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Macro Thoughts

The Federal Reserve chairman declared US interest rates are closing in
on “neutral” levels, handing equity markets their best day since March
as investors interpreted the comments as a signal the central bank is
preparing to slow down its rate-rising programme.
While he defended the Fed’s recent gradual rate hikes, Jay Powell said
the central bank will be watching new economic data very closely as
monetary policymakers decide what to do next.
Rates are hovering “just below” estimates of neutral — the level that
neither causes growth to accelerate nor to slow down — the Fed chair
said, in a possible sign that policymakers may decide they do not need
to lift them much further.
“There is no preset policy path,” Mr Powell said. “We will be paying
very close attention to what incoming economic and financial data are
telling us.”
The comments at the Economic Club of New York on Wednesday came as he
faced intensifying pressure from the White House to hold back from
further rate rises. President Donald Trump this week told The
Washington Post the Fed, which next month is expected to lift rates
for a fourth time this year, “is way off base with what they’re
doing”.
My FOMC colleagues and I, as well as many private-sector economists,
are forecasting continued solid growth, low unemployment, and
inflation near 2%
Mr Trump added: “So far, I’m not even a little bit happy with my
selection of Jay.”
The markets reacted sharply to Mr Powell’s comments, which contrasted
with an assessment he gave last month. In early October, he said rates
were a “long way” from neutral levels, triggering a sell-off as
investors fretted the Fed was preparing for a long succession of rate
increases.
The S&P 500 closed up 2.3 per cent on Wednesday, its best day in eight
months, having jumped a full percentage point after Mr Powell’s
speech. The Dow Jones Industrial Average extended its gains to end 2.5
per cent higher and the Nasdaq Composite was up 2.9 per cent.
There was also a pronounced weakening of the US dollar after the
speech, while government bonds gyrated. By late afternoon in New York,
the yield on the benchmark 10-year US Treasury was flat at 3.059 per
cent, but the yield on the more policy-sensitive two-year note was
down 2 basis points at 2.813 per cent.
In his speech, Mr Powell did not directly refer to Mr Trump’s
criticisms. But he insisted the Fed had been right to embark on
gradual rate rises after judging the economy was no longer being
well-served by the extraordinarily low rates that prevailed after the
2008 financial crisis.
“Interest rates are still low by historical standards, and they remain
just below the broad range of estimates of the level that would be
neutral for the economy — that is, neither speeding up nor slowing
down growth,” Mr Powell said. “My FOMC colleagues and I, as well as
many private-sector economists, are forecasting continued solid
growth, low unemployment, and inflation near 2 per cent.”
The Fed’s gradual pace of rate rises was an exercise in balancing two
risks, Mr Powell added.
“Moving too fast would risk shortening the expansion,” he said. “We
also know that moving too slowly — keeping interest rates too low for
too long — could risk other distortions in the form of higher
inflation or destabilising financial imbalances.”
The speech came after the release of the Fed’s new Financial Stability
Report. He said overall indebtedness in the financial system was not
“abnormal or excessive”. Even though some asset valuations were high,
the Fed did not see “dangerous excesses” in the stock market.
The Fed chairman also offered a sanguine view of financial market
risks, saying that while policymakers were keeping an eye on areas
including rising corporate indebtedness, the overall system was
resilient. The Fed’s latest financial health checks suggested that
“all things considered you are in good health,” Mr Powell said.
The principal area for worry was corporate lending, where firms with
high debts and interest burdens have been boosting their borrowing the
most, and measures of loan underwriting quality have been
deteriorating.
That’s as close to an about-face and double-time walk-back as the US
central bank has ever undertaken absent a major financial crisis.

