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Macro Thoughts

Home Thoughts

The Nairobi National Park is a delight. On a Sunday Morning, we left
home at 625 and we were inside the Park at 705. I was with Hannah and
as we entered we saw a whole bunch of vehicles and we asked

''What is it?''

''A Lion''

We looked and we looked and we saw nothing and I turned to Hannah and
said Lets get going because having read all sorts of books [mostly old
ones] it was the Athi River Basin which was where all the Game was. We
saw just about everything, two muscular male lions miles apart, a
Rhino, Buffalo, a serval cat, Vultures all over down by the River.

This is a book that covers Kenya, Tanzania and Zambia. Incredible
covering a landscape i know so well.

Last week, I attended a working dinner hosted by Control Risks who
were hosting such events all over the World after releasing their
RiskMap 2017. As Charles Hecker outlined the top five risks (No.1 was
President Trump and his snake-oil of Populism and Anti-Globalisation),
I could not help feeling that Geopolitics was now front and centre and
that economics could no longer be seen in isolation. Essentially, the
(Geo)politics is set to whipsaw economies further and you do not have
to look far to spot those economies that were sitting at the
''bleeding edge'' of this New Normal. Mexico and its Peso is the
perfect example of an economy that has to wrestle with this new
Normal. Charles Hecker said governments ''are like oil tankers, they
are not speedboats''

Stasis Kalyvas said this on Twitter ''Lessons I learned from Greece
#1: abysmal incompetence of populist government leads many to mistaken
belief it will be over quickly'' This is another important point where
votes (populism) have set a path and as we journey on this path we are
set to lose sight of optimal policy making.

Control Risks cited Trump as its No.1 Risk and watching what was a
bizarre news conference last week, I am sure few would disagree.

"I turn on TV, open the newspapers and I see stories of chaos – chaos
– yet it is the exact opposite. This administration is running like a
fine-tuned machine."

"The leaks are absolutely real. The news is fake because so much of
the news is fake."

"I'm not ranting and raving. I'm just telling you you're dishonest people."

The London review of books said ''He sees the presidency primarily as
a way to expand the Trump brand (and make a little money on the side)
and he is in way over his head.''

''An iconic moment of the first weeks was Trump’s dinner for the
Japanese prime minister, Shinzo Abe, not at the White House, as is
customary, but at his Palm Beach club, Mar-a-Lago (where the annual
membership fee has just doubled to $200,000). Interrupted by news of a
North Korean missile launch, Trump chose to display his presidential
power to the wowed and tweeting club regulars by holding an emergency
security meeting at the restaurant table. Aides used their cell phones
as flashlights to read classified documents while waiters served
entrees over the papers. One member even posted a selfie (‘Wow!’)
with, he wrote, ‘Rick’, the guy who follows the president with the
‘football’ – the briefcase carrying the nuclear codes. Luckily, the
missile landed harmlessly in the ocean before dessert. It would have
been unfortunate to lose Alaska with the baked Alaska.'' (London
Review of Books).

However, late in the week AP reported that the Trump administration
was considering mobilising as many as 100,000 National Guard troops to
round up unauthorised immigrants. And there you have another
''bleeding Edge'' Such a move (and remember Trump never backs down, he
is an escalator) would reverberate all over the World given how much
the World is dependent on remittances sent from the US.

Then we learnt of the extraordinary story of an Indonesian woman
arrested on suspicion of the murder of North Korea dictator Kim
Jong-Un’s half-brother, Kim Jong-nam, in Malaysia who was told she was
talking part in a comedy TV show prank, Indonesia’s police chief has
claimed. Tito Karnavian said Siti Aisyah, 25, was paid to take part in
a series of pranks that involved convincing men to close their eyes
and then spraying them with water. She was reportedly told this was
part of filming for a comedy TV show called “Just for Laughs”.

"Such an action was done three or four times and they were given a few
dollars for it, and with the last target, Kim Jong Nam, allegedly
there were dangerous materials in the sprayer," Mr Karnavian said.

I also watched President Zuma's annual address to parliament which
notwithstanding its off-the-charts militarisation with heavy duty
security around parliament, including hundreds of armed soldiers,
descended into chaos.

Julius Malema, the EFF leader, called Mr Zuma “an incorrigible man,
rotten to the core”, before his eviction.

