Ed­i­to­rial - Turk­ish Eco­nomic melt­down ver­sus Zam­bia’s Eurobond re­fi­nanc­ing.

Turk­ish Lira has taken a nose dive as the Euro­pean na­tion grap­ples with eco­nomic tur­bu­lence with es­ca­lat­ing debt.

Zambian Business Times - - FRONT PAGE -

A very in­ter­est­ing last week’s it was with US Pres­i­dent Don­ald Trump tweet­ing re­lent­lessly about tar­iffs, this time on Turkey. Trump im­posed a 50% duty on steel im­ports that sent the Turk­ish Lira on a nosedive...

A very in­ter­est­ing last week’s it was with US Pres­i­dent Don­ald Trump tweet­ing re­lent­lessly about tar­iffs, this time on Turkey. Trump im­posed a 50% duty on steel im­ports that sent the Turk­ish Lira on a nosedive tra­jec­tory, shav­ing more value against the dol­lar that has been ap­pre­ci­at­ing bullishly. The Turk­ish lira is cur­rently trad­ing 40% weaker year to date after the be­lea­guered cur­rency has lost 28% of its value against the United States dol­lar since Au­gust this year. The lira on Fri­day 17 Au­gust ral­lied 6% after the Turkey's cen­tral bank pledged to pro­vide liq­uid­ity.

Turk­ish eco­nomic fun­da­men­tals have waned with wide debt con­cerns and an in­sta­ble cur­rency as the West is on the quest to re­gain its po­si­tion not only as a global su­per power but as the world’s eco­nomic pow­er­house. This trade war was first ig­nited the US slapped a wide spec­trum of tar­iffs on China, which the east­ern power has since re­tal­i­ated. But as ele­phants fight, it is the grass that suf­fers. Emerg­ing mar­kets have not been spared from ef­fects through cur­rency routs and com­mod­ity volatil­ity swings that have pre­cip­i­tated un­cer­tainty in smaller economies. Cop­per, the metal used in the man­u­fac­ture of elec­tric wires, took a beat­ing to lev­els al­most ap­proach­ing 1 month lows on the Lon­don Metal Ex­change. Cop­per closed last week at US$5,926 a met­ric ton after os­cil­lat­ing within a US$5,864 and US$5,945 in the week tar­iffs were slapped on turkey. The ra­tio­nale be­hind a com­mod­ity price rout is that in­vestors heavy on risky as­sets started to off­load as jit­ter­i­ness gripped the mar­kets. No, the doctor is not in hospi­tal

Zam­bians seem to have keenly fol­lowed Turk­ish eco­nomic news es­pe­cially that the state tipped pos­si­ble Eurobond re­fi­nance prospects with a pri­vate Turk­ish firm. In­di­ca­tions were that ten­ta­tive dis­cus­sions would com­mence in Septem­ber. How­ever so­cial me­dia spec­u­la­tion emerged with var­i­ous pock­ets of so­ci­ety ques­tion­ing how the sov­er­eign na­tion of Turkey would bail out Zam­bia in re­fi­nance when it was in an eco­nomic quag­mire it­self. Some dubbed the Turk­ish eco­nomic tur­bu­lence, “the doctor in hospi­tal.” It is about a dry point of con­struc­tion that Turkey is un­der­go­ing a melt­down, but what stands out clear is that it is not the Turk­ish state that Zam­bia would be in talks with but a pri­vate firm. Pri­vate Turk­ish firms such as money or fund man­agers and the sov­er­eign it­self are two dis­tinct per­sonas, very dif­fer­ent from how a lo­cal pen­sion fund and money man­ager would re­late to the gov­ern­ment of Zam­bia. Be­cause we are not told which pri­vate firm Zam­bia will be in talks with, we can only spec­u­late. How­ever, Zam­bians need to be cog­nizant that de­spite the Turk­ish eco­nomic tur­bu­lence, pri­vate funds ( hedge fund, money man­agers) have deep pools and pock­ets which al­low them to in­vest in a di­ver­si­fied ar­ray of as­sets that weather ad­ver­sity or eco­nomic volatil­ity. These pri­vate firms op­er­ate in deep pools that are highly liq­uid and will tar­get the high­est yield­ing as­set mixes to even beat their mar­kets as guided by the ef­fi­cient mar­ket hy­poth­e­sis. This then makes sov­er­eign risk (or in lay­man’s terms the credit risk rating) or state of the Turk­ish econ­omy ir­rel­e­vant to their suc­cess in gen­er­at­ing re­turns on in­vest­ment. It could be a pri­vate firm in Turkey but heavy on as­sets from all over the world with bullish fun­da­men­tals. It wouldn’t be sur­pris­ing if it was a pri­vate firm reg­is­tered in Turkey but op­er­at­ing in Frank­furt which still qual­i­fies it to be called a Turk­ish pri­vate firm. What Zam­bians must be con­cerned with is the cost and con­di­tions un­der which a suc­cess­ful re­fi­nance would be con­cluded.

