Tag Archives: African developing countries

Riding the Frontier Markets: the easy money

frontier markets

A desperate search for bonds that pay a decent rate of interest and a keen desire for exposure to economies that are still growing quickly have taken rich-world investors to some exotic places. The raciest bets are made in so-called frontier markets, poorer places with even less mature financial sectors than emerging markets. Africa is full of them. Rwanda and Tanzania, for example, have found willing buyers this year for their debut issues of dollar-denominated bonds. The farthest edge of the investing frontier has now reached Mozambique.

In September Credit Suisse and BNP Paribas raised $500m on behalf of EMATUM, a state-owned company in Mozambique. Credit Suisse advanced the $500m; slices of the debt were then sold as loan-participation notes, maturing in 2020, at a yield of 8.5%. VTB, a Russian bank, raised a further $350m for EMATUM shortly afterwards. Such a deal can be done more quickly and with less fuss than a typical bond issue. VTB had already raised $1 billion for Angola in a similar fashion. Those notes are included in J.P. Morgan’s emerging-market bond index, an industry benchmark.

The concern is less about the way the money was raised than how it will be used. Mozambique is poor. Its budget is part-funded by grants and low-interest loans from rich countries. Its public finances were solid in part because it has been granted extensive debt relief. When such countries borrow in private markets, it is usually to fund projects, such as toll roads, airports or power stations, which might have broad enough benefits to justify the expense. But EMATUM is a tuna-fishing venture that came into being just a few weeks before the $850m was raised in its name.

It is not obvious that a state-run fishing startup is a compelling business proposition. But investors know there are huge gas reserves off the shores of Mozambique that will eventually bring in lots of foreign exchange, even if tuna does not. The bonds come with a guarantee from the finance ministry. And the handsome yield (far higher than the rate on comparable Treasury bonds) is some reward for the risks.

A French shipyard has received orders worth about $300m for two dozen fishing vessels and a handful of patrol boats. It is not yet clear what the rest of the money, which is accruing hefty interest, will be used for. What is clear is that the temptation to grab at easy money offered by yield-hungry investors is proving too great to resist for some countries. As usual, the role of party-pooper has fallen to the IMF. It has called for the cost of the guarantee and for “possible non-commercial activities” related to the EMATUM bond to be clarified in the next budget.

Investing in frontier markets: Fishy tale, Economist, Nov. 23, 2013, at 73

The Virgin Digital Land and the Google Monopoly

Online Africa is developing even faster than the new highways of offline Africa. Undersea cables reaching Africa on the Atlantic and Indian Ocean coasts, plus innovative mobile-phone providers, have raised internet speeds and slashed prices. In some African markets you can buy a daily dose of internet on a mobile phone for about the cost of a banana (ie, less than ten American cents). This burgeoning connectivity is making Africa faster, cleverer and more transparent in almost everything that it does.

Google can take a lot of the credit. The American search-and-advertising colossus may even be the single biggest private-sector influence on Africa. It is not just that its internet-search and e-mail are transforming Africa. Take maps. Before Google, ordinary Africans struggled to find maps. Military and civilian mapping offices hoarded rolls of colonial-era relics and sold them at inflated prices. By contrast, Google encourages African developers to layer maps with ever more data. In Kenya 31,000 primary schools and 6,900 secondary schools are marked on Google maps. Satellite views even let users see if the schools have built promised new classrooms or water points. Similar initiatives let voters verify local voting figures at election time. Satellite views of traffic jams have also shamed some African cabinets into spending more on city infrastructure.

Google has also pepped up Africa’s media, enabling Africans to read each other’s newspapers. Google is improving translation software to bring more Africans who speak only local languages online. As well as English, French, Portuguese and Arabic, it offers Zulu, Afrikaans, Amharic and Swahili. Languages like Wolof, Hausa, Tswana and Somali are set to follow.

Faster downloading speeds have helped make Google’s YouTube video-viewing more popular. Young urban Africans organise YouTube parties. The company is also trying to help African governments digitise information and make it freely available to their citizens. Many rulings in the higher courts of Ghana, for instance, are going online.

Yet critics complain that Google is buying up enormous amounts of virgin digital land in Africa at virtually no cost. Within a couple of decades, without the regulatory oversight of the African Union or African governments, they say, Africa’s internet life will be almost entirely in hock to the Google giant. Even the company’s decision to go slow on seeking profits from Africa by offering cheap deals has been attacked by African would-be rivals, which say that such tactics are only extending Google’s unfair advantage.

Google says its recent effort to best a rival South African firm, Mocality, was an embarrassing aberration. Google’s top man in Africa, Joe Mucheru, brushes aside fears of a monopoly. The company’s advertising model, he says, helps African business. “The more Google grows, the more the entire ecosystem grows.” He is especially keen on Google+, a service that seeks to provide an even more useful online community than Facebook

Google in Africa: It’s a hit, Economist, May 12,2012, at 57