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Tuesday 30th of July 2019 |
Morning Africa |
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Macro Thoughts |
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The @federalreserve Should Hike Interest Rates, Not Cut Them @barronsonline Africa |
In the runup to the Federal Reserve’s Open Market Committee meetings on July 30 and July 31, policy makers are debating the value of what would normally be considered unorthodox policy actions. The consequences of the Fed’s actions in the next week—the U.S. central bank is expected to cut interest rates by a quarter of a percentage point—could be with us for much longer than we think, culminating in the next recession and increasing the risk to financial stability. In the meantime, the Fed could be delivering yet another sugar high to the economy that doesn’t address underlying structural problems created by powerful demographic forces that are constraining output and depressing prices. By almost every measure, policy makers should be considering another rate hike, not a rate cut, in anticipation of potential economic overheating from looming limitations on output. Instead, debate has been focused on the need to take preemptive action to avoid a potential slowdown. An abrupt shift in thinking was set in motion last December when, after raising overnight rates by a quarter of a percentage point, Fed Chairman Jerome Powell signaled more hikes would come and that balance-sheet reduction was on “autopilot.” Alarmed by the market tantrum that ensued, Fed policy makers began a mop-up campaign that included the Fed’s now-famous “pivot” to patience. While the Fed has more than succeeded in stabilizing markets, the ensuing liquidity-driven rally in various markets has boosted asset prices, including stocks, bonds, precious metals, energy, and even cryptocurrencies. As Europe faces prospects that negative rates might become a long-term fixture in the euro region, concerns are mounting in the U.S. that a global slide toward negative yields could infect the market for Treasury securities, should the U.S. slip into a recession. These concerns are well founded. In the postwar era, the Fed has reduced short-term interest rates by an average of 5.5 percentage points during easing cycles associated with recession. The required stimulus in the next recession could necessitate large-scale asset purchases of nearly $5 trillion to overcome the monetary limitations of the zero bound. Such a policy action could result in negative Treasury yields. To immunize against the global contagion of negative rates, the Fed is intentionally overheating the U.S. economy in the hope of pushing inflation above its 2% target rate. Once inflation approaches some undefined rate, perhaps 2.5%, the Fed likely will reverse course and lift rates above today’s levels, creating another set of risks. Additional accommodation this late in the business cycle is likely to push asset prices higher, just as in 1998, when the Fed cut rates by 75 basis points (a basis point is one-hundredth of a percentage point) during the Asian crisis, only to reverse course nine months later by raising short-term rates to the cycle high. Just as Fed accommodation inflated the internet bubble then, asset inflation associated with stimulative policy at this point in the cycle is likely to have a similar impact. Chairman Powell has been clear that the Fed will go for broke, doing whatever is necessary to keep the expansion going. Most likely, a quarter point next week will be followed by another half percentage point before year end. The real problem leading to the depressed yield curve can’t be solved by the Fed, short of the remote possibility of an overt policy to increase inflation well above 2%. This problem is the product of structural changes within the economy that have reduced growth potential relative to the past 50 years. Demographics play an important role. Not only is an aging population creating an acute labor shortage, but the opioid crisis and failures in education and job training are limiting the supply of skilled labor. Without growth in supply-side contributors including labor, capital, and other forms of investment, and increased demand associated with a faster-growing, younger demographic, the real neutral rate—or the Fed’s sweet spot to maintain economic output—is likely to remain low and may even fall into negative territory. The depressed neutral rate is limiting the power of policy makers to stimulate demand without risking significantly higher inflation and financial instability. The simplest way to avoid recession and the associated negative rates would be a rapid increase in the supply of labor, aided by education, job training, and solutions to address the blight of opioids. A rational immigration initiative could quickly offset the risks of a slowing economy by providing more workers to fill open jobs. Two million new workers could raise output potential by 2% or more. This would push the neutral rate higher by stimulating economic growth while increasing tax revenue due to the rapid growth in personal income. The Fed’s current policy of anticipatory and preemptive rate cuts likely will lead to unsustainably high asset prices and increased financial instability. This can only make the next downturn worse. If the U.S. continues down the current policy path, we will find out that the Fed’s cure for avoiding a near-term recession and negative interest rates may ultimately make the disease worse. Scott Minerd is co-founder and global chief investment officer of Guggenheim Partners, and a member of the Board of Overseers of the Hoover Institution.