The Rand has been on a tear in 2017 and has rallied about +5.5% as
investors factored in a tapering of the Zuma ''carte blanche'' Now the
question is will President Zuma go quietly or are things about to get
messy with rumours swirling that he is going to try and prise Pravin
Gordhan out of his seat at the Treasury. The South African Rand needs
close watching and again we see this political and economic
intersection in play.

Charles of Control Risks made the point that ''China will weaponise
it's regulatory framework to disadvantage international firms'' and
you have to admit that so far only President Xi has managed to effect
a take-down of president Trump (One China refers).

The week however ended on a high with the Inauguration of President
Adama Barrow in the Gambia. Over there in West Africa, we have seen a
big democratic surge and it just might infect the rest of the
continent.

It’s with a whiff of desperation that President Trump insists these
days that he’s the chief executive Washington needs, the decisive
dealmaker who, as he said during the campaign, “alone can fix it.”
What America has seen so far is an inept White House led by a
celebrity apprentice.

This president did not inherit “a mess” from Barack Obama, as he likes
to say, but a nation recovered from recession and with strong
alliances abroad. Mr. Trump is well on his way to creating a mess of
his own, weakening national security and even risking the delivery of
basic government services. Most of the top thousand jobs in the
administration remain vacant. Career public servants are clashing with
inexperienced “beachhead” teams appointed by the White House to run
federal agencies until permanent staff members arrive.

Mr. Trump lost his national security adviser this week in a scandal
involving ties to Russian intelligence. Robert Harward, a retired vice
admiral, refused the job on Thursday, rattled by a dysfunctional
National Security Council and a president who has alienated Mexico,
Australia and even the British royal family, while cozying up to
Moscow.

When Mr. Trump’s assistants can keep the edge of panic out of their
voices, they insist that Mr. Trump has gotten more done in the early
going than most presidents. And Mr. Trump is so adept at creating
smoke that Americans might be forgiven for thinking that’s true. But
at this point in the Obama presidency, which did inherit a mess,
Congress had passed laws aimed at dragging the economy back from the
brink of depression while committing $800 billion in Recovery Act
spending to projects ranging from housing to roads to advanced energy
technologies.

Mr. Trump’s vaunted $1 trillion infrastructure spending program, by
contrast, doesn’t yet exist, because the president confuses executive
orders with achievements. Orders are dashed off without input from
Congress and the government officials who would implement them. The
White House is a toxic mix of ideology, inexperience and rivalries;
insiders say tantrums are nearly as common as the spelling errors in
the press office’s news releases. Steve Bannon writes the president’s
script, and Reince Priebus, the embattled chief of staff, crashes
meetings to which he has not been invited.

Mr. Trump complains about the slow pace of congressional confirmation
of his appointees, but the obstacle is at his end. His staff doesn’t
bother to vet nominees in advance. His pick for labor secretary failed
in part because no one in authority seemed to know that the nominee
had employed an undocumented immigrant and had been accused of abusing
his ex-wife.

“Everything he rolls out is done so badly,” Douglas Brinkley, a
presidential historian, marveled recently. “They’re just releasing
comments, tweets and policies willy-nilly.”

The falsehoods that Trump tells are of a scale and recklessness that,
even if they seem to be of minimal harm for the moment, are still
inherently sinister, not merely silly. The falsehood that Trump tells
about the three million fake voters in the Presidential election is
typical. No sane person—not merely no other politician but no one you
have ever known—would make a claim of that kind: so obviously crazy
and inarguably false, implying an impossible set of human
circumstances. Their effect is not merely to comfort his ego but
permanently to discomfit our democracy. This is not “I am not a
crook”; it is not a claim that there are weapons of mass destruction;
it is not “I did not have sexual relations with that woman.” These are
all ways of parsing reality, or normal fibs told by normal people.
Trump’s falsehoods are deliberate attempts to warp the entire field of
veracity, so as to defy the simplest parameters of sanity.