Home Thoughts

Three months ago, Chinese officials saw the meeting between Xi Jinping
and Donald Trump at the G20 as their best hope for a settlement that
would end Beijing’s trade war with Washington. Then they hoped for a
truce. Now they will consider themselves lucky if this week’s
encounter passes without any embarrassment for Mr Xi, as they brace
themselves for a new round of US tariffs early next year.
As the leaders of the world’s two largest economies prepare to meet
for the first time in more than a year — on the sidelines of Friday’s
G20 summit in Buenos Aires — the gulf between the two sides remains
large.
According to people briefed on the talks, Beijing’s position has not
fundamentally changed since May, when Mr Trump contradicted an
assertion by China’s lead negotiator that the two sides had agreed not
to proceed with tariffs.
At the time vice-premier Liu He indicated that the Chinese government
was willing to buy more US agricultural commodities and continue to
lift foreign investment caps in selected industries.
But Mr Liu, who is also Mr Xi’s most trusted economic adviser, would
not commit to structural changes to China’s unique model of “state
capitalism” in which state-owned enterprises dominate sectors deemed
“strategic” and tap easy credit from state banks.
“China held off giving the US anything for months and then sent
essentially the same warmed-over proposal that they had sent six
months ago,” one of the people said of the negotiations, which only
began again in earnest this month. “The G20 has never been an
action-forcing event. We’re just not in a place where the Chinese are
willing to do that much.”
He added: “Xi doesn’t want to appear weak. There’s not much that he
can give or wants to give. Both sides are just trying to get through
this process and be done with it so that maybe next year things can
happen.”
In the absence of any big concessions ahead of the G20 or during the
presidents’ “working dinner” on Saturday, Mr Trump has threatened to
more than double the 10 per cent tariff rate imposed on about half of
China’s exports to the US.
On Tuesday Mr Trump’s chief economic adviser, Larry Kudlow, said he
and other administration officials “don’t see” any indications that Mr
Xi’s administration was prepared to make an offer that the US could
accept.
For Chinese officials and analysts, Mr Trump’s demands are simply too
high. “At the G20, China will oppose trade protectionism and reaffirm
its willingness to deepen and expand [domestic] reform,” said Shi
Yinhong, who heads an American studies centre at Renmin University in
Beijing.
But Trump doesn’t want to hear these things,” added Prof Shi. “He
needs unprecedented concessions that are very specific and
enforceable. At their core, these concessions [would force] China to
change large parts of its economic model and industrial policies.”
On Tuesday, Cui Tiankai, Beijing’s ambassador to the US, urged the
Trump administration to “act in a responsible way.”
“We believe that the key to a negotiated solution to the trade issues
is a balanced approach to the concerns of both sides and honestly so
far I have not seen sufficient response from the US side to our
concerns,” Mr Cui told Reuters in an interview in Washington. “We
cannot accept that one side would put forward a number of demands and
the other side just has to satisfy all these things.”
Eswar Prasad, a former head of the International Monetary Fund’s China
division, said the friction that was evident between Mr Xi and
vice-president Mike Pence at the Asia Pacific Economic Conference this
month suggested that positions on both sides were hardening.
Each side blamed the other for this year’s dramatic deterioration in
bilateral relations as APEC broke up without agreeing to a common
communique for the first time in its history.
“The most likely outcome of the G20 meeting is some partially soothing
words from both sides but I think you will eventually see higher and
broader tariffs from the US,” Mr Prasad said. “There is not an easy
path to even a cessation of hostilities at this stage, let alone a
reversal of those hostilities.”
The wild card is: who knows what might happen when Trump gets into the
room with Xi? Who knows what will be going through his mind?
The US and China had discussed a possible visit to Washington by Mr
Liu ahead of the G20 to pave the way for a possible agreement. The
vice-premier instead made an official visit to Germany that wrapped up
only on Wednesday. While he was there, China Banking and Insurance
Regulatory Commission awarded a German insurer, Allianz, its
first-ever approval to open a wholly foreign-owned insurance company.
Chinese officials saw the approval as a symbol of their commitment to
financial sector liberalisation. To US executives, it reinforced the
glacial pace and ad hoc nature of China’s economic reform programme.
Against this inauspicious build-up to Mr Trump and Mr Xi’s long
anticipated G20 meeting, analysts say the best hope for a breakthrough
lies in the US president’s penchant for surprises. As Mr Prasad says:
“The wild card is who knows what might happen when Trump gets into the
room with Xi. Who knows what will be going through his mind?”

Euro 1.1379
Dollar Index 96.695
Japan Yen 113.29
Swiss Franc 0.9927
Pound 1.2832
Aussie 0.7318
India Rupee 70.025
South Korea Won 1119.65
Brazil Real 3.8508
Egypt Pound 17.909
South Africa Rand 13.738

Large bean deliveries to ports in top producer Ivory Coast are likely
a sign of a bigger-than-expected crop at a time production in No. 2
producer Ghana is also set to expand, said Max Goettler, a trader at
the Rotterdam-based company. Still, processing demand will prevent the
market from experiencing a significant surplus.
Ivory Coast deliveries are running about 37 percent ahead of a year
earlier, prompting Cocoanect to raise its production forecast by about
100,000 metric tons to 2.1 million tons. While the trader expected
deliveries to be large at the start of the main crop before tailing
off, the sheer size of the increase signals a bigger crop.
“I don’t think anyone expected them to be this strong,” Goettler said
in a telephone interview Tuesday. “The question is: Is it just the
size of the crop or is it the profile as well? I think there should be
an element of both.”
Cocoa futures traded in London fell 6 percent this month while the New
York contract slid 5 percent as bean deliveries were bigger than
previously forecast. Still, prices are trading below the five-year
average, spurring demand from factories that have seen a measure of
processing profits known as the combined ratio trade near the highest
in a decade for most of the year.