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24-JUN-2019 :: We are in "nose-bleed" territory. This is "Voodoo Economics" Africa |
We are in ‘’nose-bleed’’ territory. This is ‘’Voodoo Economics’’ and just because we have not rea- ched the point when the curtain was lifted in the Wizard of Oz and the Wizard revealed to be ‘’an ordinary conman from Omaha who has been using elaborate magic tricks and props to make himself seem “great and powerful”’’ should not lull us into a false sense of security.
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Africa |
“And the fact that a lot of people break down and cry when confronted with my pictures shows that I can communicate those basic human emotions….If you…are moved only by their color relationships, then you miss the point.”
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Mark Rothko Untitled (1968) Africa |
By the early 1960s, Rothko was widely regarded as one of America’s leading painters. Speaking of the style he had honed over the past two decades, he remarked: “This kind of design may look simple, but it usually takes me many hours to get the proportions and colors just right. Everything has to lock together.” This untitled painting on paper—with its incendiary orange ground supporting a lighter, yellow-orange rectangle and a fiery red rectangle—attests to his sophisticated understanding of color and composition. The bright, warm palette stands as evidence that he continued to swing back-and-forth from cool to warm tones. Many have misinterpreted Rothko’s dark paintings as stemming from his worsening depression, and his brilliantly colored paintings as joyous expressions. In fact, some of the last compositions the artist painted featured bright, warm colors.
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Memories of my childhood in Samburu My best friend Damayon went off to join the warrior age set: I never saw him again @TheHorseCure Africa |
His name was Damayon and we were best friends. We climbed trees, threw rocks and hurled spears, swam in river pools and trekked long distances. In our tests of strength, our aim was never to give in to pain or fear. My friend’s talk rarely strayed far from his love of cattle, the wild creatures, his rugged mountains, the pastures and the singing wells. I was an English teenager in glasses, with feet in shoes. I so envied Damayon the cicatrix patterns on his cheeks and upper body, his beaded adornments, his agility and ascetic toughness, his weapons, the way he saw his universe and the life ahead of him. He wanted nothing from my world, and he was unfazed by it all, though gently respectful when he came to stay with my family and sat at the table cracking jokes to amuse my mother, or answered my father’s endless, earnest questions. I had no illusion I was anything other than a boy from a separate world, but for me knowledge of Samburu things gave me joy, as did my growing collection of knives in rawhide scabbards, spears and beaded bracelets. Folded in my rucksack wherever I went, I had a good map of Kenya on which I marked each safari, camping spot, points of interest and valued experience, until it was completely scribbled over.
With Damayon I first saw a Samburu dance, when youths swayed in snaking lines, each warrior joining the rhythmic chorus, his jaw crushing down into his throat to emit the grunt of a lion, stretching his chin skywards to roar like a bull, every dancer in turn separating from the line suddenly to leap high into the air on rigid legs, landing on the dry earth with a stamp in a cloud of dust before the line absorbed him and another dancer came forward. I was a spectator watching this chorus of growls and roars, this leaping which reached a pitch of energy when dancers began to shiver in a state of trance. Sometimes a youth fell out of the line, convulsing like an epileptic, his eyes white in their sockets, foaming at the lips, cradled by his fellows.
The day arrived when Damayon and I said goodbye to each other
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Law & Politics |
A domestic proverb calls Korea, long nestled uneasily between the larger Northeast Asian powers of China, Japan and Russia, “a shrimp between whales” and warns that “when whales fight, shrimps are crushed.” The ancient fear is coming home to roost once more, as South faces soaring risk across multiple geographic and sectoral fault lines. On the economic front, there is unprecedented pressure from Japan. On the security front, China and Russia are acting in unprecedented concert in Korean skies. Meanwhile, the centerpiece of President Moon Jae-in’s efforts – engagement with North Korea – is imploding.
It is a stark turnaround. A mere year ago, Moon was being hailed for his sure-footedness in walking a tightrope between competing interests and powerful neighbors. He looks considerably less adroit now.