“Who told Mike to go do this? I think somebody said, ‘Mike, you’ve got
some contacts. Let them know it’s gonna be all right.’ Mike’s a
soldier. He did not go rogue.” ♦

Indonesian Siti Aisyah, 25, duped and ‘not aware it was assassination
attempt by alleged foreign agents’, says head of police

Euro 1.0615
Dollar Index 100.90
Japan Yen 113.08
Swiss Franc 1.0033
Pound 1.2414
Aussie 0.7671
India Rupee 67.015
South Korea Won 1147.29
Brazil Real 3.1048
Egypt Pound 15.79
South Africa Rand 13.0690

Rigs targeting oil in the U.S. rose by 6 to 597: Baker Hughes
Drillers have added 281 rigs since May 2016, 72 this year

Emerging Markets

Frontier Markets

Relentless attacks on the President's character are weakening the
economy and undermining his influence on the succession

With ten more months as leader of the African National Congress (ANC),
President Jacob Zuma tried to shore up his government with a flurry of
populist policies – long on rhetoric and short on detail – at the
opening of Parliament on 9 February. Together with the pomp and
splendour, as members of parliament and their spouses sauntered along
the red carpet to the parliamentary buildings, these were signs of the
country's deep political malaise.

Military helicopters circled overhead. Over 6,000 armed police,
equipped with anti-riot gear, and half a battalion of soldiers stood
in conspicuous guard over the proceedings. State officials spoke about
threats to law and order, some mentioned terrorism. To opposition
politicians, this was intimidation, the militarisation of Parliament.

To others it conjured up the Republic of Ruritania. In the days before
the opening, military bands marched up and down the streets around
Parliament. On the day itself, the 21-gun salute was mistimed; the
first fusillade went off before Zuma had mounted the podium outside
Parliament.

This unprecedented show of force failed to prevent fist-fights in the
chamber or more serious clashes between rival supporters on the
streets. Journalists found themselves corralled in a media pen.

As Zuma entered the chamber to deliver his State of the Nation
address, MPs from the militant Economic Freedom Fighters (EFF),
dressed in red boiler suits and miners' helmets, yelled out 'Tsotsi!'
(thief). They had wanted a debate on the failure of Parliament to hold
Zuma to account over the use of state funds on his Nkandla homestead
(AC Vol 57 No 21, Stalwarts push for Zuma's exit).

For over an hour Zuma, 74, tried to deliver his speech against the
opposition barracking. Millions of South Africans watched the
spectacle on television: angry young militants shouting down and
abusing a much diminished leader. The audience for televised sessions
of Parliament has shot from a few thousand to several millions, thanks
to the EFF's direct-action strategy.

Railing against Zuma works for the opposition. Both the leftist EFF
and the centre-right Democratic Alliance (DA) boosted their votes in
local elections last August: opposition parties now run four of the
country's biggest cities. The governing ANC's share of the vote
plummeted by 7.7% from the last national vote in 2014 to 54.5% in last
year's polls.

EFF leader Julius Malema told Zuma he was 'rotten to the core' and
should resign immediately. Then Speaker Baleka Mbete called in the
parliamentary security team, known as the 'White Shirts', to eject
Malema and his fellow militants, amid cheers from the ANC benches.
Fist-fights broke out, the ruckus escalated. Some White Shirts used
pepper spray to subdue the rebels; it wafted upwards and many left the
public gallery sneezing. More White Shirts stormed in, to ensure that
the entire EFF caucus was thrown out. Malema was jubilant outside,
telling journalists that his party had again denied Zuma legitimacy in
Parliament.

DA leader Mmusi Maimane took his MPs out of the chamber, heaping more
blame on Zuma and the ANC. That left the opposition benches empty,
apart from a smattering of MPs from the African Christian Democratic
Party, Inkatha and the Freedom Front. As the tumult subsided, a shaken
Zuma surveyed the wreckage and launched into an hour-long set-piece
speech which failed on two counts. It had little to inspire the ANC
base but its rhetorical claims about breaking up monopolies and
speeding up land distribution did nothing to reassure investors
already unsettled by the day's political shenanigans.

Even Zuma's fellow ANC MPs grew visibly bored after about ten minutes
and applause gradually became more desultory. His theme – radical
economic transformation – or the lack of it, is at the centre of the
country's politics. Zuma faced the dilemma of every long-term
incumbent party which starts to promise sweeping changes: Why didn't
they do it before?

