US can calm eco­nomic tur­moil

Lesotho Times - - Leader - Lee mwiti

THE pointed talk­ing-up of China as an al­ter­na­tive to the West has been trendy in an Africa daz­zled by Bei­jing’s flash­ing over­tures, rem­i­nis­cent of a man plan­ning to aban­don his wife of don­key’s years for a new found love.

It has been a whirl­wind re­la­tion­ship — bi­lat­eral trade has ex­ploded in the last decade to an es­ti­mated $222 bil­lion last year (thrice that with the US), while more than a quar­ter of sub-sa­ha­ran Africa’s ex­ports head for the belly of the dragon.

The US has in re­cent years sought to re­mind Africa of when the vows mat­tered, with its first ever Us-africa lead­ers’ sum­mit last year lead­ing to the “home­com­ing” of Pres­i­dent Barack Obama last month.

And as the mar­kets have shown this year, some­times it pays not to spurn com­pletely, with the US poised to send a sig­nal to traders which could have a sig­nif­i­cant im­pact on a broader African econ­omy reel­ing from events largely out­side its con­trol.

China’s sud­den de­val­u­a­tion of its cur­rency this month spooked in­vestors, caus­ing a global mar­ket rout that also seen the value of African as­sets plunge fol­low­ing a sharply re­duced ap­petite for emerg­ing mar­ket risk.

African cur­ren­cies are tak­ing a pum­melling, with half of the world’s worst per­form­ing cur­ren­cies on Mon­day com­ing from the re­gion, ac­cord­ing to fi­nan­cial data com­pany Bloomberg. This builds on a los­ing streak that has left cen­tral banks around the con­ti­nent to watch gloomily the weak out­come of their ag­gres­sive mon­e­tary pol­icy tight­en­ing ac­tions.

There have been a few con­trar­i­ans — Botswana early this month re­duced its bench­mark lend­ing rate, but the south­ern African coun­try also si­mul­ta­ne­ously pared back eco­nomic growth fore­casts for this year by nearly half.

South Africa’s cur­rency this week reached a record low against the US dol­lar, join­ing coun­tries like Zam­bia, Nige­ria, Ghana and An­gola that have seen their lo­cal units de­pre­ci­ate to un­charted lows.

Bourses have not been spared ei­ther — Nige­ria’s main stock mar­ket in­dex shed nearly nine per­cent in July, while South Africa’s and Mau­ri­tius’ re­mained largely flat, ac­cord­ing to data from the African Se­cu­ri­ties Ex­changes As­so­ci­a­tion.

With com­modi­ties at a 16-year low, Africa ex­porters have borne the brunt, but the cur­rency losses have seen even im­porters like Uganda and Kenya see hoped for gains evap­o­rate.

With seem­ingly no end in sight to the volatil­ity, emerg­ing mar­kets have been driven al­most to de­spair, high­light­ing just how in­te­grated fi­nan­cial mar­kets are, and leav­ing smaller play­ers like Africa at their mercy. But help may come from un­likely quar­ters, or if you think about it, one that has al­ways been there.

An­a­lysts say African mar­kets could rally again if the US Fed­eral Re­serve de­lays a much-an­tic­i­pated de­ci­sion to raise its funds rate for the first time in years, a move that could come as early as next month. But given the mar­ket storms rag­ing all around, the US reg­u­la­tor could de­cide to stay its hand, as it seeks to keep its fin­ger on the global mar­ket pulse. It could be much like a stay of ex­e­cu­tion for de­vel­op­ing coun­tries be­cause risk-weary in­vestors may not pe­nalise them just yet.

But the signs that it would be a tough year for Africa have been ap­par­ent for months, as a Chi­nese econ­omy run­ning out of steam cut back on its pre­vi­ously vo­ra­cious de­mands for the con­ti­nent’s raw ma­te­ri­als. This has led to the in­creas­ingly fran­tic at­tempts by Bei­jing to jump­start its econ­omy.

In ad­di­tion to de­valu­ing its cur­rency, the coun­try’s cen­tral bank on Tues­day re­duced its one-year lend­ing rate for the fifth time in less than a year, in ad­di­tion to cut­ting the amount on money it ex­pects Chi­nese banks to set aside for the third time this year, help­ing to mo­men­tar­ily stem the week-long global mar­ket haem­or­rhage.

The tur­moil has caught up with African economies, which are now queu­ing up to cut pre­vi­ously bullish fore­casts on eco­nomic growth. It will not be sur­pris­ing if the In­ter­na­tional Mon­e­tary Fund (IMF) fur­ther cuts growth fore­casts for the re­gion from the cur­rent 4.5 per­cent, from last year’s pro­jec­tion of five per­cent. The World Bank in June cut the re­gion’s growth forecast to 4.2 per­cent.

Uganda has this week said its eco­nomic growth in the year to June 2016 could fall to five per­cent from an ini­tial 5.8 per­cent forecast, af­ter its cen­tral bank raised in­ter­est rates to com­bat a weaker cur­rency. Four in­creases of the coun­try’s main in­ter­est rate this year have failed to prop up the shilling, which has fallen by a quar­ter against the dol­lar this year.

The coun­try fol­lows in the path of Botswana which last week cut its 2015 growth forecast by nearly half, as de­mand for its main­stay di­a­monds weak­ened. It now ex­pects to see ex­pan­sion at 2.6 per­cent, from a Fe­bru­ary pro­jec­tion of 4.9 per­cent, the fi­nance min­is­ter said. Di­a­monds ac­count for more than 70 per­cent of Botswana’s ex­port rev­enue.

The coun­try also ex­pects to post a bud­get deficit of 4 bil­lion pula ($394 mil­lion), com­pared to an ear­lier ex­pected sur­plus of 1.2 bil­lion, as civil ser­vice sec­tor wages rose, and a drought con­tin­ues to rav­age the re­gion.

In South Africa, data re­leased on Tues­day showed that the econ­omy had pulled back in the third quar­ter, on the back of a steeply-fall­ing cur­rency, crip­pling load shed­ding, and slump­ing com­mod­ity prices, fuelling fears of a re­ces­sion.

Nige­ria’s sec­ond quar­ter growth has come in at 2.35 per­cent, down from 3.96 per­cent last year, as the oil price crash hit home, one of a raft of bad news for Africa’s largest econ­omy.

Strug­gling Zim­babwe has also halved growth fore­casts from 3.2 per­cent to 1.5 per­cent, with Fi­nance min­is­ter Pa­trick Chi­na­masa last month blam­ing drought and a slow­down in its key min­ing in­dus­try. But the crunch has been enough for Pres­i­dent Robert Mu­gabe to wave the white flag, ad­mit­ting that western re-en­gage­ment in his coun­try’s econ­omy af­ter 15 years in which the vet­eran daily de­nounced the west, was vi­tal. — M&G

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