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Tuesday 10th of March 2020
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Ozymandias PERCY BYSSHE SHELLEY Law & Politics |
I met a traveller from an antique land,
Who said—“Two vast and trunkless legs of stone
Stand in the desert. . . . Near them, on the sand,
Half sunk a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them, and the heart that fed;
And on the pedestal, these words appear:
My name is Ozymandias, King of Kings;
Look on my Works, ye Mighty, and despair!
Nothing beside remains. Round the decay
Of that colossal Wreck, boundless and bare
The lone and level sands stretch far away.”
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Saudi Arabia's Oil Crash Has No Quick End @markets Commodities |
Saudi Arabia’s new oil strategy — a short, sharp shock to cow Russia —
looks very much like its Yemen military strategy — a short, sharp
shock meant to cow the Houthi rebels. The chances of it being any more
successful are slim.
Crown Prince Mohammed bin Salman, the de facto leader of the kingdom,
is gearing up to use the might of Saudi Arabia’s oil production
capacity to deliver a crushing blow to rival producers.
His aim appears to be to drive oil prices down so far and so fast that
Russia realizes it made a terrible mistake in refusing to agree to
deepen output cuts at Friday’s OPEC+ gathering, bringing more than
three years of supply management to an abrupt and unexpected end.
In Yemen, MBS, as the Crown Prince is known, launched “Operation
Decisive Storm” in 2015, using Saudi military power to inflict a
devastating attack on Houthi rebels in Yemen.
The campaign’s aim was to destroy the rebels and pave the way for the
quick restoration of Saudi-backed and internationally recognized head
of state, Abd Rabbuh Mansur Hadi.
It didn’t turn out to be quite so decisive. Five years later, the
conflict drags on. The Houthis remain in control of a large part of
the country and President Hadi is still in exile, while Yemen’s
civilian population bears the brunt of the fighting, with
three-quarters of the population needing humanitarian aid, according
to the United Nations Office for the Coordination of Humanitarian
Affairs.
Meanwhile, the Houthis have taken the fight to Saudi Arabia, claiming
responsibility for last year’s attacks on oil processing plants at
Abqaiq and Khurais and the strategic East-West pipeline.
Where managing the world’s oil production capacity is concerned, there
were other possible ways to deal with last week’s standoff with
Russia.
Back in 2016, the Organization of Petroleum Exporting Countries —
which now counts 13 members with the capacity to pump about one-third
of the oil the world uses each day — persuaded 10 non-OPEC countries
to join them in managing oil supply, creating the larger OPEC+ group.
The agreement, initially meant to last for six months, is now well
into its fourth year. While OPEC has taken about two-thirds of each
output cut agreed, there is absolutely no reason for that ratio to
have become permanent.
Indeed, Saudi Arabia could have responded to Russia’s unwillingness
to impose deeper output cuts on its oil industry by accepting the
country’s offer to extend the current agreement, while moving ahead
with a further reduction by OPEC alone. It didn’t.
Instead it has launched an oil price war, slashing the official cost
of its crude by the most in 30 years and planning to raise output by
at least 1 million barrels a day in the coming months.
Will the tactic work?
Oil prices have crashed, but it won’t bring a chastened Russian energy
minister back to OPEC’s Vienna headquarters any time soon.
Saudi Arabia reserved its biggest price cuts for sales to Northwest
Europe, a key market for Russian barrels.
That challenge won’t win it any friends among policy makers in Moscow.
This is developing into a game of who’ll blink first between two
contestants who’ve cut off their eyelids.
Russia has some geographical advantages over Saudi Arabia, with export
pipelines that carry its crude directly to refineries in China and
Europe, as well as shipping terminals that are just a few days sailing
from major refining centers in those regions and in Japan and South
Korea.
By contrast, vessels sailing from Saudi Arabia can take up to a month
to reach either northern Asia or northwest Europe, adding both time
and additional cost to its deliveries.
Russia’s walk-out from the OPEC+ meeting was a slap in the face for
Saudi Arabia, which has made much of their relationship.
I warned last June and again just a couple of weeks ago that the
kingdom (and OPEC) would come to rue the alliance with Russia.
Former Saudi oil minister Sheikh Zaki Yamani — who I worked for from
1989 until 2014 — told me that he and several other OPEC ministers
were wary of admitting the Soviet Union into the group in its early
years, fearing that it would come to dominate the other members.
His concern appears to have been well founded.
