Market Atlas Review: Egypt, DRC, Burundi, Senegal and Lesotho — Oil, Currency Controls and Possible Coups
Egypt: Tightening of currency controls further dampens investment climate
The primary index on the Egyptian stock exchange, the EGX30 has declines by over 15 percent year-to-date. The bulk of this decline had been recorded since June 29 when the Egyptian government eliminated the practice that allowed investors to buy equities in local currency and sell abroad in foreign currency. The Egyptian government also limited dollar deposits into local accounts to $50,000 a month.
Egypt has taken these recent steps to attempt to reverse shortages in foreign exchange it experienced since the Arab spring led to major capital outflows from the country. Continued uncertainty around needed policy reforms, and rising risks of insecurity highlighted by the assassination of the country’s prosecutor general and recent terror attacks in the Sinai, are causing investors to lose the little confidence they have in the government’s ability to reform the economy.
Egypt seems to be working Nigeria’s first and second quarter playbook as Nigeria faced currency pressures from to investment outflows and a decline in confidence in the Nigerian government’s ability to manage its dollar currency peg in an environment of falling oil prices.
We believe that the Egyptian economy will continue to face negative headwinds until it is able to make meaningful structural reforms. Capital controls only serve to exacerbate the problems the country faces by scaring off investors. Rather than enacting rules to limit free markets, Egypt needs to address its rising inflation and current account deficit by taking steps that may be politically challenging but economically prudent.
Democratic Republic of Congo: Kabila taking steps to maintain control of the DRC as 2016 elections approach
The government of President Joseph Kabila recently submitted a list of 50 people to the prosecutor general for investigation. The list includes four provincial governors and a who’s who of influential politicians that pose the greatest threat to the president’s hold on power.
It is unclear whether President Kabila is taking steps to maintain a hold on power or firing warning shots to his biggest threats to stand back as he paves the way for a hand-picked presidential successor. Kabila already has a guaranteed position as a Senator for life but may not want to risk diminishing his power by peacefully ceding the presidency.
The DRC has one of the most volatile post-independence histories in Africa, it’s a country that has been market by violence and excessive corruption supported by various foreign interests.
A relatively peaceful election process in 2016 would be a massive boost for democracy and political stability. This step taken by President Joseph Kabila to at best intimidate his opposition makes the hope of a peaceful transition a fleeting dream. The DRC is more likely to go the way of Burundi than follow the example of Nigeria.
Burundi: Tensions remain high as Presidential elections now set for July 21
The political opposition in Burundi have not be placated by the postponement of the presidential election to July 21. The Burundi leadership stopped short of meeting the demands of the Presidents of the East African Community to move the elections to July 30 citing constitutional limitations. The opposition maintain their demands for President Nkurunziza to abandon his bid for a third-term in office.
The election process is moving ahead under the backdrop of tensions and skirmishes that could escalate into a regional conflict. Rwandan military forces are rumored to be increasingly involved in the conflict and Rwandan rebel groups operating in the DRC could easily join the fray.
The Burundi situation needs to be watch closely to see how things continue to evolve. Escalating divisions within the country could easily spill across borders and lead to a much bigger regional conflict.
Senegal: Significant oil discovery could be the much needed spark to accelerate economic growth
Carin Energy and a consortium of partners confirmed the production potential an off shore oil discovery they made last year. They consortium recently concluded further studies of the discovery that prove this could be the largest offshore oil discovery of 2014.
The discovery is significant for Senegal, a country that has managed a 3.25 percent annual GDP growth over last 6 years while Sub-Saharan Africa has experienced an average growth rate over 5 percent over the same period. The find could encourage further investment into the oil sector in Senegal if oil prices remain stable or begin to firm up.
It also is a positive development in light of the Plan Sénégal Emergent that Senegal has been promoting over the last year that would transform Senegal into a regional hub and target sustained GDP growth rates of 7 percent per annum starting in 2019.
Lesotho: SADC makes another effort to find a political solution to a country on the brink of conflict
South Africa deployed Deputy President Cyril Ramaphosa to Lesotho on July 3 to help broker a solution to a long standing tensions between Lesotho Defense Force (LDF) and its political opponents.
Actions of the LDF show a military that operates with impunity and is looking for the slightest reason to take over control of the country after an attempted coup in February led to snap elections that were indecisive. On June 25 former army commander Lieutenant-General Maaparankoe Mahao was shot and killed in his village home by LDF forces. There have also been stories of abductions and killings of individuals deemed to be political enemies of the LDF and its political allies.
SADC is reluctant to intervene militarily in order not to tip a delicate situation into certain conflict. The current state of affairs makes a repeat of the 1998 invasion of Lesotho by South Africa more likely than not.