Simon&Schuster), about Earl Weaver and the role of the baseball manager. He is the co-director of the 2020 PBS film Moundsville, and creator of the Moundsville online magazine. From 2004 to 2016, he was a staff reporter at the Wall Street Journal, covering European economic, global trade, global mining, and occasional events like the World Cup and Tour de France. He is a contributing writer at America, the Jesuit Review, and Chief Economic Analyst of Trade Data Monitor, the world’s premier source of trade statistics.

Dr Robert Besseling

Robert Besseling (RB) founded specialist intelligence company EXX Africa in 2015, after pursuing a decade-long career in political risk forecasting at industry- leading firms in the UK and US. In late 2020, in the midst of the coronavirus pandemic, EXX Africa was rebranded as Pangea-Risk to cover 68 African and Middle East countries.

At Pangea-Risk, Robert leads a team of partners, researchers, and contributing analysts to produce commercially relevant and actionable analysis on political, security, and economic risk in Africa and the Middle East. Robert also retains the lead on many consulting projects for blue chip corporations in a wide variety of sectors.

Download the article here

The post MENA Country Profiles – Trade and Geopolitical Overview 2023 appeared first on Trade Finance Global.

International trade operates on financing and debt. Without lending and borrowing, corporates would not be able to function, and countries would be unable to develop or grow. Yet, many industry experts and experts see the rising debt levels across the developing world as a cause for concern. 

According to a Bank of Canada and Bank of England report, in 2021, global government debt stood at 98.3% debt-to-GDP. Holding this level of debt for a prolonged period of time creates numerous problems, especially once an unexpected shock hits the market.

Pangea-Risk and Acre Impact Capital’s whitepaper, “The Politics of African Debt Restructuring”, reports that the African continent is especially vulnerable to debt-related shocks, as private and public debt increased to more than $700 billion from 2000-2020. 

However, the specifics of African sovereign debt are incredibly nuanced and require a deep dive into country-specific situations and multilateral relationships. To get a better understanding of this subject, Trade Finance Global’s (TFG) Deepesh Patel sat down with Robert Besseling, CEO of Pangea-Risk at ExCred International in London.

A looming expiration date

The accumulation of over $700 billion of debt over the past 20 years has created an uneasy environment for many analysts. The IMF stated that 22 low-income African countries are in or at risk of debt distress. Many of the loans are due to be serviced in the next two years, creating some fear of further market turmoil. 

Besseling said, “From 2024 onwards, we’ve got some really big Eurobond capital repayments that are due, and even more so in the four-year outlook.”

However, these developments are not dire, as some African countries, such as Kenya, Ghana, and Angola, have successfully restricted their debt in recent years. According to Besseling, 2023 is the year to focus on further debt restructuring.

Besseling said countries need to “retreat their debt naturally, not just restructure with a haircut…our white paper argues that debt can be reprofiled, it can be swapped, it can be treated in different ways.”

One of the most common misconceptions surrounding the African debt situation is that there is a ‘Chinese debt trap’. This is a phrase one commonly hears from television commentators, from politicians and academics. But by looking at the numbers closely, it becomes apparent that there is not an overwhelming Chinese debt trap.

Out of the $700 billion debt in Africa, $150 billion of it comes from China. While a large number, it only represents roughly 21% of total debt. Besseling pointed out that over one-third of the $150 billion came from Angolan pre-export finance facilities for crude oil.

Simply stated, most of Africa is not exposed to Chinese debt. Besseling said, “Five or six African countries are heavily exposed to China. That’s only 10% of the African continent.”

Additionally, China has shown flexibility in restructuring loans or providing debt relief. The Pangea-Risk and Acre Impact Capital whitepaper says, “between 2000 and 2019, China … cancelled at least $3.4 billion of debt in Africa”. In the same period, China restructured or refinanced about $15 billion of debt in Africa. There were no asset seizures, and China has not used legal recourses to compel repayments.”

Though the “Chinese debt trap” may not be as prevalent or fatal as some might think, 2023 will still be an important year to restructure African debt before the large debt obligations are due.

There have been some efforts by multilateral institutions to help the African debt issue. However, none of them proved to be successful. A “Common Framework” was created with the G20, IMF and World Bank, looking to treat the Paris Club concessions and the Chinese debt trap.

Besseling said this excludes “Eurobond holders, domestic bondholders, commercial lenders, ECAs and banks.”

Besseling believes that there needs to be a different solution to debt restructuring. “Multilaterals at the moment are offering a multilateral approach to debt treatment, and there is no precedent of success for that.”

African climate finance and political instability

According to multiple studies, Africa is the most vulnerable continent to climate change. Besseling said, “It would make sense that the bulk of climate finance should go to Africa.”

But in reality, roughly 11% of global climate finance goes to the African continent, most of which is financed by concessional lenders and multilateral development banks. According to Besseling, very little private sector money is invested in Africa.

African Development Bank research shows a $100 billion annual financing gap for critical infrastructure in Africa, such as electric grids, water supply and sanitation, and transportation.

Why is this the case?

Besseling believes, “It’s because of the fear of African countries defaulting on their sovereign debt and high political risk.”

The private sector is particularly concerned with perceived political, economic and social instability. Countries that have had recent contentious elections or military interventions are highly unlikely to receive private investment.

The African continent needs private investment to counter the climate crisis, but lenders are more hesitant than ever. Besseling notes that the Pangea-Risk and Acre Impact Capital whitepaper focuses on this conundrum.