Saudi Arabia’s aggressive price cuts and preparations for a production
surge are its attempt to show Russia that it can’t take for granted
the kingdom’s role as swing producer.
The risk, though, is that just like the Houthis in Yemen, Russia and
other big oil producers absorb the pain and cling on, dragging the
kingdom into a long oil price war that neither can afford.
But the kingdom clearly feels it needs to show it’s a force to be
reckoned with — no matter the cost.
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Sudan's PM survives assassination attempt in capital @AP Africa |
Sudan’s prime minister survived an assassination attempt on Monday
after a blast in the capital, Khartoum, Sudanese state media said.
Abdalla Hamdok’s family confined he was safe following the explosion,
which targeted his convoy.
No one immediately claimed responsibility for the attack.
Hamdok was appointed prime minister last August, after pro-democracy
protests forced the military to remove the autocratic President Omar
al-Bashir and replace it with a civilian-led government.
Military generals remain the de facto rulers of the country and have
shown little willingness to hand over power to the civilian-led
administration.
Nearly a year after al-Bashir’s ouster, the country faces a dire
economic crisis. Inflation stands at a staggering 60% and the
unemployment rate was 22.1% in 2019, according to the International
Monetary Fund.
The government has said that 30% of Sudan’s young people, who make up
more than half of the over 42 million population, are without jobs.
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Marine back from #Ethiopia tests positive from COVID-19 at Ft. Belvoir, Virginia @talkmedianews #COVID19 Africa |
The Marine stationed at Fort Belvoir tested positive Saturday after
returning from overseas on official business, according to a
Department of Defense statement. He had been in Ethiopia.
There are no reported cases of COVID-19, the official name for
coronavirus, in Ethiopia, according to the World Health Organization.
Ethiopia is home to one of Africa’s busiest international airline hubs
and has stepped up its preparedness to contain a potential outbreak of
COVID-19, according to news reports.
Ethiopia is Africa’s second populous nation with an estimated
population of over 107 million. It has four international airports and
21 land border crossing points.
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Debt, virus and locusts create a perfect storm for Africa @TheAfricaReport Africa |
The year began with promise for sub-Saharan Africa.
All the major institutions tracking African growth said so:
The African Development Bank pronounced in its Economic Outlook that
Africa’s economic outlook continues to brighten. Its real GDP growth,
estimated at 3.4% for 2019, is projected to accelerate to 3.9% in 2020
and to 4.1% in 2021.
The IMF said in its World Economic Outlook sub-Saharan Africa growth
is expected to strengthen to 3.5% in 2020–21 (from 3.3% in 2019).
The World Bank predicted ”Regional growth is expected to pick up to
2.9% in 2020”
Interestingly the World Bank added a caveat which was prescient:
A sharper-than-expected deceleration in major trading partners such as
China, the Euro Area, or the United States, would substantially lower
export revenues and investment.
A faster-than-expected slowdown in China would cause a sharp fall in
commodity prices and, given Sub-Saharan Africa’s heavy reliance on
extractive sectors for export and fiscal revenues, weigh heavily on
regional activity.
Those forecasts are now defunct and it’s only March.
The Coronavirus has to date barely made landfall on the African
continent with only 5 countries reporting infections but a Virus is in
its essence non-linear, exponential and multiplicative and it would be
a Shakespeare-level moment of hubris if policy makers were to pat
themselves on the back.
Diagnostic kits were only recently availed and if South Korea had
tested the same number of People as the entire African Continent, they
too would be reporting single digit cases.
We all know now ”what exponential disease propagation looks like in
the real world.
Real world exponential growth looks like nothing, nothing, nothing …
then cluster, cluster, cluster … then BOOM!” and therefore we will
know soon whether we really have dodged the #Coronavirus Infection
Bullet.
The issue at hand now is around the violence of the blowback from the
China #Coronavirus feedback loop phenomenon.
The virus is not correlated to endogenous market dynamics but is an an
exogenous uncertainty that remains unresolved and therefore, it is a
”Black Swan”.
Fantasy predictions of a V shaped recovery in China have been dashed.
In fact China cannot just crank up the ‘Factory’ because that will
risk a second round effect of infections.
Therefore, I expect negative GDP Growth through H1 2020 in China as my
base case.
Standard Bank’s Chief Economist has calculated that a one percentage
point decrease in China’s domestic investment growth is associated
with an average 0.6 percentage point decrease in Africa’s exports.
Those countries heavily dependent on China being the main taker of
their commodities are at the bleeding edge of this now negative
feedback loop phenomenon. Commodity prices [Crude Oil, Copper, Coal]
have crashed more than 20% since the start of the year.
