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International Economics, 2/26/23

Updated: Mar 2, 2023

Good morning and welcome back to International Economics, a roundup and review of the key stories moving global markets. We would love to hear any feedback, news ideas, or thoughts for improvement as we start out.


Sanctions and societal shifts knock Russian economy back decades. Recent research showed that only 8.5% of Western-based companies operating in Russia have fully divested, instead opting for complicated maneuvers to freeze or isolate their operations to retain market access for future strategies. Recent Morning Consult polling of Russian consumers casts doubt on these plans as sentiment leans into economic nationalism.

While economic growth was still top of mind, Russian consumers have become less eager to welcome foreign-owned businesses, more likely to favor tariffs on foreign goods, and more likely to say they go out of their way to buy domestic products. They are also less willing to punish violations of foreign companies’ intellectual property rights, as evidenced by legal changes permitting the theft of such property from countries determined to be unfriendly toward Russia.

With the Kremlin’s anti-Western narrative having a measurable effect on consumer sentiment, multinationals hoping to profit off of a peace-play face ever-growing obstacles. Beyond the consumers themselves, drafts have distorted labor markets, financial restrictions make operating capital difficult to come by, western export restrictions make key inputs harder to come by, and the Kremlin has accelerated its interventions in the private sector from supply chains to merger approvals. While multinationals look likely to hold out hope for now, the Russian economy has seen decades of technological, financial, and societal developments erased.

Debt instability reduces liquidity in West Africa’s largest markets. Political and macroeconomic instability are pushing equity investors from West Africa’s largest economies according to data from The Africa Report and Business Ghana. Foreign portfolio participation in Nigerian stock trading slumped to 16.3% in 2022 from 50.7% in 2018, figures from the Nigerian Exchange, reflecting foreign-exchange restrictions make it difficult for investors to access cash after equity sales.

Freedom and justice...just perhaps not liquidity. Black Star Gate In Accra. Photo via the Ghana Stock Exchange

Foreign investors also have to deal with high inflation, political uncertainty, and a complex currency regime of multiple exchange rates and a looming devaluation. Such factors both complicate investor execution and undermine corporate growth.

Meanwhile, the Ghanaian stock exchange has taken a hit despite the government claiming success in its domestic debt exchange. The exchange shared that investors pulled money out of the exchange reducing trading volume, with GSE statements showing that January closed with a 95% and 82% decrease in volume and value traded respec­tively compared with 2022.

With macroeconomic and political environments seeing reduced market liquidity and complicated currency dynamics, Amundi’s head of frontier markets sees Kenya as an attractive alternative due to a stable currency regime, better IMF relations, and strong sectoral growth in financial services and telecoms.


National stories play a larger role in generating FX alpha. Financial markets are increasingly looking to local stories to drive outperformance across emerging market currencies, ING’s Chris Turner writes in a note. Emerging currencies are lagging as politicians start to resist high interest rates and question central bank independence. This means that markets are no longer looking at homogenous returns from the slowing Fed/China reopening story.

In Brazil, the new administration has been questioning whether the central bank needs to lift its inflation target, leading its currency to lag compared to late 2022 gains. Meanwhile, events in Israel have been surprising as the Foreign Minister heavily criticized the central bank for hiking rates, resulting in the Israeli shekel being hit hard on the news. The South African government’s fiscal support for state utility Eskom, which has been welcomed by bondholders, but the support means the country's debt profile is deteriorating and the rand has underperformed in turn. On the flip side, the Mexican peso remains attractive, with one of the highest risk-adjusted yields in the EM FX space despite rising political risk sentiment from recent electoral reforms.

South Africa takes on large debts to deal with troubled state electricity company.

The South African government announced plans this week undertake large scale fiscal support to help manage failing electricity giant Eskom’s debts, which have reached $14bn. The Ramaphosa government’s last ditch attempt to spend its way out of an energy crises which has dimmed the outlook for Africa’s most industrialized country.

The government bailout is expected to allow Eskom to focus on maintaining its power stations, which are at the core of the crisis. Eskom will have to meet strict conditions on better power-station performance to access the relief. Eskom bonds rallied on the news but the currency slid and observers have raised concerns about the country’s rapidly deteriorating debt-to-gdp ratio.

The Treasury said that the extra $6.4 billion in borrowing will require a change in the country’s approach to public debt, allowing debt levels to stabilize later in the decade at around 75% of GDP with 20% of the budget going towards debt servicing. While the debt situation is beginning to deteriorate, South Africa has relatively deep domestic capital markets that will keep the government from facing Ghana or Nigeria’s current debt problems.

Instead, the biggest threat to South Africa is the real concern is the breakdown in aging coal plants which have forced unprecedented levels of power cuts, interrupting nearly every sector of the economy.

National News:

Copper mine row threatens Panama’s economy and business friendly reputation.

Copper miner First Quantum Minerals is slowing processing at its Panamanian mine and could fully shut down operations as the company clashes with the Panamanian government. Late last year, the two sides failed to reach an agreement over tax levels, available tax credits, and legal protections from expropriation at the large Cobre Panama mine. The Panamanian government escalated the feud earlier this month, preventing the loading of copper concentrate at the port, effectively stopping First Quantum from exporting.