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29-JUL-2019 :: Africa. @TheStarKenya Africa |
The IMF released their iconic World Economic Outlook last week and said the following about Sub Saharan Africa
In sub-Saharan Africa, growth is expected at 3.4 percent in 2019 and 3.6 percent in 2020, 0.1 percentage point lower for both years than in the April WEO, as strong growth in many non-resource-intensive countries partially offsets the lackluster performance of the region’s largest economies. Higher, albeit volatile, oil prices have supported the outlook for Angola, Nigeria, and other oil-exporting countries in the region. But growth in South Africa is expected at a more subdued pace in 2019 than projected in the April WEO following a very weak first quarter, reflecting a larger-than-anticipated impact of strike activity and energy supply issues in mining and weak agricultural production. So after downshifting SSA growth 0.1% for 2019 and 2020 they have pegged Nigeria at 2.3% and 2.6% and South Africa at + 0.71% and +1.1%. Nigeria and South Africa constitute 50% of SSA GDP. I think Nigeria will post lower numbers than projected by the IMF and worthy of note is that Both Economies are in fact in reverse because of Population growth which is exceeding GDP.
This single Paragraph does not tell the Story because this year in 2019 so much has gone on. Let start with the Geopolitical and Political dimension. There has been a significant advance and intrusion by Middle Powers [KSA, UAE, Egypt was always there] into the Horn of Africa. The ''Oudh'' Spring in Khartoum met a ''red in tooth and claw'' Counter-Revolution and Sudan feels like an African Fault-line. Its somewhat counterintuitive but it is the Al-Sisi Model which is delivering economic growth of 6% but I for one think its impossible to replicate because the cry for Political Freedom is relentless and at fever pitch. Sudan is surely a collision which is set to repeated elsewhere in what could morph into a Gladwell level move not unlike Ebola which is exponential at its heart.
America feels detached, China certainly more cautious around its BRI Loan Book. Russia has reasserted itself with its unique bag of Tricks [Elections,, Weapons and Cash particularly where there are resources available for swapping]. The United Kingdom will surely seek a bigger engagement post Brexit and France and the Future of the French speaking World is also in Africa. Quite a sophistical Policy Tool-Kit is required.India is a Player too.
At a more granular level, Zimbabwe is a Laboratory Experiment with Inflation last clocking 176%. There is a straw and camels back moment but predicting that moment is always a Fools Errand. Centrifugal forces are working against the mercurial Prime Minister Abiy's agenda in Ethiopia. The French speaking countries like Cote D'Ivoire and Senegal are in a sweet spot in large part precisely because of the stability of the Euro Anchor and at which very moment they are considering dumping the connection and launching their own ECO. President Tshishikedi in the DR Congo continues to build momentum from a low base. East Africa's Infrastructure model [predominantly rail] is finding that the Main Creditor is not being persuaded to pony up more cash. The actual Signal was emitted at FOCAC 2018 but Policy Makers' Antennae were scrambled then and the message did not get through. The Message got through at the third time of asking, in fact. The Proof of Magafulinomics will be in the eating and surely we will know whether the cake it is baking is a growing one or a shrinking one.
The overarching and interestingly at a time when the Rest of the World seems to be embarked on a process of Fragmentation and Globalisation coming apart at the seams, Africa is proudly moving counter-trend with the African Continental Free Trade Area (AfCTA). Of course, the Devil is in the Details of the execution and such things can simply fall apart in a deluge of Non-Tariff Barriers but it is a Silver Bullet particularly if we allow the free circulation of our People who are natural Entrepreneurs. Just look outside, there are markets just about everywhere.
From an economic Perspective, balance sheets are fully loaded and the exposure to Foreign markets quite high [The SSA Eurobond market is in excess of $104b, for example]. Just on Friday Fitch Ratings revised its Outlook on South Africa to Negative; Affirms at 'BB+'. This is surely a Precursor for what has to be a deteriorating Ratings trend line. For now, with the Developed World embarked on their own version of ''Voodoo economics'' with interest rates deep in negative territory, this has created a benign backdrop for SSA Sovereign Paper because of the Optics of handsomely positive interest rates in a world of negative interest rates. However, the Ratings Trendline versus Yield compression means at some point the elastic band will snap. Zambia of course snapped earlier in the year.