You don’t have to be a rocket scientist or an Economist to calculate
which countries in are directly in the line of fire. Angola, Congo
Brazzavile, DRC, Equatorial Guinea, Zambia, Nigeria and South Africa
spring immediately to mind.
Notwithstanding comments by the always upbeat and bright-eyed
President Adesina of the African Development Bank that Africa is not
facing a debt crisis.
He told Bloomberg, “Debt is not a problem, it’s very bad debt that’s a
problem,”.
The point is this.
SSA Countries with no exception that I can think off have gorged on
borrowing and balance sheets are maxed out.
Africa’s sovereign issuance in the Eurobond markets totaled $53bn in
2018 and 2019 and total outstanding debt topped $100bn last year.
Debt burdens have increased and affordability has weakened across most
of Sub-Saharan Africa, while a shift in debt structures has left some
countries more exposed to a financial shock, said Moodys in November
last year.
Very few of the investments made are within spitting distance of
providing an ROI [Return on Investment].
Rising debt service ratios are best exemplified by Nigeria where the
Government is spending more than half of its revenue servicing its
debt.
More than 50% of SSA GDP is produced by South Africa, Nigeria and Angola.
South Africa reported that GDP in Q4 2019 shrank by a massive 1.4%.
Annual growth at 0.2% is the lowest yearly growth since 2009 and the
tape is back at GFC times.
The rand which has been in free fall has a lot further to fall in 2020.
And this is before the viral infection.
Nigeria’s oil revenue is cratering and there is $16bn of ”hot money”
parked in short term certificates which is all headed for the Exit as
we speak. A Currency Devaluation is now predicted and predictable.
South Africa, Nigeria and Angola are poised to dive into deep recession.
East Africa which was a bright spot is facing down a locust invasion
which according to the FAO could turn 500x by June.
It is practically biblical.
“If I shut up heaven that there be no rain, or if I command the
locusts to devour the land, or if I send pestilence among my people;”
– 2 Chronicles 7:13-14
This is a perfect storm. Buckle up, and let’s stop popping the Quaaludes.
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Oil Dive May Force Nigeria to Devalue Naira as Reserves Dwindle @markets Africa |
The plunge in oil prices may force Nigeria to devalue the naira as
dwindling export revenues deplete foreign-exchange reserves, curbing
the central bank’s ability to support the currency, Societe Generale
SA warned on Monday.
The central bank’s reserves have decreased by 20% in the past two
years to the lowest since November 2017, and may soon reach the $30
billion threshold set by Governor Godwin Emefiele for the country to
consider a devaluation, Jason Daw and Phoenix Kalen, strategists at
Paris-based SocGen, wrote in note on Monday.
The central bank may start adjusting currency policy before it reaches
that point, they said.
Naira fundamentals are on an unsustainable trajectory and under
current external conditions, especially lower oil prices, the risk of
a devaluation is “very elevated,” the SocGen strategists wrote.
“The combination of a current-account deficit -- previously due to
strong imports but now being compounded by weak exports -- portfolio
outflows and lower oil prices will continue to deplete FX reserves and
pressure the naira.”
Yields on Nigeria’s 2049 Eurobonds climbed 143 basis points to 10.18%
on Monday, the highest on record, while the naira weakened 1.1% in
offshore trading. The country’s benchmark stock index slumped to the
lowest level in almost three years.
Nigerian President Muhammadu Buhari signed the country’s 10.6 trillion
naira ($29 billion) spending plan into law this year based on a crude
price projection of $57 a barrel and targeted oil earnings of 2.64
trillion naira.
Brent crude prices have plummeted about 45% this year to around $36 a barrel.
Africa’s largest oil producer relies on earnings from the black
commodity for more than 90% of its export revenues. The International
Monetary Fund slashed the West African nation’s economic growth
projection to 2% from 2.5% because of a decline in oil prices.
Under Emefiele, who was appointed in 2014, Nigeria has tightened
capital controls and closely managed the naira’s value. The governor
has consistently said this is the best way to curb inflation and boost
manufacturing by discouraging imports.
“An initial attempt at a managed depreciation is more likely than a
one-off large devaluation (like in the past), but it might be
challenging to maintain over the medium term unless bolder policy
action is taken,” Daw and Kalen wrote.
The central bank could also consider tightening liquidity in the
interbank market or by tightening policy, while a planned Eurobond
sale could help rebuild currency reserves, they said.
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