Yet the biggest question for the ANC is how these unending critiques
and attacks on Zuma will affect the 4,500 delegates due to vote in the
party leadership elections, due in December. The next leader of the
party will determine its policy direction, the chances of serious
reform and perhaps the results of the 2019 general elections.

Parallel to the policy arguments and caucus meetings in Cape Town last
week, the two front-runners jostling to succeed Zuma as party
President, national Deputy President Ramaphosa and the former
Chairperson of the African Union Commission, Nkosazana Dlamini-Zuma,
have started their own not-so-discreet lobbying.

Both have been attending party branch meetings to listen to local
concerns and to influence voting delegates. President Zuma has made it
clear several times that he favours his ex-wife Dlamini-Zuma. That
gives her much of the power of an incumbent and certainly the strength
of his lobbying network: the many members of the ANC's National
Executive Committee for whom he has done personal favours.

On top of that, Dlamini-Zuma would have the bulk of delegates from
KwaZulu-Natal, the province with the biggest number of ANC branches,
together with the ANC's Women's League. She and the President are also
strongly courting the Premier League provinces, North West, Mpumalanga
and Free State. Yet support there is no longer assured, we hear, with
some of the top politicians, such as Free State Premier Ace Magashule,
being advised to keep his options open.

Moreover, Dlamini-Zuma made a disastrous trip to Eastern Cape last
week to solicit the support of the Xhosa King, Mpendulo Zwelonke
Sigcawu. That fell flat, ostensibly because the traditionally-minded
King questioned the suitability of a woman as President. Insiders say
that Eastern Cape has already decided to back Ramaphosa, thanks to
some highly effective lobbying by ANC Secretary General Gwede Mantashe
in his home province.

Elsewhere, it seems, Ramaphosa has also been closing the gap. He
already has Eastern Cape, a big membership province, and he is
lobbying hard to get full support from Gauteng, the richest province
in the country, though opinion is still divided, insiders say.
Although Cosatu has come out for Ramaphosa, some of its senior
officials remain close to Zuma and that could affect voting.

Three of the smaller provinces seem to be lining up behind Ramaphosa:
Northern Cape, Western Cape and Limpopo. On good form at a meeting of
the Progressive Professional Forum, essentially a group of
ANC-supporters in business, Ramaphosa cantered through a field of new
economic policies, fluently and confidently.

That's something that neither Dlamini-Zuma nor her ex-husband are
adept at but for now, the head count is in their favour. Yet with a
few more bad weeks for Zuma like the one just passed, the numbers
could change quickly. That would open up the contest for Ramaphosa or
perhaps a third candidate, such as ANC Treasurer Zweli Mkhize, who's
waiting quietly in the wings.

On 22 February, Finance Minister Pravin Gordhan is to read his budget
to Parliament, which will have to fund the biggest revenue shortfall
for over a decade. It follows five years of lacklustre and falling
prices for South Africa's main exports. Yet Gordhan's budget test will
be more political than economic: his survival in the job. For the past
year, he has been locked in battle with President Jacob Zuma over
sundry investigations into the well-connected Gupta family's influence
on state spending decisions and presidential plans for multi-billion
dollar nuclear power contracts to be awarded to Russian state
companies (AC Vol 58 No 1, Power struggle goes nuclear).

A veteran of the liberation struggle, Gordhan has resisted, with the
support of several senior government members, including Deputy
President Cyril Ramaphosa, Secretary General of the African National
Congress Gwede Mantashe and ANC Treasurer General Zweli Mkhize.

Yet it is constitutionally possible for President Zuma to sack Gordhan
or reshuffle him to a lowlier role without seeking permission from his
colleagues. Zuma has at least three options. One is a straight
dismissal of Gordhan and his replacement just after the budget by a
technically qualified figure but one thought more pliable, such as
former Reserve Bank Governor Tito Mboweni or Planning, Monitoring and
Evaluation Minister Jeff Radebe. Or Zuma could appoint a close ally,
such as the former head of the state power company Eskom, Brian
Molefe, as a deputy and understudy to Gordhan in order to rein in his
initiatives. Failing that, Zuma could wait until June, when Nkosazana
Dlamini-Zuma, having finished her role in the leadership transition at
the Africa Union Commission, would be available for assignment in
South Africa – and be given the Finance portfolio. This would give
Dlamini-Zuma a high-profile job before she contests for the ANC
leadership in December, with Zuma's full support.