Emerging Markets

Frontier Markets

A Madagascar court ruled that former President Andry Rajoelina won the
most votes in this month’s election, paving the way for a runoff
against the ex-head of state he once deposed.
The former nightclub DJ won 39.2 percent of ballots in the Nov. 7
vote, against 35.4 percent for his closest rival, Marc Ravalomanana,
the High Constitutional Court said Wednesday in a statement. The two
will compete again in the final round on Dec. 19.
The now-outgoing president, Hery Rajaonarimampianina, received 8.8
percent. About 4.98 million valid ballots were cast, from about 9.95
million registered voters, the court said.
Madagascar, the world’s biggest vanilla grower and home to proven oil
and mineral reserves, typically sees tense elections. Rajoelina
overthrew Ravalomanana with the help of the Indian Ocean island
nation’s military in 2009; both were barred from running in the 2013
election that brought Rajaonarimampianina to power.

Small countries with limited resources have been known to turn
themselves into financial centers where dodgy banks and companies find
a haven from international regulators as a means to reverse their
national fortunes.
Djibouti, the third smallest country on the African mainland, has
found another way to thrive: hosting military bases.
The tiny nation formerly known as French Somaliland has leveraged its
strategic location at the mouth of the Red Sea and some of the world’s
busiest shipping lanes running through the Suez Canal to lease its
otherwise barren, rocky land to foreign powers.
Djibouti also has the seaside advantage of being comparatively serene
in a region plagued by instability. Djibouti’s old colonial power
France maintains a base here, as do the Americans, Italians and
Japanese. Germany and Spain maintain troops at the base hosted by the
French.
Then came the Chinese.
When Beijing inaugurated its first overseas military base here on
August 1, 2017, Djibouti was turned fully into a modern day
Casablanca, where everyone seems to be spying on one another. It may
be a Francophone port city with an interior as rugged as Morocco’s,
but there is no Rick’s Café here, as famously portrayed in the 1942
movie with Humphrey Bogart and Ingrid Bergman.
But, at a more modern luxury hotel overlooking the beach in the north
of Djibouti City, Western military officers and soldiers in uniform
can be seen alongside Chinese businessmen and technicians as well as
assorted dignitaries from Africa and Arab countries.
The Chinese base, maintained by the People’s Liberation Army Navy, is
located at Doraleh west of the capital while all the other nations’
bases are situated near the international airport to the south less
than ten kilometers away.
Geopolitics is a lucrative business for Djibouti. The US pays US$63
million annually in rent for its base, the French US$36 million, China
US$20 million and Italy US$2.6 million. The amount Japan pays is not
publicly disclosed.
This small and largely peaceful republic on the Horn of Africa is fast
becoming China’s economic gateway to Africa. But it is the naval base
that has sent jitters through the Western military community in
Djibouti.
The official China Daily, which covered the opening of the base in
August last year, stated at the time it could “support some 10,000
people” with the caveat that “official figures for the number of
personnel to be stationed there have not been released.” The paper
said the official reason for the establishment of the base was “to
support the Chinese military’s escort and peacekeeping missions in
Africa and West Asia.”
The Western powers that have bases there usually refer to the same
reason for their presence in Djibouti, as well as to fight pirates
famously active off the coast of Somalia.But The China Daily was
probably more frank than Western spokespersons as it also quoted Liu
Hongwu, a professor at Zhejiang University, as saying that Djibouti
“is situated at the juncture of Europe, Asia and Africa; in a sense,
it is at the crossroads of the world.”
In that sense, China’s new base in Djibouti is the first serious
challenge to US military supremacy in the Indian Ocean region.
Indeed, the intrigues at Casablanca in the 1940s likely pale in
insignificance when compared to what is happening now on this tiny
speck of land on the Horn of Africa, an increasingly perilous pinnacle
where spy versus spy intrigue often leaks into the public domain.
Nowhere on the planet are there so many military bases run by rival
nations in such close proximity to each other. That proximity means
anything can and likely will happen as the US and its allies confront
a rising China in what some see as the early phases of a new Cold War.