“Our White Paper argues that there should be debt treatment on domestic debt, sometimes also on Chinese debt or concessional debt. And if we follow that road, then we can put more African countries on a trajectory in which they will treat their debt in 2023, make it more sustainable, more affordable, avoid defaults from 2024 onwards.”

Besseling believes that once African countries properly restructure their debt and avoid a potential default, private investment will increase. As debt burdens become more sustainable and affordable, their country-risk premium will decrease in tandem. 

“I think it’s increasingly important to start looking at African debt from a data perspective rather than from the narrative that is currently circulating.” By looking at African debt through a data lens, one can see a sustainable future for Africa.

Key findings

After analysing the data, the Pangea-Risk and Acre Impact Capital whitepaper summarised six key findings.

1. Debt transparency, responsible monetary and fiscal policy and stable institutions are important criteria for debt treatment.
2. IMF needs to play an important role as a lender of last resort and policy anchor.
3. Credit ratings have restricted African countries’ access to private capital.
4. The “Common Framework” is not a successful debt restructuring program for Africa.
5. Chinese creditors will be impacted the most by debt defaults and restructurings.
6. African governments are looking to prioritise domestic debt solutions to help internal stakeholders.

Read “The Politics of African Debt Restructuring” to learn more about country-specific cases and the detailed takeaways. 

The post VIDEO | The politics of African sovereign debt restructuring – 2023 update appeared first on Trade Finance Global.

PANGEA-RISK CEO Robert Besseling anticipates some positive risk trends in Africa in 2023. Indeed, African economies will exceed global growth averages on the back of resilient commodity prices. Distressed debt will be treated to avoid chaotic default scenarios, while more foreign investment will return as diverse investors seek higher yield. Moreover, maturing democratic systems ensure that socio-economic grievances will increasingly be aired in the political arena, i.e., at elections, rather than on the street.

In 2023, most countries in Africa will see economic growth well above the global average rate, thus reverting to more optimistic pre-pandemic trends, at least relative to the rest of the world. Buoyant or resilient commodity prices, continued external support from multilaterals, and – in some cases – managed debt restructurings will underpin the economic recovery of countries still suffering the long-term impact of the COVID-19 pandemic. 

External risks persist, including the effects of the war in Ukraine, a resumption of travel restrictions due to the pandemic, continued disruption to trade and global supply chains, and the lagged peaking of inflation rates in emerging markets. But overall, African countries should see an improved economic outlook for 2023.

Despite slowing demand globally, commodity prices will remain high in 2023. After a dip in late 2022, oil prices are expected to average above $80 per barrel this year, which is good news for nascent producers in Africa. Perhaps worryingly, some of Africa’s largest oil producers will fail to benefit from higher prices as output continues to drop in Angola, Republic of Congo, and Equatorial Guinea.

Yet, Nigeria’s efforts to curb crude oil theft may be reversing a long-time downward export trend. Meanwhile, new fossil fuel projects in East and West Africa are more likely to be signed off as long-term gas and oil prices remain high. Mozambique, Senegal, Mauritania, and Guinea will start natural gas exports in 2023, while Tanzania may see a long-anticipated final investment decision on gas projects. Investment commitments on major oil and gas infrastructure, including pipelines and East and West Africa, should also be expected this year. 

Metal prices will remain volatile, but a floor under base metal prices will be kept in 2023. Gold started the new year with prices at a six-month incline and analysts believe the rally has further to go in 2023. This is good news for major producers Tanzania, Ghana, and South Africa, although divestments are ongoing in Mali and Burkina Faso due to insecurity and reputational risks. Major producers of fourth industrial revolution metals such as DRC will see concrete benefit to their economies as demand for components remains scarce globally.

Debt restructuring to avoid default

At its autumn 2022 meetings, the IMF did not add any countries to its list of debt-distressed countries, or those at risk of falling into debt distress. That will probably change at the April 2023 meetings jointly held by the Fund and World Bank – expect more African countries to make the debt distress shortlist. Sub-Saharan African long-term loans have more than doubled to $636 billion in the decade to 2021 — that exceeds the combined gross domestic product (GDP) of more than 40 African nations.

Given the elevated debt levels, African governments are allocating a larger share of their revenues to servicing external debt. The compounding effects of high debt service costs along with a domestic currency depreciation have increased exchange rate risks for countries with high external debt. Eurobonds and Chinese loans are at highest risk of default – African nations owe China about $84 billion, by conservative estimates.

The World Bank says that support for international debt restructuring might be required. Last year, Pangea-Risk accurately assessed that at least six African countries would restructure their debt, namely Kenya, Nigeria, Ghana, Chad, Ethiopia, and Zambia. All six countries have since commenced some form of domestic or external debt treatment, while Chad has completed its external loan reprofiling – at least for now.

This may be a positive development, as multilaterally coordinated and well-managed debt treatments are more likely to avoid chaotic defaults such as those in Mozambique in 2016 and Zambia in 2021. A calibrated debt reprofiling in Angola and Republic of Congo have turned around these countries’ economies and rendered their debt to more sustainable and affordable levels. Eurobond holders and commercial creditors may fear significant haircuts on African obligations, but without restructuring, more debt is more likely to default and trigger a wider financial crisis.

Elections to mitigate unrest risks

Some 16 African countries are scheduled to hold elections over the coming year. In 2023, several hotly anticipated votes are taking place in the backdrop to rising costs of living, tight fiscal regimes, and broader insecurity. Some of these elections may trigger political instability and, potentially, unrest. In fact, we have identified more than ten countries where upcoming elections may drive insecurity that should be monitored over the course of this year. Meanwhile, preparations for about 13 more elections in Africa in 2024 alone will also drive similar risks of political instability, civil unrest, and policy uncertainty this year.

