Africa Winners & Losers: Nigeria Penalized for Naira Inaction as Angola Accepts New Reality 4

Nigeria’s inaction in the face of the global economic challenge of lower oil prices contrasts with a more proactive policy in Angola. Gavin Serkin interviews Exotix Partners’ head of research, Stuart Culverhouse, on his outlook in Africa.


I think that’s the issue really for a lot of people looking at Nigeria, and this is both fixed-income guys, such as myself, or equity guys.

There’s really not been any policy response from Nigeria, and if you look around the world at a number of other countries, emerging market or frontier, of different income-per-capitas, different oil dependence, there’s only a small number – of which Nigeria is one – that aren’t really doing anything.

That is a concern to a lot of people, particularly equity guys, with regard to entry points. Most people think there’s a devaluation around the corner, because it’s going to be increasingly difficult now to retain the naira rate at 200 and the black market rate at something like 300.

There are these pressures building and liquidity shortages, and I think investors are concerned about that.

The bonds have risen to about an 8% yield, and that’s relatively low given the context.

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There are some positives in terms of the investment case. The debt servicing is still pretty light. It’s a very big country without that much debt, actually, so the capacity to pay should be there, but investors are really worried that this government hasn’t really got a grip on what it should be doing, and decisions seem to be delayed.

Investors – in this more discriminating environment, where I think you’re penalize people that aren’t doing something and then rewarding those that are – Nigeria is falling in the former category.

If they can adjust the currency, that will be a starting point, as their debt levels are fairly low, so they can probably borrow to finance some spending, and then we might see, I think, a normalization of attitudes towards Nigeria.


Fishermen and colorful boats on beach near Accra in Ghana in West Africa

On Ghana, we’ve been cautious for some time. They had a great degree of economic and fiscal discipline over 2012 through to 2014, and then finally went to the IMF and got a bailout, as we expected that they would.

Actually, performance under that program over the last year has been very positive – probably the best economic performance that they’ve had for the last five years.

However, it’s also come at a time when the international environment is much worse, and therefore they’ve probably not really got the benefit of it, which is surprising.

Yields there are still 14%, so it’s quite incredible, and these are on dollar international bonds. I think performance has been positive and the outlook looks better than it did, but I think investors are still relatively cautious.

It’s a commodity-producing country, but it’s more diversified than some and not so dependent on oil, but we need to see more of a fiscal effort, and I think investors are still a bit cautious.


NAIROBI, KENYA - OCTOBER 20, 2014 : Courtyard surrounding the Jomo Kenyatta statue in front of the Kenyatta International Conference Centre in the central business district of Nairobi

It’s a country that is quite well economically diversified. It’s not really a commodity exporter as such.

In terms of key commodities, importing oil, it should be benefiting from this current environment. And, to a certain extent, certainly over last year, it didn’t.

We had negative headlines in terms of security, in terms of the currency weakness, and a number of other things. But that, I think, has improved over the last few months.

We’re not seeing so much negativity. The currency’s quite stable. Growth is still expected to be about 5-6%, and it’s a beneficiary of the low oil price environment.

So, as a diversified play, Kenya is an interesting place to look.


Yes, it’s an oil dependent country, probably as oil dependent as a country like Iraq.

Yet I like the country because we are actually seeing – contrast this to Nigeria or Iraq – we are actually seeing a policy response. Their currency has devalued something like 30% over the last 15 months or so.

We’re seeing a bit of a fiscal adjustment. They might need to do more, but we are beginning to see that, and I think that is a good acceptance of the reality now, and adjusting to lower oil prices will hopefully put the country on a better footing.

The above is an edited excerpt from Gavin Serkin’s interview with Stuart Culverhouse on the Emerging Opportunities show on Share Radio. Listen to the full podcast here.

Read Stuart’s outlook for Latin America here.

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