Today from Massawa, Eritrea [admittedly on the Red Sea] to Djibouti,
from Berbera to Mogadishu, from Lamu to Mombasa to Tanga to Bagamoyo
to Dar Es Salaam, through Beira and Maputo all the way to Durban and
all points in between we are witnessing a Port race of sorts as
everyone seeks to get a piece of the Indian Ocean Port action. China
[The BRI initiative], the Gulf Countries [who now appear to see the
Horn of Africa as their hinter- land], Japan and India [to a lesser
degree] are all jostling for optimal ‘’geo-economic’’ positioning.
Overlay the Geopolitics and its worth noting that the Geopolitics has
become much more fluid. Fluidity has been engendered by the
spectacular arrival of Prime Minister Abiy in Ethiopia [which
island-locked, of course but a key Future Taker of Port facilities]

Dollar versus Rand 6 Month Chart INO 13.7375
http://quotes.ino.com/charting/index.html?s=FOREX_USDZAR&v=d6&t=c&a=50&w=1

Egypt Pound versus The Dollar 3 Month Chart INO
http://quotes.ino.com/charting/index.html?s=FOREX_USDEGP&v=d3&t=c&a=50&w=1

Egypt EGX30 Bloomberg
http://www.bloomberg.com/quote/CASE:IND

Nigeria All Share Bloomberg -18.88% 2018
http://www.bloomberg.com/quote/NGSEINDX:IND

Ghana Stock Exchange Composite Index Bloomberg -0.70% 2018
http://www.bloomberg.com/quote/GGSECI:IND

Tanzania’s central bank has suspended five banks from trading in the
interbank foreign exchange market for one month for breaching
regulatory rules, a senior official said on Wednesday.
Barclays Bank Tanzania, Exim Bank, UBA Bank, BancABC and Azania Bank
were all suspended from the market on Nov. 23 for violating the
market’s code of conduct, said Alexander Ng’winamila, the director of
financial markets at the central bank.
 “The suspended banks... either traded at off-market rates and/or did
not submit to the central bank the transactions they made ... contrary
to the requirements of the code of conduct,” Ng’winamila told Reuters.
Barclays Tanzania, a unit of South Africa’s Absa, confirmed the
suspension, adding it was working with the regulator to resolve the
issues. The lender was still continuing to serve its FX clients but it
had lost its access to the liquidity offered by the interbank market,
it added.
The suspension comes after the regulator conducted surprise
inspections of foreign exchange bureaus in the northern town of
Arusha, a tourist and gemstone trading hub.