An­other area to bear in mind is that these pri­vate funds are so mas­sive that US$750mil­lion is an in­signif­i­cant amount com­pared to the depth of pools they deal with. They have ap­petite for risk as­sets that pay higher yields in ex­cess of what they would be earn­ing in their ju­ris­dic­tions. As­sets pay be­tween 2-5% in the euro re­gions and to lock in yields in ex­cess of 9% ( hy­po­thet­i­cal us­ing the av­er­age rate a Zambian Eurobond is pay­ing) is a good mar­gin call for the pri­vate firms. The dol­lar debt re­demp­tion strat­egy san­guinely awaited How­ever, one as­pect that has re­mained sticky in most cit­i­zens' minds is that there seems to be a per­cep­tion that Turkey is the only re­fi­nance op­tion for the Zambian Eurobonds. The min­is­ter in the trea­sury note, did state that the fi­nance min­istry was work­ing on a re­demp­tion strat­egy that would be tabled be­fore cabi­net after which fi­nan­cial ad­vi­sors would be en­gaged to as­sist with eval­u­at­ing what the least fi­nance strat­egy cost would be to help Zam­bia with the re­fi­nance of its dol­lar as­sets. This then means the pri­vate Turk­ish firm is just about one of the op­tions. As ear­lier al­luded in the pre­vi­ous ed­i­to­rial, re­fi­nanc­ing is noth­ing new in the fi­nan­cial mar­ket land­scape. It is what a na­tion does to re­store its fis­cal fit­ness even amidst a breather to re­pay obli­ga­tions through length­en­ing re­pay­ment pe­ri­ods at lower costs, that mat­ters. Ghana re­fi­nanced its US$750mil­lion with a US$2.5bil­lion for 10 years and slightly lower costs though with a 50% World Bank guar­an­tee which was eas­ier to get after suc­cess­fully get­ting onto a 3-year IMF pro­gramme. This should open cit­i­zens' minds as to why the state is pe­rus­ing the IMF route which many are con­vinced is for the US$1.3bil­lion cash ben­e­fit. Truth of the mat­ter is that the ben­e­fits that ac­crue to a na­tion that suc­cess­fully gets on a pro­gramme out­weigh the cash in­jec­tion (ex­tended credit fa­cil­ity – ECF) that comes with the pack­age es­pe­cially that it is even dis­bursed in parts. There seems to be some de­gree of ig­no­rance and naivety in most ex­trem­ists that don’t see the need for an IMF pro­gramme, but only be­cause they over­look the fact that the Wash­ing­ton-based lender serves as a ‘de­facto guar­an­tee’ to at­tract con­fi­dence and in­vestor flows that the drive the re­cov­ery process that is a key com­po­nent in restor­ing fis­cal fit­ness. We urge the Min­is­ter of Fi­nance to ex­pe­dite im­ple­men­ta­tion of the re­demp­tion strat­egy as it is one area bond hold­ers, in­vestors and co­op­er­at­ing part­ners are look­ing for­ward to see­ing. This will also send the right sig­nals to the mar­kets, that the state is se­ri­ously ad­dress­ing its bal­looned debt po­si­tion. A tax to save the tele­coms sec­tor “This 30 ng­wee in­ter­net user fee will be shared with the mo­bile op­er­a­tors,” per­ma­nent sec­re­tary in the Min­istry of Trans­port and Com­mu­ni­ca­tions Mis­check Lungu said at Morn­ing Live in­ter­view on na­tional tele­vi­sion. Tax on In­ter­net calls was the hottest topic last week, with cit­i­zens grap­pling to un­der­stand why they should be levied with K9 (un­der $1) monthly for an In­ter­net call user fee to help pro­tect the telecom­mu­ni­ca­tions in­dus­try that has hem­or­rhaged rev­enues from 2010 to date due to the near ex­tinc­tion of the tra­di­tional voice calls. Tra­di­tional voice calls have for a long time been cash cows for mo­bile op­er­a­tors who now suf­fer loss due to the ad­vent of voice over in­ter­net pro­to­col ( VOIP) calls. The state is con­sid­er­ing in­tro­duc­ing K0.3 daily user fees in a quest to raise US$37mil­lion an­nu­ally to help with in­fras­truc­ture main­te­nance in the tele­coms in­dus­try and to as­sist with preser­va­tion of jobs. Cabi­net on Au­gust 10th, ap­proved the in­tro­duc­tion of a 30 ng­wee daily user fee on all In­ter­net calls which it said will be shared be­tween the state and the mo­bile op­er­a­tors. The Eco­nomics As­so­ci­a­tion of Zam­bia – EAZ, re­cently gave its po­si­tion on the mat­ter, not­ing that ac­cord­ing to pub­lic fi­nance, taxes can only be jus­ti­fied if their pro­ceeds can tie to tan­gi­ble in­fras­truc­ture for the cause. How­ever, its na­tional sec­re­tary stated that ad­di­tional user fees and taxes would then nar­row cit­i­zens' propen­sity to save and in­vest pro­vided their in­comes were un­changed. The EAZ also ap­pre­ci­ated the so­cial cause of gov­ern­ment to cre­ate em­ploy­ment but stated that the onus of in­no­va­tive­ness to im­prove rev­enue in­come lines was on the mo­bile op­er­a­tors which ul­ti­mately would sus­tain their work­forces. The reg­u­la­tor ZICTA was chal­lenged to re­think its fines on mo­bile ser­vice providers for poor net­work which cit­i­zens would be taxed against. Mo­bile op­er­a­tors have been taxed two quar­ters in a row with no im­prove­ment and the same is­sues cited in the penal­ties. ZICTA needs to relook its penalty struc­ture to en­sure that it makes cap­i­tal in­vest­ment in im­prov­ing net­work and ser­vice de­liv­ery turns out cheaper than the fines. Suf­fice to say larger fines are ex­pected on mo­bile op­er­a­tors to in­still the right lev­els of com­pli­ance with net­work stan­dards. The state in light of the ris­ing tax bur­dens on con­sumers need to re­think op­ti­miza­tion of its tax­a­tion struc­tures so as not to make cit­i­zens liveli­hoods far worse off. For re­sponses and queries con­tact the chief mar­ket an­a­lyst on edi­tor@zam­bi­abusi­nesstimes.com and visit our web­site on: www.zam­bi­abusi­nesstimes.com

Turk­ish Lira has taken a nose dive as the Euro­pean na­tion grap­ples with eco­nomic tur­bu­lence with es­ca­lat­ing debt.

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