However, elections should not always be interpreted as a “risk”, which is a common perception by country risk analysts. Indeed, notable polls in 2022, including in Angola and Kenya, portray an increasingly steady political climate and a democratically mature trend developing on the African continent, which will set the tone for upcoming votes in 2023.

Elections increasingly offer a chance for electorates aggravated by inflation, debt, and other grievances to vote out incumbents and seek political renewal, thus avoiding broader instability. Country risk analysts too often warn of elections as indicators of insecurity and political instability, which is generally a fair assessment. But let’s not forget the opportunity that elections hold for both local electorates and foreign investors. Elections can and do often mitigate political risk, rather than drive it.

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While oil prices dropped by 20 percent over the course of last year and remain below pre-pandemic levels, crude has recovered by 293 percent since its 21year low in April 2020. Similarly, liquefied natural gas (LNG) prices have recovered by over 727 percent since the troughs of the pandemic. Metals even outperformed these rates – copper prices reached an eight-year high after increasing by 26 percent in 2020. Other top-performing metals include palladium, gold, platinum, iron ore, and bauxite (for aluminium). All these commodities are important foreign exchange earners for African markets with significant growth potential for trade after the pandemic. However, there remain several questions over the extent of the next commodity supercycle – if that is an accurate term, as well as the potential to increase intra-regional trade under the new continental free trade agreement, and the impact on loan servicing for many debt-distressed African countries. 

The African commodity bonanza – who will benefit?

PANGEA-RISK assesses that a recovery in African commodity markets will alleviate sovereign credit risks for some countries that remain dependent on their extractive sectors, but that a sustained economic recovery from the pandemic can only be achieved through economic diversification and sound fiscal and monetary policy. This means that several African markets will remain vulnerable to more external shocks even after the pandemic and that these countries will remain highly reliant on credit support for the next few years.

Africa’s largest oil producers are sizable exporters of crude, yet for many marginal exporters, such as Tunisia or Côte d’Ivoire, higher global oil prices will provide little additional balance of payment support. Moreover, some of Africa’s largest oil producers like Angola and Algeria are facing field depletion and falling investment in new fields due to high operational costs. Nigeria’s oil sector, which has the second largest reserves estimated at 36.97 billion barrels, is far better positioned than Angola’s following its government’s firm intention to pass the petroleum industry reform bill early this year. 

Chinese demand for base metals is also boosting the price of copper and iron ore, although supply constraints in Chile, Peru, and Brazil are also driving factors for price hikes. Iron ore, which is produced in sizable quantities by countries such as South Africa, Mauritania, and soon also Guinea, has seen its prices skyrocket by 121 percent in the past eight months. Copper prices were at a three-year low in April 2020 and then increased by 67 percent to an eight-year high by the end of 2020. However, unlike iron ore, copper prices are set for a sustained price growth trajectory in 2021. This will have major implications for Africa’s two largest copper producers, namely the Democratic Republic of Congo (DRC) and Zambia.

The world’s most important commodities have surged from lows in 2020 to eight- or nine-year highs in recent months. Less than half of Africa’s 54 countries are major exporters of commodities with prices that are currently boosted by increased global demand. There will therefore be several speed tracks for Africa, with some countries growing at much faster rates than others, while a few countries are likely to remain in recession this year. Some of the fastest growing markets in Africa this year according to the IMF will be those with diversified economies, such as Mauritius, Djibouti, Rwanda, and Côte d’Ivoire. The World Bank expects Kenya’s GDP to expand by seven percent, which would make it one of the fastest growing economies this year, despite little reliance in its nascent oil production or small mining sector.

The current commodity price trend may not be an actual super-cycle, since most of the price rises over the past eight months are due to supply constraints rather than a protracted global uptick in demand, which would define a super-cycle. Nevertheless, some metals could be entering their own super-cycle. Demand for metals needed to build renewable energy infrastructure, batteries, and electric vehicles, would be boosted by the fight against climate change. This scenario would be good news for major platinum producers such as South Africa and Zimbabwe, as well as South Africa’s palladium sector. 

African free trade rolls out 

On 1 January 2021, the African Continental Free Trade Area (AfCFTA) came into force and African countries began officially trading under the new continent-wide free trade area after months of delays due to the pandemic. The free trade area is expected to boost economic recoveries for Africa from this year, and the World Bank estimates it could lift tens of millions out of poverty by 2035. Despite entrenched protectionism in some states and other obstacles such as poor infrastructure, the AfCFTA has been given a new impetus by the pandemic. Full implementation of the deal may take several years, but initial steps towards its implementation may allow member states to double intra-African trade by 2025.

Intra-regional trade in Africa represented less than 20 percent of total trade in 2016. Such intra-African trade primarily consists of manufactured and agricultural products, which are sectors that are widely considered as scalable, in terms of volume and value. Moreover, the AfCFTA is expected to boost intra-African trade of extractables as well, which currently only account for 31 percent of intra-Africa trade compared with 66 percent of extra-African trade. In addition to an increase in trade, the AfCFTA will provide opportunities for value addition for extractives sectors such as mining and oil production, with the production of final or intermediate goods, for innovation and increased productivity through responses to the new competition offered by the open market, and for joint ventures with foreign companies looking for reliable partners in Africa. Combined, the AfCFTA is expected to contribute significantly to GDP and employment opportunities across the continent.