Meanwhile, Gordhan will continue to challenge Zuma over excessive
government spending while working with businesses and banks to prevent
the country's investment rating being downgraded to 'junk' status.
Nomura Bank's Peter Attard Montalto said that an estimated US$3-5
billion in portfolio investment would flow out after a downgrade
because of the regulatory provisions governing institutional investors
(AC Vol 56 No 25, EFF's economic roadshow). Others suggest the outflow
could be four to five times that amount. The effects would quickly hit
the cost of credit for the middle class and job creation for the
working class.

Some 6,000 international investors meeting in Cape Town for the Mining
Indaba on 6-9 February underlined the importance of South Africa's
mining industry but were looking increasingly northwards for better
returns and more predictability in countries such as Ethiopia, Ghana,
Kenya, Namibia, Nigeria and Rwanda.

At a fringe event, former President Thabo Mbeki, present throughout
the Mining Indaba, expressed surprise that Mining Minister Mosebenzi
Zwane had attended only the first day of the meeting while his deputy
left the following day without resolving questions over the
government's new mining charter. Mbeki said the degeneration of
governance was worse than many realised, exacerbated by corruption and
patronage. 'It is time to speak out and make your voice heard. It is
not a time to be afraid,' he said. Mining investors have been holding
back on new ventures for several years, citing policy uncertainty,
labour unrest and bureaucratic bottle-necks.

In the past five years, South African companies have invested $250 bn.
abroad. Several wealthy individuals hold more than half of their
assets overseas, Africa Confidential hears. In the past year, $180
million of portfolio investment has gone abroad as perceptions of
political risk rise.

On The Listening Post this week: South Africa's media and Jacob Zuma's
State of the Nation address. Plus, we sit down with Katherine Maher,
executive director of the Wikimedia Foundation.

When South Africa's President Jacob Zuma delivered his annual State of
The Nation address to parliament on February 9, the force of his
political argument was backed by a show of force.

Thousands of police officers and hundreds of soldiers were deployed at
the Houses of Parliament in Cape Town to help "maintain law and
order".

One of the country's main opposition groups, The Economic Freedom
Fighters, hijacked the event to heckle and harangue the president live
on television.

Zuma's annual speech, along with the accompanying opposition
theatrics, is one of the few times the president is depicted in a
less-than-flattering light on the state-owned TV network, the SABC.

“If God decides to take him, then we would rather field him as a
corpse,” she told thousands of supporters at a rally in Buhera,
eastern Zimbabwe. She spoke in the local Shona language.

The president, who will be 93 on Tuesday, has scaled back his public
engagements, while his wife, who is 51, has become increasingly
visible in politics.

On Friday, the naira hit a new low of 516 to the dollar on the
unofficial market.

Ghana Stock Exchange Composite Index Bloomberg +7.13% 2017
http://www.bloomberg.com/quote/GGSECI:IND

The International Monetary Fund is backing Somalia’s plans to replace
tattered currency notes that were printed before the Horn of Africa
nation plunged into civil war almost three decades ago.

The new Somali shilling notes may come into circulation this year,
alongside the dollar that’s been the main means of payment, and will
replace fake or old currency in circulation, said Samba Thiam, the
IMF’s country head.

“About 98 percent of the currency circulating in the country is fake,”
Thiam said in an interview Friday in Nairobi, the capital of
neighboring Kenya. “The remaining 2 percent is currency printed during
1990-91, still circulating, but in very bad shape.”

While Somalia qualifies for debt cancellation, it would have to clear
arrears that are part of $5.3 billion owed to international creditors
such as the IMF, World Bank and African Development Bank to secure
fresh funding, Thiam said. Writing off Somalia’s loans depends on
progress toward curbing corruption, introducing a new currency and an
effective monetary policy in the $6 billion economy.

“There are hurdles,” Thiam said. “But there is a general willingness
from creditors to write off Somalia’s debt when the time comes, it’s a
good prospect. They will not be asked to repay the debt tomorrow, so
they have time to work on consolidating their economic base. The debt
is an issue that will be resolved some time.”

