Africa Weekly Review: Balance of payments in Egypt, elections in Angola and a deal in Zimbabwe.
Egypt: Strong external financing flows
The Central Bank of Egypt (CBE) has released its balance of payments data for 2007/08 (July-June). These are preliminary figures, yet it is worth stressing that the release of the data within three months of the period puts many other central banks as well as the old regime at the CBE to shame.
These are good numbers on both the current and capital accounts. The trade deficit widened from US$16.3 billion in 2006/07 to US$23.4 billion. Merchandise imports rose by 38 per cent (to US$52.8 billion), which we consider for the most part a healthy reflection of an economy growing by 7 per cent annually, investing in equipment for industry and rehabilitating the infrastructure.
The current account remained in surplus, albeit reduced to US$0.9 billion from US$2.3 billion, because of a strong performance from services and transfers. Gross services inflows expanded by 33 per cent to US$27.2 billion and are broad-based (see chart below). Of the four identified segments, just one (travel/tourism) is undeniably vulnerable to a downturn in global growth. Private transfers (mostly workers’ remittances) increased by 34 per cent to US$8.4 billion. This reflects both the greater disposable income of the workers (notably in the Gulf) and their greater appetite to repatriate funds. In our House View dated 07 August 2008 ( African property: Magnet for remittances), we highlighted the flow of such funds into the Egyptian real estate market.
The surplus on the capital account soared from US$0.9 billion in 2006/07 to US$7.1 billion. The main reason was a much reduced outflow on banks’ assets (a sharp reduction in their offshore loans) but it is worth noting an increase in gross FDI from US$11.1 billion to US$13.2 billion. The breakdown is reasonably diverse: US$6.4 billion in greenfield sites, US$4.1 billion in the energy sector, US$2.3 billion in asset sales and US$0.4 billion in real estate. The privatisation programme has much further to run. The government is selling Banque de Caire (the second and last of the big four public banks to divest). This and other sales may well be postponed on account of market conditions. The regulator for telecommunications announced on 08 September that the sale of a second fixed-line telephone licence will be deferred until 2009.
Not quite investment grade
The overall change on the balance of payments in 2007/08 was a surplus of US$5.4 billion, permitting a further rise in official foreign-exchange reserves which were close to US$35 billion (net) at the end of August. Other than an outflow of US$2.5 billion on net errors and omissions, this is a healthy set of numbers. The sovereign rating (long term, foreign currency) is one notch below investment grade with all three agencies. One main obstacle to an upgrade is external indebtedness although a continuation of annual growth of at least 6 per cent will rapidly improve the ratio.
Angola: two-thirds majority for the MPLA
The legislative election for the 220-seat assembly was held over two days on 5-6 September. Official results show that the MPLA, which has ruled since independence in 1975, secured about 82 per cent of the vote. UNITA, its adversary in the civil war which ran for close to three decades, won little more than 10 per cent of the ballot. The final distribution of seats per party in the new assembly has not yet been announced but it is clear that the MPLA has crossed the threshold of two thirds (147) of seats to change the constitution. The latest indications are that the MPLA has won at least 170 seats.
UNITA and the other opposition parties initially cried foul, particularly about the conduct of the election in the capital Luanda, but quickly came to accept the result. EU and other international observers identified irregularities (which led to the second day for voting) but overall they endorsed the process. This was important for the government’s image because the elections did not provoke negative publicity or violence. In our Trusted Judgment dated 22 May 2008 ( Angola: Election-proof economic opacity), we anticipated that the Angola elections would resemble those in Gabon (apathy) much more than those in Kenya and Zimbabwe (turmoil and worse). The official turnout was 75 per cent (including spoilt ballot papers representing 8 per cent) although we think that voter apathy was substantially higher.
Just before the election, President Jose Eduardo dos Santos gave strong hints of a new era, arguing that Angola needs a new constitution to strengthen democracy and the rule of law. He also pledged an attack on poor governance. Following its landslide victory at the election, the MPLA can now change the constitution. However, we are not confident that either governance or the rule of law will dramatically improve. While dos Santos may reshuffle the membership of the inner circle (Gabinete de Reconstrucao Nacional), the leadership has little incentive to change its style. He will very likely introduce new faces in the government but its authority is limited.
Opacity to prevail
The power structure is highly centralised, and the inner circle has a say in all the important business deals. There are signs of a peace dividend thanks to the oil price. The 2008 budget allocates 31 per cent of resources to social spending, compared with just 4 per cent as recently as 2005, and 18 per cent to defence. Loans and labour supplied by China have already led to some marked improvements to the infrastructure. These positives do not translate into new opportunities for the foreign investor. The Luanda bourse is yet to open, and potential investors despair of the prevailing opacity of the business climate unless they have a solid base of local contacts. The best non-oil opportunity remains the sale of goods and services into an economy which expanded by 20 per cent in 2007 and should grow by a further 16 per cent this year.
Zimbabwe: a deal without any detail
On September 11 South Africa’s President Thabo Mbeki announced a deal on a unity government between ZANU-PF and the MDC in Harare. The details are to be released on September 15.
Our brief comment concerns the delay over the details. One explanation could be that some peripheral details still have to be settled. Another is that Mbeki wants to test the response to the deal among likely participants in the international rescue package. We have noted several times that these parties (the IMF, the World Bank, the EU and some bilaterals such as the US and the UK in our view) are wary of President Robert Mugabe. If the deal leaves Mugabe and his inner circle with many levers of power in their hands, the package will not be released. The deal will then have minimal value. Two areas of particular concern to the international financial community are likely to be the Reserve Bank and control of the budget process.
Recent research reports:
Sudan: Potential rewards for the patient investor
Ultimate recovery hinges on several complicated political variables
African property: Magnet for remittances
Real estate attracts diaspora and regional institutional investor interest as a play on economic recovery
South African mining: Opportunities in a changing regulatory environment
Government negotiations are not one-sided
With best regards,
Gregory Kronsten
Director, Africa Research
Trusted Sources
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+44 203 008 6093
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