This month, Tanzania’s government sent in the army. The deployment was
not to repel an invading force or to crush a terrorist threat. The
army’s instructions were clear: buy cashew nuts.
The intervention, which sent global cashew prices higher, was intended
to resolve a dispute between buyers of the unprocessed nut and
farmers. John Magafuli, Tanzania’s president and an African Hugo
Chávez in the making, was reacting to a fall in prices.
Because of a bumper west African harvest, raw cashew prices had fallen
across the world. Tanzania, the seventh-largest producer, is a swing
supplier of the chattering classes’ favourite cocktail snack. After
requisitioning the east African country’s entire supply, prices rose.
This is not the first time Mr Magafuli has intervened in global
commodity markets. Last year, he accused Acacia Mining — majority
owned by Barrick Gold — of massively understating the mineral levels
in its gold and copper exports. Acacia had operated in the country for
years, made good profits and paid its executives handsomely, Mr
Magafuli noted. But it had somehow avoided paying much tax in
Tanzania.
In retaliation, he banned exports of unrefined gold and slapped Acacia
with back taxes and fines of an implausible $190bn. Acacia vigorously
denies accusations of wrongdoing, though Barrick did agree to make a
$300m “good faith” payment and hand over a 16 per cent stake in each
of Acacia’s three Tanzanian mines.
Mr Magafuli is a thoroughly nasty man. His policies on freedom of
expression, teenage pregnancy and gay rights are reactionary, to put
it mildly. Like Chavez, the late Venezuelan leader, his resource
nationalism is likely to end badly. Companies will hardly be lining up
to invest in Tanzania.
But like populist leaders the world over, Mr Magafuli is tapping into
something real. Tanzanian farmers do indeed receive far too little for
their cashew nuts. One only has to compare the lives of the people who
eat the delicacy with those who produce them, many of whom cannot
afford to send their children to school or pay for rudimentary
healthcare. That is true of those who produce most agricultural
commodities in poor countries, from coffee and tea to cocoa and
vanilla.
What is true of soft commodities is even truer of hard ones, such as
gold, copper, diamonds and cobalt. In much of Africa, the miners who
dig up these materials live short and brutish lives. They are often
threatened by violence and environmental degradation. Meanwhile, those
who benefit — which includes anyone with a nice wedding ring, an
iPhone or indoor plumbing — live longer and more comfortably.
The commodities on which we rely for our modern existence are too
often the result of collusion between unscrupulous businesses and
unsavoury politicians. People from the countries that produce that
wealth — whether the Democratic Republic of Congo or Tanzania — do not
share widely in their national patrimony.
There is another lens through which to look at the issue: that of
national accounts. Africa — together with many other nominally poor
countries from Papua New Guinea to Peru — plays a much larger role in
the global economy than either output or trade figures suggest.
Although Africans make up 16 per cent of the world’s population, in
conventional national accounting terms they contribute less than 3 per
cent of the world’s nominal gross domestic product.
Yet this is vastly to underestimate Africa’s true participation in the
global economy. GDP measures value-added. But Africa exports most of
its commodities — including in-shell cashew nuts — in raw form and at
prices heavily influenced by powerful companies armed with tax
experts, transfer-pricing wizards and lawyers. Most of the value-added
occurs outside the continent. John Ashbourne of Capital Economics
calculates that Bangladesh earns as much from exporting clothes as
does all of Africa exporting precious metals.
That staggering anomaly is exacerbated by the fact that, on the
African side of the table, negotiators are often on the take
themselves. While Mr Magafuli’s approach is most unlikely to work, his
basic instinct in trying to redress the balance is correct.
Unfortunately for Tanzanians, grandstanding is not the answer. Only
when nations install the physical and, especially, institutional
infrastructure to extract more value at home will Africans benefit.
For centuries, the world’s most advanced economies used African slaves
to pick their cotton and harvest their sugar in places such as the US
and the Caribbean. Slavery has been banned. The west would now prefer
to leave these workers where they are to produce what the world needs.
The power relations remain essentially unchanged.

A Russian state bank appeared to give a $12bn loan to one of Africa’s
poorest countries — then claimed the stated payment to the Central
African Republic was an accounting error.
VTB, the Kremlin’s second-largest bank, said on Wednesday that a
software error had confused countries with obligations to it and
awarded the CAR a nonexistent $12bn loan that was instead extended to
Cyprus.
“The accounting forms link the accounts to the countries. The links
stopped working and the countries got moved all over the place,” said
Dmitry Olyunin, VTB chief financial officer.
VTB’s initial accounts for the third quarter of 2018 showed the bank
was owed Rbs802bn ($12bn) in obligations by the CAR — a country whose
GDP is only $1.9bn.
The surprising disclosure appeared to point to Russia’s growing
involvement in Africa and its role in one of the continent’s worst
conflicts.
The CAR has become one of the key entry points for Russia's renewed
interest in Africa, beginning in December, when a team of military
instructors and 170 “civilian advisers” arrived in Bangui to train the
CAR army and presidential guard. Russia has since sent nine weapons
shipments to the capital.
The ties between the two countries have grown deeper, at the expense
of former colonial power France. President Faustin-Archange Touadéra’s
national security adviser is Russian.
In July, three Russian journalists investigating Moscow's growing role
in the country were murdered by unknown assailants days after arriving
in CAR. The publication that sent them said they were looking into the
activities of Evgeny Prigozhin, a Kremlin-connected caterer who
independent Russian media claims owns Wagner, the main private
military contractor for the Russian army.
But bankers in Moscow said the sum was far too large for the CAR,
which is one of the least developed countries in the world, with a GDP
of less than $2bn, according to the World Bank.
It contains huge deposits of diamonds, gold and uranium, but few
investments have succeeded in a country where 80 per cent of the
territory is controlled by more than a dozen rebel groups.
VTB released an updated version of its accounts on Wednesday in which
the CAR debt had been reassigned to Cyprus, where many beneficial
owners of Russian companies are registered. Other mysterious “loans”
to states like the Vatican and Grenada had also disappeared.
The CAR denied receiving any money from Russia.