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Read our latest issue of Trade Finance Talks, Spring 2021, here

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Specialist intelligence company EXX Africa’s director Robert Besseling assesses that African governments are increasingly integrating infrastructure investment options into a more competitive landscape that seeks to bridge the massive annual financing gap. However, accomplishing sustained economic growth, meeting revenue collection targets, and achieving positive indicators will be required to balance growing debt levels and record fiscal expansionism.

A growing number of African countries are facing an uncertain outlook over the next year in terms of the servicing and repayment of their debt, while many governments continue to tap into international debt markets to finance massive infrastructure projects. As concerns over the impact of a global trade war on African economies mount and the continent faces a looming debt crisis, the International Monetary Fund (IMF) has recently shown some flexibility in its bailout terms. The Fund is preparing to step in as a lender of last resort in many debt-burdened or cash-strapped countries while softening its conditionalities in the face of competing Chinese loans. 

The role of the IMF in Africa

The role of the IMF at a time of mounting concerns over Africa’s debt is particularly important considering the expected impact of the global trade war on the continent’s economic output. An escalation of the US-China trade stand-off could more than halve the current forecast of just 3.5 percent growth for the sub-continent. Any impact might be softened by a weakening US dollar and falling borrowing costs, but the effect of falling trade flows and economic output should not be underestimated. 

Thus, the IMF is set to play an important role in offering debt relief to African countries in coming years. The Fund currently classifies six African countries as being in debt distress, including Mozambique, Sudan, and Zimbabwe. It rates another ten countries as being at high risk of debt distress, including Zambia, Ghana, and Ethiopia. EXX Africa has previously also expressed concerns over some of the continent’s largest economies like Kenya, Nigeria, and South Africa. Although the need for IMF intervention in these economies seems unlikely if the balance of payments remains sound. 

Chinese dominance under threat? 

In recent months, several African countries, including Kenya, Tanzania, and Sierra Leone, have cancelled large-scale Chinese-funded infrastructure projects. In June, Tanzania seemed to cancel a USD 10 billion port construction project in Bagamoyo. A court in Kenya has halted plans for the construction of a USD 2 billion Chinese-backed coal power plant near Lamu over environmental concerns. Other African projects, including massive rail construction projects in Ethiopia, Djibouti, and Kenya, have also come under scrutiny, leading China to write-off some loans. 

This activity has prompted suggestions that China’s role in Africa is changing and that its dominant financing role has come under threat. However, there is no evidence to suggest that African governments are steering away from Chinese investment. Instead, the region is fostering more competition from a broader source of funding. Chinese financing is often more expensive and with shorter maturities than the terms offered by multilateral financial organisations. Some forms of syndicated commercial lending from western banks and export credit agencies offer further competition in the increasingly varied investment climate in Africa. 

Alternatives for infrastructure lending 

The Asian Infrastructure Investment Bank (AIIB) may eventually offer an alternative to these forms of financing, although the AIIB is still in its inception phase. The AIIB was launched in 2015 with a focus on infrastructure financing in developing economies. In July, Djibouti and Rwanda (and Benin) were approved as non-regional members of the Bank, bringing the lender’s membership to 100, which includes major western economies like Germany, France, and the UK. However, the AIIB has so far focussed its lending outside of Africa, with only Egypt securing sizable deals from the institution. This is set to change as the Bank grows over coming years. 

As Africa still has an annual infrastructure financing gap of more than USD 100 billion, there is a growing need to diversify sources of funding. This includes an opening to traditional sources of financing from pension funds and sovereign wealth funds, which is being encouraged by the African Union’s new Development Authority and other initiatives. Therefore, Chinese investment is not being side-lined but instead, it is being integrated into a growing mix of funding options, which Africa is harmonising into a more competitive landscape. 

Looser IMF conditions 

Nevertheless, in the face of competing Chinese loans, the IMF is likely to loosen its conditionalities in order to retain its role as lender of last resort to African debt-burdened and cash-strapped countries. In July, the IMF agreed to disburse USD 448.6 million over three years to the cash-strapped Congo-Brazzaville government following two years of tense negotiations. Despite having to meet rigid fiscal targets to quality for IMF assistance, the Congolese government secured unusual flexibility from the Fund on its lending conditions as there is no guarantee that the government will implement enhanced transparency measures or publish opaque pre-export oil financing deals. 

Such loosening of IMF conditionalities is indicative of its future approach towards other African countries that are likely to require a bailout in coming years. Loosened lending conditions will prove good news for many African governments seeking urgent debt relief, although will do little to improve transparency and curb corruption which remains one of the heaviest obstacles to economic development. 

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Listen to this podcast on Spotify, Apple Podcasts, Podbean, Podtail, ListenNotes, TuneIn, PodChaser

Season 1, Episode 9

Host: Deepesh Patel, Editor, Trade Finance Global

Featuring: Dr Robert Besseling, Executive Director, EXX Africa

All Change in Africa: EXX Africa’s Dr Robert Besseling on the Business Sentiment in Africa

Deepesh Patel: I’m Deepesh Patel, Editor at Trade Finance Global.

To date, Africa has seen pockets of regional growth this year, and we’re speaking to EXX Africa’s Robert Besseling to find out more. With so much hearsay and risk coming out of Africa, and the continent constantly making international news and the headlines, we often don’t hear much about what’s actually happening on the ground. There are so many macro-economic factors at a regional level that could help catalyse some of the small- to mid-sized economies, providing pockets of opportunity and growth in Africa, but there is often a lack of quality data, intelligence and reporting.

So we’re joined today by Robert Besseling, Executive Director of EXX Africa, to find out more about what’s been happening so far this year and what business leaders, financiers and policy makers should be talking about when it comes to regions and countries within Africa; home to 1.2 billion of the world’s population.

