The ignominious dismissal of one of Algeria’s longest-serving and most influential security chiefs indicates a crucial shift in power balance that may determine the succession of President Abdelaziz Bouteflika.
Several major African currencies have come under threat in August, increasing the risk of currency depreciations, capital controls, tax increases, and non-payment.
Weak commodity markets have hurt the dollar value of many African exports, thus worsening countries’ balance of payments and weakening their currencies. Central bank or government intervention is increasingly likely in a number of large African economies over the next few months.
Angola: Angola’s kwanza has lost a quarter of its value against the dollar over the past year. The kwanza will remain under pressure due to the impact of sharply lower oil prices on the current account and balance of payments and, by extension, foreign-exchange revenue. Crude oil makes up over 90% of Angola’s exports. Further monetary tightening before year-end to rein in inflationary pressures and support the exchange rate is likely. Yet rate rises are unlikely to be sufficient to bring an end to the downward trend of the kwanza in the near term, for which a more sustained rebound in global oil prices is likely to be needed. A further 15% depreciation before year-end is likely.
Egypt: Central bank intervention to curb the black foreign exchange market has included measures such as capping dollar-denominated bank deposits. Central bank dollar sell-offs have also depreciated the pound, aimed at boosting exports and attract foreign investment. However, this will also raise inflationary pressures as the import bill for fuel and staples increases.
Ghana: In September, Ghana’s central bank will resume dollar sales to support the cedi. Ghana’s government will face a difficult balancing act to maintain its fiscal consolidation plan in line with IMF agreements, while addressing mounting public-sector concerns ahead of the December 2016 presidential election.
Kenya: On 25 August, Kenya’s central bank intervened in the market by selling dollars in an attempt to buffer the shilling. Further central bank action is likely over the next few weeks.
Nigeria: Since the beginning of August, the Nigerian central bank has intervened in the market by selling dollars to bureau de change operators twice a week. The intervention has increased foreign exchange liquidity and has so far been able to stabilise the naira’s slide against the dollar. Central bank governor Godwin Emefiele is increasingly coming under pressure to allow the naira to depreciate by 10% before the end of the year. However, there is no indication that such protective measures or an ongoing crackdown on speculators will allow the naira to recover.
South Africa: On 24 August, the South African rand depreciated to an all-time low against the US dollar (ZAR14.0682 to USD1). Weak global prices for commodities such as platinum and iron ore have hurt the dollar value of South Africa’s exports and deteriorated its balance of payments, leading to serious currency weakness. Meanwhile, yields on rand-denominated bonds increased to 8.53%, the highest level since March 2014. The South African economy is facing sluggish growth, persistent high unemployment (officially at 25%), and a wide fiscal deficit (3.9% of GDP), while borrowing costs are now set to increase even further (consuming 10.1% of expenditure). Any potential benefit of a depreciated currency to export markets has been undermined by power outages and rationing. Central bank governor
Tanzania: The Tanzanian shilling will weaken further against the dollar in September due to demand from importers for dollars from oil imports and trading companies.
Uganda: The Ugandan shilling will weaken further against the dollar in September due to demand from importers for dollars from oil imports and trading companies.
Zambia: The Zambian kwacha could recover some of its losses in September after China (a major buyer of Zambian copper) eased monetary policy.
Risk implications: Pressure on African countries will increase the probability of capital controls being imposed and thus raise the risk of currency inconvertibility. Meanwhile, tax increases in key sectors will become more likely. Protracted budgetary pressure will raise the risk of non-payment or delayed payment to state contractors, especially in the construction sector. Contract risks will also increase.
For example in Angola, a new currency transfer tax was imposed on the hiring of consultants. There is also a significant rise of non-payment in state-funded public works, especially to Brazilian and Portuguese construction companies. The high exposure of Angola’s banking sector both to oil revenues and the construction sector increases the systemic risk of a sector-wide banking crisis.
AFRICA VARIOUS – 28 August 2015
Over the next year, the gradual demise of Boko Haram will open up commercial opportunities in northern Nigeria and neighbouring countries, though a low-level insurgency will persist.
In August 2015, several concrete steps were finally taken towards the establishment of the regional Multi-National Joint Task Force (MNJTF). The 8,700-strong MNJTF consists of the troop-contributing countries of Benin, Cameroon, Chad, Niger, and Nigeria to combat Islamist militant group Boko Haram in north-eastern Nigeria and the Lake Chad Basin. The countries agreed on a force commander, Nigerian General Iliya Abbah, and to locate the MNJTF headquarters in Chad. It is now likely that the UN Security Council will approve the MNJTF’s mandate in September and subsequently provide further much-needed logistical and financial support.