The best performing stock market has been South Africa where the Gold Price move higher popped Gold and Miners shares.
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Africa |
Can Abiy Ahmed, the prime minister, stop the country from falling apart?
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Malawi's 'Tipp-Ex president' Mutharika faces high court challenge @FT. Africa |
It has been two months since Malawi’s Peter Mutharika was sworn in after winning an election that earned him the nickname “Tipp-Ex president”. The jibe is a reference to the correction fluid that the opposition claims was used to alter of results with a vote that gave the 79-year-old former law professor a second term. Malawi’s high court is now being asked by two disappointed challengers to scrub out the outcome and order a rerun. Five judges will, from Monday, begin deliberations in an effort to resolve a crisis that has spilled on to the streets of the normally peaceful southern African country. If, as the opposition said it expects, the court orders a fresh election, it will be only the second time in Africa that judges have nullified a national poll. Since Malawi ended one-party rule in 1994, the landlocked country of 18m people, though poor and dependent on exports of tobacco, tea and sugar, has gained a reputation for regular multi-party elections and smooth transitions of power. There have been allegations of fraud before, but nothing on the scale of this year. Evidence of widespread irregularities in the May presidential vote has triggered a wave of public protests. Mainly young people have marched through the streets of the capital Lilongwe and the commercial city of Blantyre, blocking roads with rocks and burning tires. Government buildings and politicians’ homes have been torched. “Malawi is burning,” said Joyce Banda, a former president. “What is happening is unprecedented.” Demonstrators have come into conflict with armed police, who have bombarded them with tear gas. Even the US ambassador emerged spluttering when in June police lobbed canisters at an opposition party headquarters. Protesters have been protected against police by the popular armed forces, prompting rumours of a possible coup in a country with no history of military rule. The crisis has reminded some of contested elections in Kenya two years ago. Then the country’s supreme court made history by cancelling the result of a poll it said had been marred by “irregularities and illegalities”. The Kenyan decision led many in Africa, where democratic contests are frequently undermined by allegations of rigging, to conclude they may have genuine legal recourse to challenge results. Boniface Dulani, professor at the Institute of Public Opinion and Research at the University of Malawi, said an election annulment would build on the Kenyan precedent. “It would send a strong signal to the continent’s rulers that manipulating elections does not mean automatic passage to state house,” he said. Blessings Chimsinga, associate professor at the University of Malawi, said the case was “make or break” for a public that had lost faith in the electoral process. Any rerun, he said, would need comprehensive electoral reforms to be credible. Otherwise, he added, “it would be like putting new wine in old bottles”. The crisis has sparked volatility in the kwacha, the local currency, and led to the stagnation of an already fragile economy. Malawi has a nominal income per capita of $380, making it one of the world’s poorest countries. It has also bitterly divided the country. Mr Mutharika’s Democratic Progressive party has accused opposition leaders of making “wild claims” about a contest that it said was deemed fair by international observers. The EU said that, although election day was peaceful, Mr Mutharika’s party had abused state resources and its access to state media. Saulos Chilima, a former telecoms chief who came third in the presidential vote but who claims to have won, predicted that national divisions would only escalate. “If people are worried about the demonstrations of last week, that is just a warm up. There’s going to be serious fire,” he said. Lazarus Chakwera, who came second in the vote, said he had sought to rein in violence. “I said: ‘Let us not destroy our parliament. We will need it tomorrow,’” he told the Financial Times, adding: “Coups are not cool.” Political analysts say a behind-the-scenes deal could yet be struck, although both opposition candidates have insisted that negotiations are impossible until Jane Ansah, head of the electoral commission, is fired. Defending herself in local media against accusations that election tally sheets were doctored, she said: “Correctional fluid, if you check in the dictionary, corrects errors. Tipp-Ex can be used for positive and negative purposes and that is for the court to find out.” The court has 24 days to deliberate and its decision is final.