So, without further ado, here is Robert, joining us from Johannesburg, South Africa! Hi Robert, thank you so much for joining us on today’s podcast!

Robert Besseling: Hi, Deepesh. Good to talk to you today.

DP: So elevator pitch: in no more than 30 seconds, tell us a bit about yourself and EXX Africa.

RB: EXX Africa is a company that I founded in 2015. The company provides analysis and forecasts on political risk, security risk and economic risk across all 54 African countries. We work mostly with some of the major DFIs, commercial banks and insurance companies, as well as some corporate governments and commodities traders. So, quite a broad spectrum of our clients who tap into our subscription platform on African risk.

DP: Robert, why Africa?

RB: It’s a key question Deepesh. I mean, there’s a lot of African news at the moment; cyclones in Mozambique, bomb attacks in the east, war and coups in various parts of the continent. So Africa is very pertinent at the moment. But then again, as you mentioned in your introduction earlier, there are pockets of economic climates. If you look just at the fastest growing economies in Africa, they also fall into the category of the fastest-growing economies in the world.

Economies like Ethiopia, for example, are growing again at more than 8% growth, in terms real GDP this year; various other African countries in the east and the west, like Ghana, Ivory Coast and Senegal, or Kenya, Tanzania and Uganda, are also growing at record rates, often over 6% of real GDP growth. So that’s what makes Africa exciting. And similarly, there are some key developments across the African continent, including, for example, the formulation of what could become the world’s largest trade free trade union. Again, this is a process which is in the process of being constructed, but a number of countries have signed up to it and are ratifying the deal, although it still needs to be implemented.

That might be thwarted to some extent, at least in some parts of the African continent, by a sense of nationalism, populism and economic protectionism. But generally speaking, it is the course towards free trade and fast-paced economic recovery.

Macroeconomic & Geopolitical Risk in Africa: Oil, Inflation and Interest Rates

DP: OK, so taking a high-level overview on Africa as a continent, what are the current key macroeconomic and geopolitical themes around trade, oil price, inflation and interest rates? What is the impact of these on financial markets?

RB: Most of Africa remains very shielded from the international financial system. Thus, global trends, such as inflation or interest rates, or global trade wars very often do not impact a number of African countries. That’s what we saw during the international global financial crisis and various other global trends. That is starting to change though; we are seeing more and more countries being exposed to global trends like rising US interest rates, or the volatility in the oil price, etc.

But generally speaking, we have to look at Africa as a collection of regions, as opposed to a collection of countries. For example, in the east African region, we can start to see trends in trade volumes and intra-regional trade, and we can see the volatility in the oil price climate having an impact on regions, rather than on the continent of Africa as a whole. Africa is starting to change, and it’s becoming more exposed to international trends, but it is still very much a progress.

DP: Which regions are most exposed to the international ecosystem in terms of the US-China trade war and Brexit? What impact are those factors having on the need for funding and investor sentiment in those regions?

RB: Africa is obviously watching the US-China trade war and other geopolitical events, like Brexit, with great interest, because on one-hand, it is a threat, like it is to other parts of the world, where it could diminish trade, and it could uproot existing investment and trade agreements. On the other hand, because Africa has been left out of many of these agreements in the first place, some African countries and African regions could, in fact, see a real advantage here. East Africa, for example, where most of the growth is coming from at the moment, is hoping to benefit on the back of an eventual Brexit process, by signing deals with key investors from the UK or with the British government, after the UK has left the European Union. After all, a country like Kenya or Tanzania would find it easier to deal with the UK alone, rather than dealing with the entire block of EU countries.

So that’s one aspect that we are already seeing in terms of the US-China trade war. The impact the trade war is having on the Chinese economy is already seeing a diminished appetite for commodities from Africa, which is beginning to taper off some of the demand, particularly around metals and other commodities coming from Africa.

However, China is already anticipating that the relationship with the US will likely diminish, so they’re looking for new opportunities and interconnected potentially through the BRI initiatives. Most of Africa’s governments has not signed up to this initiative, or the Belt and Road Initiatives, and China is really pushing greater interaction with African countries, not just outwards, exports from Africa into China, of raw materials, but also manufactured goods from China into Africa. Even Chinese trade is starting to affect the manufacturer’s goods in Africa.

So, you can see how the US-China trade war and Brexit are starting to change how trade and investment works in Africa. This could pose a threat, but there are a number of opportunities here as well.

Financial Inclusion in Africa

DP: Interesting, and we look forward to hearing these continued updates in terms of how certain regions in Africa are really jumping on some of the opportunities stemming out of potential uncertainty, volatility, trade wars, etc. Now, let’s look at the investor sentiment in a little more detail. Financial Inclusion is obviously at the top of the agenda for banks, with policymakers across the region, with a significant proportion of the you know, the reported 1.5 trillion US dollar trade finance gap, stemming out of Africa, African countries and also out of SMEs. How can investors find value in Africa’s credit markets to meet some of this unmet financing demand for small businesses? What are the biggest barriers to entry? And what needs to be done in order to open up this asset class for financing African trade?

RB: You’re absolutely right Deepesh, financial inclusion is crucial for African countries and African companies (particularly SMEs) to start tapping into this economic growth we were talking about earlier. The problem is that Africa’s credit markets are still very much restrained by the typical barriers to entry like regulations, restrictive legislation, etc.