With limited storage capacity at the mine, the Canada-based miner warned that it would soon run out of space and be forced to begin laying off its workforce of 8,000 people in Panama over the next few weeks if it isn't allowed to resume concentrate shipments. Facing layoffs, thousand have engaged in sporadic protests across the traditionally stable country.

Cobre Panama workers protesting layoffs on Thursday February 23, 2023. Photo: Carlos Lemos via QuePasaMedia

While investors expect the duel to be short-lived, as the mine accounts for roughly 5% of the country's GDP, Panama's hardball tactics could threaten its perception as a mining and business-friendly jurisdiction. Even for the most stable emerging markets then, near-record commodity prices are tempting posthoc renegotiations of tax sharing deals - the country joins Mexico, the Democratic Republic of Congo, Pakistan, Peru, Bolivia, Chile, Zambia, Tanzania, and Australia in pushing mining companies for tax or ownership increases.

Ukraine war gives life to Greece’s embattled coal mining industry. The Russian war in Ukraine last year has made domestically sourced coal an increasingly hot commodity, saving thousands of mining jobs which would have otherwise been eliminated by green energy efforts, Balkaninsight resorts. Greece, in particular, saw a revision of its decarbonisation targets and an increase in coal extraction by 50% to reduce dependence on Russian gas.

The country's reserves of low-grade, high-emission lignite have underpinned its energy independence for decades, but the cost of production had nearly doubled, making it less competitive against natural gas imports. The last decade saw the share of lignite within Greece's energy mix shrank by half, and the cost of producing high-emission lignite nearly doubled from 2013-18, according to official figures.

Ppen-cast mines scar the landscape around Kozani in Western Macedonia. Photo: Alexandros Avramidis

While renewables flourished under EU subsidies, the green sector is expected to contribute more to the electrical grid than to the regional economy, solar farms require much less labor than coal mining.

Final Note: An IMF apology, of sorts. The IMF came as close to an apology as the oft-hated institution can, saying that risks from El Salvador's bitcoin bet "have not materialized," during yearly consultations which have been fiercely critical of the country’s crypto policies in previous years. While the lender reiterated its caution of legalized crypto, it presented more measured recommendations to improve transparency and monitoring.

The Fund’s stance potentially reflects slow bitcoin adoption by Salvadorans despite government efforts. For its part, President Nayib Bukele’s government passed a law regulating the issuance of digital assets by both the state and private entities. Additionally, two rounds of debt buybacks have minimized investor concerns over its financing sources and fiscal policy in the medium term.

The full statement highlighted the "full recovery" of El Salvador's economy to pre-pandemic levels, "driven by the effective government response to the health crisis." Although while real GDP growth for 2023 is projected to be above historical averages at 2.4%, the multilateral lender expressed concern over a rising current account deficit and possible spillover effects from a US recession.

Best of the Rest:

The Fed’s Extreme Data Dependence Is a Risky Strategy. (Barrons)

The Unfinished Business of International Business Tax Reform. (IMF)

U.S. Could Default as Soon as July if Debt-Ceiling Standoff Isn’t Resolved. (WSJ)

Hard or Soft Landing? Some Economists See Neither if Growth Accelerates. (WSJ)

Quantitative Tightening: Hiking at $60b a Month. (FedGuy)

Empty containers pile up at global ports as trade slows. (Nikkei)

ECB board member warns of risk to economic growth if rates are raised too high. (FT)

Eurozone central banks face credibility test on losses. (FT)

Will trade decoupling become capital decoupling? (FT)

Mariana Mazzucato: ‘The McKinseys and the Deloittes have no expertise in the economic areas that they’re advising in’. (FT)

Systemic Risk: Are shaky nonbanks putting Ginnie Mae at risk? (National Mortgage News)

Metals Rally Fueled by China’s Reopening, Tight Supplies. (WSJ)

Blue-chip companies brace for new assaults by activist investors. (Axios)

The trillion-dollar greenwashing market. (Axios)

Argentine savers 'drown' under spiraling prices as inflation hits 99%. (Reuters)

Brazilian markets relief: Lula da Silva will respect Central Bank's autonomy. (Mercopress)

Moving Back Home: Greeks Feel Force of Housing Crisis. (Balkaninsight)

Russia’s growing trade in arms, oil and African politics. (FT)

Turkey Quake Cost put at $84 Billion and 72,000 Lives. (Balkaninsight)

Indonesia seeks closer India ties to strengthen Global South role. (Nikkei)

Thai pandemic borrowing binge prompts calls for repayment delays. (FT)

Thailand: The untold story of the world’s most resilient currency. (FT)

Pakistan brain drain accelerates in latest threat to ailing economy. (Nikkei)

Nigerian leader defends currency swap as pain, protests grow. (AP)

Egypt’s economic woe spreads across all classes. (FT)

India's Adani tries to calm investors as regulator confirms probe. (Reuters)

Adani Cuts Growth Target, Capex in Post-Hindenburg Repair Moves. (BNN Bloomberg)

Vietnam at center of Japan's ASEAN supply chain shift: survey. (Nikkei)

EU banks fear regulatory impasse will force them out of India’s capital markets. (FT)

China's hard-hit property market posts uptick in home sale prices. (Nikkei)

US pulls ahead of UK in tackling regional economic woes. (FT)

The U.S. Relies on Sanctions. Do They Even Work? (Foreign Policy)

U.S. and EU Advance Buyers’ Club for EV Battery Minerals. (WSJ)

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