It is often said that climate change will hurt the world’s poorest
people first. Nowhere is that potentially truer than in Somaliland, an
unrecognised state in the Horn of Africa sandwiched between an
expanding desert and the Red Sea.
A prolonged drought has killed 70 per cent of the area’s livestock in
the past three years, devastating the region’s pastoralist economy and
forcing tens of thousands of families to flee their grazing land for
urban camps, according to authorities.
“We used to have droughts before, we used to name the droughts, but
they would be 10 or 15 years apart,” says Shukri Ismail Bandare,
minister for environment and rural development. “Now it is so frequent
that people cannot cope with it.”
Somaliland has endured regular cycles of drought for the past 20 years
that have intensified since 2015 as consecutive rains have failed.
The impact has been catastrophic for the nation of 3.5m people, where
livestock farming accounts for about 70 per cent of economic activity.
According to the UN, 4.2m people in Somaliland and neighbouring
Somalia will require food assistance next year.
“Four consecutive years of emergency hit Somaliland so hard and it’s
all about climate change,” Ms Bandare says. “You can touch it [climate
change] in Somaliland — it is real, it is here.”
Somaliland is not alone. Across the Horn of Africa — a region that
includes Somalia, Ethiopia, Eritrea, Djibouti and parts of Sudan and
Kenya — drought has become the new normal. According to US scientists,
the region dried faster in the 20th century than at any other time in
the past 2,000 years.
Changes in temperature in the Indian Ocean over the past decade,
similar to the El Niño phenomenon in the Pacific, have directed winds
eastward, pushing moist air that normally brings rains to east Africa
away from the continent. As a result, some 13m people across the
region are suffering from food shortages, according to EU agencies.
“There has been tremendous change in one lifetime,” Saad Ali Shire,
Somaliland’s foreign minister, tells the Financial Times. “Fifty years
ago, we were a land of grass and wildlife, like the prairies of Kenya
and America.”
Now, on the road from the capital to the coastal town of Berbera,
barren land stretches to the horizon. To make matters worse, when it
does rain, it comes in torrential storms that wash away the brittle
top soil, causing further damage.
In a few days in May a rare tropical cyclone dumped the equivalent of
a normal year’s worth of rain on parts of the country, resulting in
flash floods that killed more than 50 people, according to the
Somaliland government. Only half a dozen such tropical storms have
made landfall in the Horn of Africa since accurate records began.
As environmental damage has increased, Somaliland’s contested
political status has complicated relief efforts. The former British
protectorate declared independence from Somalia in 1991 but is not
recognised by the UN, making it harder for Somaliland to access
external support and humanitarian assistance.
It also makes reliable statistics hard to come by. In 2012, the World
Bank estimated gross domestic product per capita at $347, making it
the fourth poorest country in the world that year.
In such circumstances, efforts to find solutions can feel futile but
Somaliland has some ideas. The government wants to settle 2m people on
the coast, where fish stocks remain abundant, by 2030; and reduce the
rural population, currently at 50 per cent, by half to take the
pressure off the land, Mr Shire says. At the same time, the country
will try to develop its “blue economy” — fishing, aquaculture and
shipping — and begin a reforestation programme, he adds.
“Climate change is here, there is no use denying it because it is
reality. Now we need to manage it to make its impact less severe,” Mr
Shire says.
Depopulation of rural areas is already happening. Somaliland’s
capital, Hargeisa, has as many as 10 temporary camps with 150,000
families that have fled drought-stricken rural areas after their
livestock died, says Ms Bandare. “All of these families need handouts,
all of them need three meals a day.”
The Somaliland minister was appointed in September as one of 22
international climate ambassadors to promote the goals of the UN’s
Paris Agreement on climate change. Ms Bandare argues that the poverty
and displacement wrought by drought risks stoking further insecurity
and suffering in what is already a volatile region, and says it is
more important than ever for countries and regions to work together.
“We are a global village now — what is affecting one country is
affecting every country and, if the impact of climate change in the
less developed countries is not addressed, then we will all be in a
big, big mess,” she says. “There will be more displacement, there will
be huge migration and there will seriously be more insecurity.”