Economic growth may slow to 2.5 percent in 2017 from 3.7 percent last
year, the IMF estimates. Agriculture accounts for 40 percent of
national output in the country whose main export is camels to Gulf
Arab countries.

The IMF is also assisting the central bank with regulation and
supervision of the financial sector to open it to new investors, Thiam
said. KCB Group Ltd and Commercial Bank of Africa Ltd, neighboring
Kenya’s first and sixth-largest banks by assets, are among lenders
that have applied to set up shop. Somalia has six banks and 12
money-transfer businesses.

Improving governance may enable the nation to exploit potentially
“quite large” oil and gas reserves, Thiam said. The government has
said production could begin as early as 2020 after exploration by
companies such as Royal Dutch Shell Plc, Exxon Mobil Corp. and BP Plc
showed probable offshore hydrocarbon deposits. The state has held
talks with those companies about reactivating dormant contracts.

Nairobi All Share Bloomberg -6.31% 2017
http://www.BLOOMBERG.COM/quote/NSEASI:IND

Nairobi ^NSE20 Bloomberg -7.45% 2017
http://j.mp/ajuMHJ

2,948.75 -22.75 -0.77%

Every Listed Share can be interrogated here
http://www.rich.co.ke/rcdata/nsestocks.php

Par Value:                  5/-
Closing Price:           30.25
Total Shares Issued:          75708872.00
Market Capitalization:        2,290,193,378
EPS:             4.32
PE:                 7.002

The Nairobi All Share ticked -0.27 points lower to close at 124.66.
The All Share is +2.80% in February but -6.5% through 2017
The Nairobi NSE20 Index eased -3.42 points to close at 2945.33 The
NSE20 is +5.416% in February but -7.5% in 2017
Notwithstanding it being an election year, I believe we saw the low
for the year in January.
Equity Turnover was lackadaisical with 477.881m traded.
The Shilling was last at 103.555.

Sasini Tea and coffee rebounded +6.43% to close at 19.85 and is one of
the few shares which is in positive territory this year at +3.38%.

Safaricom was the most actively traded share at the Exchange today and
eased back -0.28% to close at 18.00 a 4 week low with 9.694m shares
worth 174.296m. Safaricom bounced hard from these levels a month ago
is I expect a rebound imminently. The News around KBA's  ‘Real-Time
Interbank Switch which KBA says “will create an interbank mechanism to
enable interoperability across KBA members for all retail payment
streams”, introduced some sell-side pressure but I expect this to ebb
now. The Switch is a bank to bank P2P transfer mechanism that aims to
try and capture some portion of the domestic remittances market
estimated at KES 2.3 Billion that the banking industry had ceded to
the Mobile Money operators. Safaricom is -5.511% in 2017.

Kenya Airways surged +8.08% to close at a 1 month high of 5.35 and
traded 165,300 shares.

It is widely expected that the Full Year Earnings season will kick off
as early as this week. The Banking component of the NSE has buckled
since the Interest rate Act and a second sell-off ensued this year. In
some cases shares look egregiously oversold.
KCB eased -2.0408% to close at 24.00 which is a 2 week Low. KCB traded
1.719m shares worth 41.607m. KCB is -16.52% in 2017, trades on a
Trailing P/E of 3.94 and is one of those shares that are completely
oversold. A solid set of FY Earnings coupled with a better than
forecast FY Dividend will be the catalyst for a meaningful bounce from
here.
I&M which announced the closing of its Giro Bank takeover [cash and
shares] last week retreated -3.77% to close at 76.50. I&M is -15.00%
in 2017.
StanChart upticked +1.05% and closed at 191.00 with 20,600 shares
changing hands. StanChart is the only bank share that is in positive
territory in 2017 as it was in 2016. That Outperformance is set to
continue.

Unga Group’s bakery subsidiary Ennsvalley has moved to cut costs by
shutting more than five of its in-store bakeries in favour of supplies
from its central commercial kitchen in Nairobi [Business Daily] Unga
traded 300 shares at 31.50 +4.13%. Unga is -8.69% in 2017.

EABL up-ticked +0.89% to close at 226.00 and traded 140,800 shares.

ARM Cement slid -3.75% to close at 19.25 and traded 1.7m shares. ARM
is seeing sharpened volume action at these levels of -24.50% in 2017.