The MNJTF will prioritise protecting the Lake Chad Basin area that has seen the heaviest Boko Haram activity since June, thus freeing up non-MNJTF Nigerian troops to stage offensive operations on Boko Haram within north-eastern Nigeria. Meanwhile, Chad and Cameroon have committed to step up the offensive within their own countries, after a number of gun attacks and suicide bombings, particularly in Chad’s capital N’Djamena and Cameroon’s Far North province capital Maroua. Northern Cameroon and western Chad, just like southern Niger, have a large population of ethnic Kanuri, around which Boko Haram is based.
On 1 August, Nigerian President Buhari pledged to end Boko Haram’s insurgency before the end of 2015, which is highly unlikely. The MNJTF is unlikely to be fully operational in 2015 and the force will face significant logistical hurdles, including language barriers among its different troop contingents. Boko Haram’s six year insurgency has cost an estimated 15,000 lives. The number of attacks had a brief lull between February and May 2015, when President Buhari took office. Yet since June attacks by Boko Haram have again intensified on an almost daily basis across the Lake Chad Basin, as well as in Chadian, Nigerien, and Cameroonian cities.
Meanwhile, Boko Haram is becoming increasingly divided over ideological allegiances. On 7 March, Boko Haram pledged allegiance to Islamic State (IS), yet it is unlikely that Boko Haram’s nominal leader Abubakar Shekau still has complete control over the various combat units, which have been dispersed across the Basin region. Nigerian President Buhari, a former general who pledged to step up the offensive against the insurgency in his election campaign, has said that the group is no longer capable of confronting military forces and has therefore resorted to attacking ‘soft’ civilian targets. Yet, the influence of IS suicide bombing tactics suggests parts of the group are following a different strategy. Moreover, there is evidence that IS bomb-makers are providing the technical knowledge to remotely trigger devices that are increasingly strapped to women and children.
Risk implications: Over the next year, as the MNJTF becomes fully operational, Boko Haram’s attack capability is likely to be completely eradicated in Chad, Niger, and Cameroon. As a result, business activities around the Lake Chad Basin, such as the construction of the Waza and Dabanga highways in northwest Cameroon and an oil pipeline from Niger through Chad, will face lower risk of disruption. Cargo flows in this region will resume at full pace, as cross-border attacks by Boko Haram drop significantly. A Cameroonian night-time ban on marine (across the lake) and land transportation, including docking and shipments from Nigeria, which was imposed in August, is likely to be eventually lifted.
The group’s core combat units will remain functional in north-eastern Nigeria, yet these will be prevented from attacking large strategic towns that are more than 500 kilometres from its operating base, such as Lagos and Port Harcourt in Nigeria, Douala and Yaounde in Cameroon, and Niamey in Niger. However, given N’Djamena’s proximity to Boko Haram’s remaining strongholds in north-eastern Nigeria, this greatly increases the risk intermittent improvised explosive device (IED) attacks on the Chadian capital. Aspirational targets in the Chadian capital include the presidency, French embassy, military installations, UN compound, and hotels frequented by expatriates. Other Chadian strategically important locations will face similar risk of gun and IED attacks, particularly the southern Doba basin oil fields, where new reserves at Badila and Mangara have come on stream, and the Djermaya oil refinery. Energy firms Glencore, Caracal Energy, China National Petroleum Corporation (CNPC), and ExxonMobil have stakes in these assets.
NIGERIA – 28 August 2015
Congolese President Denis Sassou Nguesso is facing a domestic challenge to his third term ambitions which is likely to undermine political stability and trigger protests and riots over the next year.
On 22 August, political opposition coalition the Republican Front for the Respect of Constitutional Order and Democratic Values (Front républicain pour le respect de l’ordre constitutionnel et l’alternance démocratique: FROCAD) signed an agreement with other opposition groups to prevent Sassou Nguesso to engineer a constitutional revision later in 2015 to allow him to run for a third term in 2016, when his current constitutionally limited second term expires. The Congolese political opposition has rarely been so united and it has staged countrywide demonstrations including in the oil services hub of Pointe-Noire and in the president’s northern heartland.
Domestic opposition to Sassou Nguesso’s power extension plans is heating up and will threaten to undermine Congo’s political stability over the next year. Crucially, over the past few months key political allies of Sassou Nguesso have publicly announced their opposition to the power extension plans. As a result, on 10 August, Sassou Nguesso dismissed Civil Service Minister Guy Brice Parfait Kolelas and Trade Minister Claudine Munari. Brice Parfait is the leader of the Congolese Movement for Democracy and Integral Development (Mouvement Congolais pour la Démocratie et le Développement Intégral: MCCDI) party and acted as a crucial political ally for Sassou Nguesso’s governing Congolese Party of Labour (Parti Congolais du Travail: PCT). Brice Parfait is popular in the populous Pool region and his support would be crucial to win both a constitutional referendum and the presidential elections.
