Ghana Fast Becoming Frontier Investors’ Latest Best Friend
Midway through the last quarter of 2019, investors looking at Ghana saw a slowing economy, creeping inflation and a currency that had declined against the dollar for 25 straight years. Barely six weeks into the new year, the picture has changed.
The cedi is the best-performing currency in the world in 2020, recently investors fell over their feet to buy into the nation’s $3 billion Eurobond issue and foreigners are piling into the country’s local-currency debt.
Investors who worried last year about spending ahead of an election scheduled for December are now lauding the government for fiscal prudence and financial reforms.
Investors demonstrated that vote of confidence when they placed orders for almost five times the amount on offer at Ghana’s Eurobond sale two weeks ago, pushing the yield down well below the initial price target. And at the first local-currency bond sale of the year on January 16, foreign investors bought more than 80% of the 1.4 billion cedis ($258.3 million) of securities, compared with average holdings of 37% over the past two years.
Reforms started by the West African nation three years ago are now paying off. They include outlawing large deficits and an aggressive banking-sector overhaul that cut the number of lenders by a third to 23, lowering liquidity and credit risks.
The central bank has been effective in lowering inflation, which has been in single digits for two years even after an uptick in November. The regulator also started foreign-exchange forwards auctions in October to support the cedi.
It shows in the performance of Ghana’s assets. Yields on existing Eurobonds have dropped to record lows, and the cedi has gained 6.6% since the beginning of January, well ahead of the 2.4% advance for the second-best currency, the Egyptian pound. That’s wiped out more than half of last year’s 13% slump.
Nigeria to pick advisers for US$3.3bn Eurobond via open bids
Nigeria plans to appoint advisers for a US$3.3bn Eurobond issue through an open competitive bid process and expects to complete an approval process for the sale soon, the Debt Management Office (DMO) said on Friday.
The new Eurobond will be used to partly fund the government’s 2020 budget deficit and refinance an existing US$500mn Eurobond due in January next year, the DMO said. “Whilst the approval process … is expected to be completed soon, transaction advisers … will be selected through an open competitive bidding process,” the DMO said.
Citibank Global Markets Limited and Standard Chartered Bank were joint lead managers when Nigeria last tapped the Eurobond market in 2018, while FSDH Merchant Bank Limited was the financial advisor.
When contacted by BusinessDay, a senior FSDH official said he could neither confirm nor deny the bank’s role in the upcoming debt issuance due to client confidentiality agreement.
Nigeria steered clear of the international debt market last year after its record issuance of $5.4bn in 2018, according to official data.
However, the government’s 2020 budget deficit of N2.175trn, about 1.52 percent of GDP, will be financed by borrowing N850bn from foreign sources as well as multi-lateral /bi-lateral loan drawdowns of N328.13bn.
Finance Minister Zainab Ahmed said in December that Nigeria would be quick to tap into the international debt market to ensure the country has enough funds for the implementation of the 2020 budget.
Nigeria’s N26trn debt will impede future economic growth – CBN’s MPC warns
Members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) have called on the Federal Government to reduce recurrent expenditure in order to curtail the rising trend of the nation’s debt, warning that the N26 trillion debt level poses risks to future economic growth.
Nigeria’s total public debt rose by 17 percent year-on-year to N26.2 trillion on September 30, 2019 from N22.4 trillion on September 30, 2018.
This trend, according to MPC members, is worrisome and poses a significant challenge to the effective management of the economy. Their views were contained in the personal statements at the last meeting of the committee held last month.
Noting that, “the debt-service-to-revenue ratio is rising precipitously,” Joseph Nnana, CBN Deputy Governor, Economic Policy Directorate, averred that the nation’s debt level is on a trajectory which is not sustainable given the slow pace of revenue generation and output growth.
“Debt service obligations remain precariously high as the 2020 budget reveals. At N2.45 trillion or 23.2 per cent of the total expenditure, the obligation is 14.5 per cent higher than the previous year and could be exacerbated if fiscal revenues and oil exports decline lower than the benchmarks”, he warned.
On his part, Professor Adeola Adenikinju noted that “The fiscal side continues to pose a significant challenge in my view. The rising debt level and high fiscal deficit pose a significant challenge to effective economic management.”
Power sector loses N19.15bn in 10 days
The nation’s power sector lost an estimated N19.15bn in 10 days due to constraints from insufficient gas supply, distribution and transmission infrastructure. The losses were recorded in the 10 days to February 14, 2020, according to data from the Advisory Power Team in the Office of the Vice President. The sector lost an estimated N1.96bn on February 14; N2.01bn on February 13; N2bn on February 12; N1.95bn on February 11; N2.15bn on February 10, and N1.95bn on February 9.
About N1.89bn was lost on February 8; N1.92bn on February 7; N1.77bn on February 6, and N1.55bn on February 5.
The nation generates the bulk of its electricity from gas-fired power plants, while output from hydropower plants makes up about 30 per cent of the total.
The distribution and generation companies carved out of the defunct Power Holding Company of Nigeria were handed over to private investors on November 1, 2013, following the privatisation of the power sector.
More than six years after the privatisation, the investors who took over the power firms that emerged after the unbundling of the PHCN are still grappling with the old problems in the sector from gas supply shortages, limited distribution networks, weak transmission lines, huge metering gap, electricity theft, and high technical and commercial losses, among others.
IMF says Coronavirus to damage global growth in 2020
The Coronavirus epidemic could damage global economic growth this year, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, said
She was, however, optimistic that a sharp and rapid economic rebound could follow.
“There may be a cut that we are still hoping would be in the 0.1-0.2 percentage space,” Georgieva told the Global Women’s Forum in Dubai.
She said the full impact of the spreading disease that has already killed more than 1,600 people would depend on how quickly it’s contained.
“I advise everybody not to jump to premature conclusions. There is still a great deal of uncertainty. We operate with scenarios, not yet with projections, ask me in 10 days,” Georgieva said.
In its January update to the World Economic Outlook, the IMF lowered global economic growth forecast in 2020 by a 0.1 percentage point to 3.3 per cent, following a 2.9 per cent growth the previous year, the lowest in a decade.