I’ll give you a few examples. Look at Kenya, the largest economy in the east of the continent, which is really driving growth, trade and investments in east Africa. However, about two years ago, the Kenyan government imposed a cap on interest rates, which has made banking far less profitable than it was before. The local Kenyan banking sector is now being starved of liquidity and SMEs in east Africa and Kenya are failing to tap in to the banking sector locally.

Another key encouragement from the IMF and from international investors etc., is to consolidate Africa’s banking sector. This has happened in places like Nigeria, for example, which was very successful in 2009. After the banking crisis, various small- and medium-sized Nigerian banks were consolidated into national and even regional champions; that needs to happen in more places in Africa.

This has been critical for the success of Ghana’s banking sector, particularly as the economy grows on the back of higher oil exports and an increase in the values in oil exports. And similarly, it is also something that needs to happen in East Africa in places like Kenya, or Tanzania, where banking sectors need to be consolidated. And other places they need to be liberalized completely, places like Angola, or Ethiopia, in particular, where the banking sector remains very much state-dominated, and where credit markets are almost closed off to local SMEs as well as to foreign investors. So, a lot needs to be done, particularly liberalisation and consolidation, as well as in breaking down the red tape barriers to entry. Obviously, the removal of interest rate caps in places like Kenya would be a real benefit to the development of credit markets in Africa.

DP: Great, and I guess the consolidation of countries within particular regions to access better infrastructure and have economies of scale is always going to be good for the country, but also, those regions you mentioned. Let’s go into a little bit more detail on north Africa. With regards to oil price, you recently published a report looking at the impact of oil price volatility to African fuel importers of 2019. We know the oil price seems to have strengthened and stabilised somewhat more recently; how closely linked is oil price to the short-, medium- and long-term prospects of the larger oil exporters such as Nigeria, Angola, Algeria, and also Egypt?

RB: EXX Africa did publish a special report in the beginning of January this year, about oil price volatility and the impact this has on Africa.

The report very much focused on volatility being the main risk and that’s what we’ve seen previously. Many African oil exporters and importers are now able to deal with either very high or very low oil prices, by building those into their budgets and provisioning oil imports, etc. The real risk is oil price volatility. So far in 2019, we have seen a bit of a stabilisation at the beginning of the year. However, the oil price still remains very prone to external factors and increased volatility, which remains a risk across the African continent. In terms of Africa’s largest oil producers, however, many of these countries seemed to have learned a lesson from previous drops in oil prices, as in 2015/16 or 2007/ 8 when their budgets were based on very ambitious oil price calculations.

Nigeria, for example, is now basing its budget on the $60 USD per barrel as a benchmark. This has been criticised as potentially too ambitious by some local economists, but it’s certainly more realistic than Nigerian budget calculations in previous generations. Similarly, for Angola and Egypt, with support from the IMF are starting to reform themselves and have learned lessons, in terms of previous oil price shocks. They are better able to prepare themselves in case of any sudden volatility in the oil price. But for countries like Algeria or Sudan, it’s quite different on that level. First of all, these are countries where we’ve seen huge political change over the past few weeks and months, where not much is being reformed in terms of economic and financial policy.

The flip side is that there are a number of African economies which still have very heavy import bills of petroleum products. We’re seeing African fuel importers being less likely to reach economic benefits from potentially lower oil prices in 2019. That’s because many of these economies still remain unreformed, unlike some of the largest oil producers on the African continent. So potentially, Africa could do better off for the lower oil price in general, than with the higher oil prices this year, just in the way that some economies have managed to reform themselves and prepare themselves for any further oil price volatility.

DP: That is a very interesting way of looking at it from the from the other side too. Now closely linked with that our interest rates, will interest rates continue to rise? And should we be concerned about countries with high US dollar debt?

US Dollar Denominated Debt in Africa

RB: Debt is the buzzword at the moment when we’re talking about Africa, You’re right, it has everything to do with what’s happening in the US and what’s happening with the oil price, etc.

Almost all of Africa’s debt remains US dollar denominated – even China’s debt to Africa is mostly US dollar denominated. So what’s happening in terms of the devaluation of African local currencies, and the continued strength of the US dollar, remains a real concern in terms of the servicing of Africa’s debt in US dollars, particularly as a number of countries are running out of US dollars – even countries doing particularly well like Ethiopia. These countries have been saddled with high debt, whether from the Paris Club or from the IMF or from China – these high-debt servicing costs are becoming a real problem.

Over the past few years, we’ve gone through a number of scandals and Republic of Congo, in Mozambique, most notably, and in Zambia to a certain extent, where amounts of debt have been discovered which weren’t properly calculated or disclosed previously. So that also brings us to another argument, in terms of whether more debt in Africa should be based or denominated in local currency. But then again, most of Africa’s revenues are derived from commodities, particularly foreign exchange revenues, which are derived from commodity exports. So it almost makes no sense for many African economies to denominate its debt in local currency. It’s only a country that has a dovish monetary policy and stable central banks like Ghana, Nigeria or South Africa that can issue local currency debt and do issue at the local currency debt on a regular basis. But for many others, like Kenya with an interest rate cap, or Zambia with potential miscalculations on debt it is a completely different scenario.

Debt will remain a key topic in terms of risk and concern throughout 2019, particularly for those countries that remain exposed to high-debt servicing costs.

DP: Thanks Robert. Let’s now move on and look at the recent disruption in Sudan and Algeria. What has happened in 2019 and what are the impacts on trade?

RB: Well, what has happened in 2019 has been quite spectacular in terms of an Africa-focused political risk analyst like myself – we’ve seen a very busy first four months of the year, with crises in Zimbabwe and Gabon across the Sub-Saharan parts of the continent. But as you mentioned, what we’ve seen in North Africa, particularly in places like Sudan, Algeria, and Libya, has been a roller coaster, at least in terms of sudden political change, unrest, the corruption investigation that we’re now seeing. Then there is the succession of military interventions. However, if we look at actual disruption to trade, it has been relatively mitigated.