Kenya’s central bank reiterated that it only intervenes in the
foreign-exchange market to minimize volatility, refuting an
International Monetary Fund assessment that the shilling is overvalued
and that the unit is no longer floating.
The shilling could be overvalued by less than 5 percent against the
dollar, Governor Patrick Njoroge told reporters in the capital,
Nairobi. That compared with the IMF’s assessment of 17 percent.
The IMF used a new methodology that’s only been in place since 2015 to
reach that conclusion, Njoroge said. The formula has been used on
advanced economies and only now being applied to emerging markets
despite its “well-known” weaknesses, he said.
“We are being used as a guinea pig on the External Balance
Assessment-Light methodology,” Njoroge said. “The methodology was used
in a black box method, which we cannot accept.”
Kenya uses “standard approaches” such as the Purchasing Power Parity,
Elasticities, Real Equilibrium Exchange Rate because one methodology
is not sufficient to give a holistic picture, he said.
“Our own calculations support the view that there is no fundamental
misalignment reflected in our exchange rate and the shilling reflects
the real and true value,” Njoroge said. “We have a flexible
exchange-rate regime and we don’t have a view on the level and
direction of movement.”
The shilling was steady at 102.65 against the dollar by 12:20 p.m.,
down 2.5 percent from a 99.87 peak on July 16.
The central bank expects economic growth this year could outpace an
expected 6.2 percent after agriculture and remittances expanded at a
much faster rate. It is likely to raise the outlook after gross
domestic product statistics for the third quarter are published,
Njoroge said. East Africa’s biggest economy posted 5.7 percent and 6.3
percent expansion in the first two quarters of the year respectively.
Exports increased by 7.7 percent in the year through September,
Njoroge said, while remittance inflows totaled $2.23 billion in the
first 10 months, a 42 percent increase from a year earlier.
“There is a favorable outlook for 2018,” Njoroge said.

The latest trigger for the spike in conversation around the Shilling
was the IMFw ho urged the central bank to allow “greater exchange-rate
flexibility,” given well-anchored inflation expectations and adequate
reserves, saying this would boost the shilling’s role as a potential
shock absorber.
The IMF reclassified the Shilling from “floating” to “other managed
arrangement” to reflect the currency’s limited movement due to
periodic Central Bank interventions. The currency, which has the
fourth-best performance globally, is also overvalued by about 17.5 per
cent, it said.
The Central Bank reiterated its position on the Shilling’s value,
saying the currency reflects its true and fundamental value.
“Our calculations support the view that there is no fundamental
misalignment reflected in our exchange rate,” it said in an emailed
response to questions.
Today, if you scan Sub-Saharan Africa you will note many dual currency
regimes all of which are interfering with the free markets. Here in
Kenya, you can exchange your money at a 50 cents bid offer spread.
Sure, the Central Bank [and I rank their foreign exchange operations
as an ‘’Outlier’’ when you compare it to any other Central Bank on the
continent] probably smooths lumpiness but that is prudent and
sensible.
If you are aware of a lumpy trade, it certainly makes sense to spread
it out because after all Participants have access to enormous amounts
of Leverage in the FX markets and Kenya does not fold infinite FX
reserves. I have always enjoyed parsing the linguistics and in this
respect the characterisation of “other managed arrangement” is wrong
on the facts as I see them.
The finding that the Shilling is 17.5% overvalued is also alarmist and
not borne out by facts. Such a devaluation would ‘’cry havoc’’ with
our debt-to-GDP ratios. The International Monetary Fund raised its
assessment of the chance of Kenya’s external debt distress to moderate
from low due to increasing refinancing risks and narrower safety
margins in East Africa’s biggest economy. The Washing- ton-based
lender estimates Kenya’s total public debt will peak at 63.2 per cent
of gross domestic product this year and gradually decline over the
medium term. This compa- res with 58 percent in 2017 and 53.2 per cent
in 2016, when the nation ramped up infrastructure projects. There is
an argument that we need to be tapping Euro denominated Eurobond
borrowing and not just dollar denominated debt.
The Central Bank is sitting on the highest hard currency reserves in
its history. Remittances have surged by 71.9% year on year to $266.2M
in June 2018 from $54.9M in June 2017. Remittances are the most
important source of forex bar none. Our single biggest expense Item is
of course Crude Oil and you will have noted that since the Istanbul
incident, the crown prince has been finessing the price lower to
release some of the pressure in what remains a pressure cooker. Of
course, the markets would appreciate a more aggressive GOK cost
cutting program. Key levels are from 2011 and are 105.00-107.00.

Safaricom Plc’s market share dropped 1.6 percentage points to 65.4
percent in the three months through June as Bharti Airtel Ltd.’s
Kenyan unit and Telkom Kenya Ltd. increased mobile-phone customers at
a faster pace.
Airtel’s market share climbed 1.7 percentage points to 21.4 percent
and Telkom Kenya grew its market share 0.2 percentage points to 8.8
percent, the Communications Authority of Kenya said in a report on its
website.
Quarter-on-quarter, Safaricom customers increased 0.7 percent, or
209,863, Airtel subscribers grew 11.9 percent, or 1.03 million, and
Telkom’s customer base climbed 5 percent, or 190,369, according to
data from the industry regulator.
Mobile phone penetration in Kenya rose to almost 98 percent in the
three months from 95.1 percent in the preceding quarter as users in
East Africa’s largest economy rose to 45.5 million from 44.1 million,
according to the industry regulator.
There were 29.6 million mobile-money accounts at the end of June and
transactions worth 1.4 trillion shillings ($13.6 billion) were made
between April and June.