Munari was an ally to former president Pascal Lissouba, who was overthrown by Sassou Nguesso in the 1997 civil war. Other critics of Sassou Nguesso’s power extension plans include Andre Okombi Salissa (cabinet minister between 1997 and 2012), who enjoys strong popularity in both Plateaux and Bouenza regions. Sassou Nguesso’s nephew, Rene Serge Blanchard Oba, from northern Pool and southern Plateaux regions, has also become critical.
Risk implications: The political rift over Sassou Nguesso’s power extension plans is likely to re-open regional and ethnic divisions in the country. The 1997 civil war was fought entirely along regional lines: the south supported Lissouba, while the north supported Sassou Nguesso. Over the next year, the opposition will stage demonstrations in the Poto-Poto and Makelekele neighbourhoods of the capital Brazzaville. Such protests are likely to turn into riots as security forces use lethal force to suppress the protests, posing greater risk of targeted damage to assets in construction, telecoms, and retail sectors. Unrest is also likely to spread to southern Congo, especially the oil services hub and port city of Pointe-Noire, and the northern regions of Plateaux and Likouala. However, a resumption of civil war is unlikely and key sectors such as oil and gas, mining, and agribusiness are unlikely to be seriously disrupted as these are mostly based offshore or in rural locations.
CONGO, REPUBLIC – 25 August 2015
South Africa’s traditional ‘strike season’ may be running to a close, but a series of increasingly violent and protracted strikes are looming in mining, chemicals, metallurgy, and other sectors.
In August 2015, negotiations between mining unions and gold and coal mining companies deadlocked. The National Union of Mineworkers (NUM) and Association of Mineworkers and Construction Union (AMCU) rejected final wage offers from gold companies Anglo Gold Ashanti, Evander Gold Mines, Harmony, and Sibanye Gold. Village Main Reef and Gold Fields concluded separate agreements with unions in July and April respectively. Strike action by NUM and AMCU now seems unavoidable in the one-month outlook. Strike risks have also increased in the coal mining sector, where NUM also rejected a wage offer in August, threatening potential strike action at Anglo American and Glencore. In 2014, a five-month-long strike cost the world’s three largest platinum producers USD2.25 billion in lost output. It is unlikely that strikes in the gold and coal mining sectors will similarly be extensively protracted, as the government will be more likely to intervene in any disputes.
However, the greatest threat of industrial action is derived from pending restructuring plans in the mining and manufacturing sectors. Platinum producers Lonmin, Impala Platinum and Anglo American Platinum have announced retrenchments following the 2014 strike. In the coal sector, Anglo American, Glencore, and BHP Billiton are also restructuring their operations. Further job cuts are likely at metallurgical firms such as Arcelor Mittal and Scaw Metals Group, as well as chemicals giant Sasol. The companies say the retrenchments are due to low global commodity prices, high operating costs and recurring labour unrest. On 18 August, Solidarity labour union reported that South Africa faces 45,000 job losses in 2015 in mining and chemicals industries, with another 16,500 losses across other sectors.
Risk implications: Mass retrenchments will heighten the risk of ‘wild cat’ (non-court protected) strikes disrupting production at mines and factories, while posing higher risk of targeted damage to core operating assets such as mine shafts and heavy machinery. ‘Wild cat’ actions are also more likely to trigger associated protests in workers’ communities, driving higher risk of disruption and targeted damage to local businesses, such as banks and shops, as well as to nearby infrastructure, including roads, railways, electricity pylons, and telecoms masts. The government will be more likely to intervene by suspending operating licenses at restructuring companies, though licence cancellation is less likely. The South African government will be more likely to intervene, raising risk of contract frustration. On 4 August, the government suspended Glencore-owned Optimum mine’s operating licence (since retored) over 340 planned job cuts, though it is unlikely to cancel licences or expropriate assets.
Meanwhile, formally declared industrial action in the gold and coal sectors will increase the risk of disruption to production and low-level property damage to peripheral assets. Rivalry over recruitment of members by NUM and AMCU will trigger fighting between striking workers.
SOUTH AFRICA – 28 August 2015
- BENIN: TRADE DISPUTE AND POLITICAL TENSIONS DESTABILISE COUNTRY’S EXEMPLARY MODEL
- MOZAMBIQUE: ELECTION MANIPULATION IS UNLIKELY TO TRIGGER RETURN TO CIVIL WAR
- NIGERIA: TRADE RESTRICTIONS DRIVE UP NIGERIAN INFLATION AND BOOST FUEL SMUGGLING
- KENYA: PRESIDENT STEPS UP PRESSURE TO LIFT THE LENDING RATE CAP TO APPEASE THE IMF
- BOTSWANA: POLITICAL TRANSITION WILL DRIVE MUCH-NEEDED ECONOMIC REFORMS