In a place like Libya, for example, the outflows of the oil sector have not been that affected. Similarly, the flows of trades from south Sudan, particularly the oil that is piped through Sudan has barely been affected.

In Algeria, where the protests do seem to be slowing at the moment, there has been some disruption. But airports and marine ports…most of these supply chains have remained intact and the actual loss to trade values has been, considering the situation, relatively minimal. But that can still change. Political changes we’re seeing in these countries at the moment are very much reminiscent of the Arab Spring in 2011, where countries have fallen into major bouts of unrest, such as civil war, or have become more prone to political instability and terrorism than before.

We’ll have to keep on watching what’s happening in places like Sudan and Algeria very closely over the coming weeks, months and even years potentially. Because this type of instability does open up these countries to other threats, such as more coups or the spread of Islamist terrorists.

DP: Thanks Robert, very good insight there. So, let’s now take a forward-looking view and look at the next couple of years. Which economies are, in your opinion, going to be the winners and losers of 2019 and 2020? Which countries will face adverse economic and financial conditions and what are the opportunities?

Reform in Africa

RB: It really comes down to which countries are able to reform themselves. Reform is highly complex, particularly from a political perspective. Countries like Ethiopia and Angola, which for years have been very much closed to foreign investment, are now starting to open up; to liberalise and privatise and reform bloated public sector payrolls, to privatise failing and tarnished state-owned enterprises, and to liberalise key sectors. It is these types of countries and in 2019 and 2020, the reforms will stand in their advantage over these coming years. On the flip side, countries that are refusing to reform, particularly countries like Tanzania, which is going back towards the nationalist state interventionist way of the 60s and 70s. Or potentially countries like Algeria, which have failed to reform their oil sectors and their banking sectors over many generations. They could face further economic headwinds over the next few years.

Countries that can reform either internally or with the help of the International Monetary Fund are more likely to be able to weather the global headwinds over the next few years.

DP: Thanks for that. So, bringing this podcast to a close and looking at some of the key themes here, I think debt really is US dollar denominated debt, that is really is a buzzword and a key theme, particularly for any countries which have not yet been reformed. And I guess moving on from that the opportunities really lie around reform, opening up and also working together intra-trade.

RB: Absolutely.

DP: Thank you. Right. We are really looking forward to hearing you speak at TXF Amsterdam in a couple of weeks and we really appreciate your time joining us here at Trade Finance Talks today. Thank you very much for your time, and thanks for speaking with us today.

RB: Thank you, Deepesh.

The post PODCAST: All Change in Africa: EXX Africa’s Dr Robert Besseling on the Business Sentiment in Africa (S1E9) appeared first on Trade Finance Global.

Despite concerns over public sector corruption and debt sustainability, Ghana’s economy is set to grow at a sustained record pace in 2019, opening up fresh opportunities on the back of the government’s industrialisation agenda. TFG spoke to Robert Besseling, partner at Exx Africa, about Ghana’s industrialisation agenda and opportunities for 2019.

Ghana: Industrialisation agenda creates fresh investment opportunities

According to the latest Budget, Ghana forecasts GDP growth of 7.6 percent in 2019, including the important oil sector. Non-oil growth is expected to grow at 6.2 percent next year. These forecasts would make Ghana one of the fastest growing economies in Africa, let alone globally. The forecasts are not unrealistic, but do require some consideration.

Finance Minister Ken Ofori-Atta is seeking to replace Ghana’s dwindling foreign aid receipts, as the country consolidates its status as lower-middle income economy. Total donor support is expected to drop from 2 per cent of GDP to 0.5 per cent in the next two years. This is also partially due to the expected completion of the International Monetary Fund (IMF) USD 900 million credit programme in April 2019.

Ofori-Atta’s strategy to replace these sources of financing is focussed on two main aspects: improving revenue collection and raising new debt. With the termination of the IMF programme, Ghana will be able to access debt markets more freely to fill this void. The government’s ambition is to establish the country as an industrial hub for West Africa, based on oil production and refining, agro-processing, manufacturing, and marine services. In this briefing we assess the opportunity inherent in this macroeconomic strategy, as well as the likely challenges ahead.

Corruption weakens revenue collection

According to the latest Budget, Ghana aims to narrow its budget deficit to 4.2 percent of gross domestic product in 2019. Principal to this objective is the improvement of revenue collection. The Ghana Revenue Authority (GRA) expects to collect USD 8 billion this year, although this remains under its annual collection target. Nevertheless, the GRA has made significant improvements in tax collection over the past two years.

At the ports of Takoradi and Tema, import and export businesses have been moved online, thereby reducing the scope for corruption. The GRA has also enforced excise stamp duties by cracking down on large-scale defaulters such as luxury hotels and restaurants. Additionally, the GRA is planning measures to boost collection of VAT by monitoring income and expenditure using mobile phone technology.

Moreover, extractive industries have faced greater scrutiny over mounting concerns of mining revenues being moved offshore. The regime governing repatriation of foreign exchange through the Bank of Ghana is likely to be amended, while extracted mineral quantities will face more stringent inspection. Tax exemptions for oil and mining companies have long been a political stumbling block. From next year, these will increasingly be accounted for as state-owned equity in oil firms.