Nairobi All Share Bloomberg -15.13% 2018
http://www.BLOOMBERG.COM/quote/NSEASI:IND

Nairobi ^NSE20 Bloomberg -25.09% 2018
http://j.mp/ajuMHJ

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

The Federal Reserve's Jerome Powell pivoted after coming under
unprecedented pressure by the President and declared US interest rates
are closing in on “neutral” levels.
The markets reacted sharply to Mr Powell’s comments, which contrasted
with an assessment he gave last month. In early October, he said rates
were a “long way” from neutral levels.
WTI crude oil has fallen below $50/barrel. Some collapse this month,
down 24% in November, the biggest monthly fall since Oct 2008 and
fifth biggest since the early 1980s.
President Trump will meet with Xi Jinping at the G-20 in Buenos Aires
this week-end.
The markets are pricing in some element of rapprochement. The markets are wrong.
“The G20 has never been an action-forcing event. We’re just not in a
place where the Chinese are willing to do that much.”
VTB’s initial accounts for the third quarter of 2018 showed the bank
was owed Rbs802bn ($12bn) in obligations by the CAR — a country whose
GDP is only $1.9bn.
“The accounting forms link the accounts to the countries. The links
stopped working and the countries got moved all over the place,” said
Dmitry Olyunin, VTB chief financial officer.
A lot of Folks must be parked outside the Central Bank in Ouagadougou.
Tanzania’s central bank has suspended five banks from trading in the
interbank foreign exchange market for one month for breaching
regulatory rules, a senior official said on Wednesday.
Barclays Bank Tanzania, Exim Bank, UBA Bank, BancABC and Azania Bank
were all suspended from the market on Nov. 23 for violating the
market’s code of conduct, said Alexander Ng’winamila, the director of
financial markets at the central bank.
The FT's David Pilling wrote ''This month, Tanzania’s government sent
in the army. The deployment was not to repel an invading force or to
crush a terrorist threat. The army’s instructions were clear: buy
cashew nuts
The intervention, which sent global cashew prices higher, was intended
to resolve a dispute between buyers of the unprocessed nut and
farmers. John Magafuli, Tanzania’s president and an African Hugo
Chávez in the making, was reacting to a fall in prices''
The Governor of the Central Bank Dr. Patrick Njoroge was very
forthright in is rebuttal of the IMF who had previously classified the
Shilling from “floating” to “other managed arrangement” to reflect the
currency’s limited movement due to periodic Central Bank interventions
and pronounced it overvalue by 17.5%
On the 06-NOV-2018 I wrote that The finding that the Shilling is 17.5%
overvalued is alarmist and not borne out by facts.
The Governor said The shilling could be overvalued by less than 5
percent against the dollar.
The IMF used a new methodology that’s only been in place since 2015 to
reach that conclusion, Njoroge said. The formula has been used on
advanced economies and only now being applied to emerging markets
despite its “well-known” weaknesses, he said.
“We are being used as a guinea pig on the External Balance
Assessment-Light methodology,” Njoroge said. “The methodology was used
in a black box method, which we cannot accept.”
The Securities Exchange saw Turnover. of 400.57m shillings.

Safaricom eased -0.21% to close at 23.75 and traded 10.756m shares
worth 255.49m and 63.78% of the total turnover today. Safaricom has
been at tase price levels for about 8 weeks now. Given the softness of
the market, its actually held firm. This is an accumulation point.

Equity Group firmed +0.63% to close at 39.75 and traded 1.792m shares.
I liked the Regional acceleration and think this has not been baked
into the share price yet.

Kenya Re retreated -2.1% to close at 14.000 and traded 2.437m shares.
Jubilee Insurance was marked down by the daily limit of -9.51% to
close at 371.00 and traded the grand total of 100 shares.

EABL rallied 3.42% to close at 181.00 and traded 63,600 shares. Buyers
outpaced Sellers by a Factor of 4 to 1 and I have received a number of
International Broker Buy recommendations on the stock.

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