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Africa's @amazon Looks to Solve Addresses Problem With #Vivo Tieup @BBGAfrica Africa |
Jumia Technologies AG’s plan to expand its online retail and trading platform in less developed parts of Africa has long had one significant challenge: A lack of formal addresses for deliveries. That may be about to change due to an agreement with Vivo Energy Plc, the London-listed owner of more than 2,100 Shell and Engen-branded service stations across the continent. Under the terms of the deal, the sites will be used as pick-up points for Jumia-bought goods and customers will be able to pay for them at the same time as buying gas. “We are constantly looking at how we can further adapt our technology to be a part of the local infrastructure and become more accessible to more customers,” said Boris Gbahoue, a marketing vice-president at Jumia. “The partnership with Vivo will enable Jumia to conveniently deliver products to current and new customers, including in remote areas.”
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Self-styled "crowd-farming" company Livestock Wealth connects investors with small-scale farmers via its "MyFarmbook" app Africa |
A pioneering app in South Africa lets investors, eager to benefit from rising global beef demand, buy shares in a cow from their mobile phone for as little as 576 rand ($41). Self-styled “crowd-farming” company Livestock Wealth connects investors with small-scale farmers via its “MyFarmbook” app, where they can buy their own cow and receive interest rates of between 5% and 14% depending on where they put their money. Launched in 2015 with 26 cows, the project now includes more than 2,000 cows and has taken in 50 million rand, with 10 percent of investors coming from outside South Africa. Groups of investors can buy a whole cow, while individuals can purchase shares in a pregnant cow or young calf. A pregnant cow costs 18,730 rand and takes 12 months before the newborn calf can be sold for a return, while investing in a calf costs 11,529 rand and takes six months for it to grow enough to be sold. “We can link small scale farmers to big markets by introducing private capital into the growing phase,” said 38 year-old Livestock Wealth founder and CEO Ntuthuko Shezi, who was inspired by his grandparents’ farming success. “The household bank account was a crop,” added Shezi of his family experience, standing among a herd of cattle at a partner farm in Vryheid, a ranching town in northern KwaZulu-Natal province. Livestock contributes around 51% to the agricultural economy in South Africa, with global sheep and beef prices rising after droughts in major producing areas. “Many people live in urban areas and they have interests in participating in farming but they cannot physically be there and this offers them a platform to do that,” said Wandile Sihlobo, economist with South African agribusiness association Agbiz. Small business consultant Nontokozo Sabela, 34, was once interested in farming - but found the app a better alternative. She bought her first cow in 2016 and earned around 6,000 rand from it. “This way it’s easier for me, it’s cheaper, it’s convenient,” said Sabela. As with any investment, however, risks exist. Both the impact of weather on feed costs and fluctuations in global demand for beef can affect the cow investments. Shezi now hopes to expand his business into the produce market after launching a vegetable growing system this month that aims to give a 220 rand return per month over five years.
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Kenya's Shilling Near Four-Year Low as Flower, Tea Exports Slip @markets @eombok Kenyan Economy |
The currency of East Africa’s largest economy dropped 0.2% to 104.07 shillings per dollar by 12:40 p.m. in the capital, Nairobi, on track for the lowest level since October 2015. It’s set for a fifth straight monthly decline. While remittances, Kenya’s biggest source of foreign exchange, rose in the six months through June, agricultural and cut-flower exports declined and tourism numbers dropped. That’s putting pressure on the shilling at a time when a strengthening dollar is undermining most emerging-market currencies. “Exports have been muted while imports have been expanding and resulted in widening the trade gap,” said Churchill Ogutu, a senior research analyst at Nairobi-based Genghis Capital. “If three of the top four forex earners are having a downturn it will exacerbate the deficit.” Kenya’s tea production in the first five months of this year fell to 170.18 million kilograms compared with 187.69 million kilograms during the same period in 2018. The average auction price was $2.25 per kilogram compared with $2.80 per kilogram a year ago. Kenya is the world’s biggest exporter of black tea. The Kenya Flower Council sees 2019 cut-flower earnings growth slowing to 20% from 38% on global oversupply. Kenya is the largest exporter of cut flowers to Europe. The number of visitors to Kenya declined to 921,090 in the first six months of this year compared with 927, 977 during the same period a year ago. Cumulative remittances in six months through June increased to $1.45 billion from $1.38 billion during the same period last year.
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