Despite the new measures, Ghana’s public service remains prone to corruption and embezzlement. The New Patriotic Party (NPP) government is facing mounting allegations of misprizing contracts, cronyism, and fraud, in an apparent continuation of the previous National Democratic Congress (NDC) government’s practices. According to some sources, Ghana’s government is losing some USD 2.8 billion per year in revenues due to overpriced contracts and commercial criminality.

Debt sustainability remains a key concern

Following the completion of the IMF programme in April 2019, the government is widely expected to tap into debt markets to finance its budget deficit and fund expansive spending programmes to boost liquidity in the banking sector and SME sector. Revenues from Eurobond issuance over the past two years have mostly funded existing debt servicing obligations. The NPP government has increased the national debt by almost USD 10 billion since taking office. Much of this has been spent on bailouts of Ghanaian-owned banks since mid-2017.

As such, there remain alarming warnings over debt sustainability. Ratings agency Moody’s has warned that Ghana remains at high risk of debt distress despite official projections that the country’s debt-to-GDP ratio will fall from 69.2 per cent in December 2017 to 54 per cent by the end of this year. However, such projections are skewed due to the rebasing of Ghana’s economy and do not reflect an actual decrease in the debt burden.

However, rather than issuing further Eurobonds, the government is moving towards short-duration securities. This is mostly due to falling appetite for African debt from western investors, but bodes well for the outlook of Ghana’s foreign denominated public debt burden. The government is also seeking Chinese soft loans towards infrastructure and health, which are proving highly successful in boosting government spending in these sectors.

A major challenge for Ghana remains its high level of indebtedness. With the debt ratio at around 70% of GDP, the government’s prudence with debt management remains key to the country’s economic prospects. The energy sector, in particular, is heavily burdened by debt, yet long-term energy sustainability is needed to meet growing demand and to facilitate economic growth.

In 2019, Ghana’s central bank will seek to protect the local currency against possible global pressures on emerging economies, including global trade pressures, steady rise in global inflation, further hike in US interest rates and a strong US dollar. The local currency depreciated 7.8 percent since January, above the bank’s end-year projection of less than 5 percent while public debt rose to USD 35.8 billion or 57.2 percent of gross domestic product at the end of September from USD 31.6 billion or 54.3 percent.

Insight

Larger industrial projects are also underway. The newly formed Ghana Integrated Bauxite and Aluminium Development Corporation will process the raw material into alumina for export. The oil economy also remains on track for further expansion in 2019. However, erratic power supply remains a key concern for the industrialisation agenda. A dispute over pricing of gas through the West African Gas Pipeline led to a wave of power cuts in November.

Meanwhile, the government will seek fresh investment and loans for high-profile capital expenditure projects, including a new regasification terminal in Tema and the construction of 4,000 kilometres of new railway lines at a projected cost of USD21 billion. Minister of Finance Ofori-Atta is also seeking broad banking sector reforms. New capital requirements are likely to trigger a fresh wave of consolidation, just as several new entrants join Ghana’s banking sector.

The absence of key electoral cycles for at least another two years also suggests that fiscal imprudence is unlikely during this period. That said, failure to narrow the deficit and public wage bill discipline, in addition to possible debt accumulation by an expansion-oriented Ghana, could stoke investor anxiety.

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Part 3 of 3. TFG spoke to Robert Besseling, a partner at Exx Africa, about the most stable countries in Africa, in terms of their debt position. Exx Africa is a bespoke advisory business that analyses and forecasts political security and economic risk across all of Africa. In this special 3 part report Exx Africa identifies the countries in best and worst position to attract further debt.

1. Nigeria: The country has made progress in liberalizing its currency and several large funds see opportunities to invest in Nigeria’s local markets. Growth is still fragile, and the economy remains heavily dependent on oil, but the Nigerian government is trying to diversify its revenue away from oil.
2. Ghana: The fiscal deficit was reduced substantially, and oil revenues are expected are increasing on the back of new hydrocarbon oil and gas – the growth outlook is positive. Yet there remain concerns over growth sustainability.
3. Cote d’Ivoire: Public debt as % of GDP is expected to reach about 49.0% of GDP in 2018, but is still sustainable. The country is supported by strong growth with a declining fiscal deficit in the short term. Strong investment is expected in the energy and transport infrastructure under governments’ National Development Plan.
4. Rwanda: Growth is expected to accelerate in 2018, mainly due to expansions in the services and agricultural sectors. Increased investment by government in key infrastructure projects will focus on energy and transportation shortcomings which will benefit the construction sector and improve the country’s business environment.
5. Tanzania: The country has one of the lowest debt levels in East Africa. Growth is forecast to remain robust and emphasis is on governments’ ongoing infrastructure development which forms part of the development plan. However, there are serious concerns over nationalist economic policies, mounting political risk, and the reliability of economic reporting.

What are the Risk implications?

Cost-risk analysis has helped increase awareness of debt portfolio risks and of the importance of developing the government securities markets in the medium term. Some countries such as Cabo Verde, Ghana, Kenya, and Tanzania are updating their medium-term debt strategy to address contingent liability risks. Furthermore, deepening domestic sovereign debt markets, including Ghana, Kenya, Namibia, Nigeria, and Tanzania could provide ways to lower currency and interest rate risks.

The average level of the continents’ total public debt is expected to be slightly higher this year at about 60.0% versus an estimate 58.0% of GDP last year. IMF concerns about most countries include borrowing from local banks which could undermine the domestic financial sector and fuel inflation. There is wide diversity across countries and in some highly indebted countries such as the Republic of Congo and Gambia, improved revenue performance and higher GDP growth are expected to yield significant improvements in debt servicing capacity.

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