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Middle East & African Monitor - 21 February 2017

  • Iran responds to “US Threats” with military exercises
  • Portugal accuses Angola’s vice president of corruption
  • Nigerian CB struggles to rein in parallel market
  • Egyptian Pound continues to strengthen on back of investor inflows
  • Proposed merger would be good for Qatar’s banking sector – Moodys
  • Kuwait’s parliament to debate anti-austerity bill
  • Saudi Arabia announces initial tenders for renewable energy contracts
  • FITCH affirms Zambia rating

REGIONAL COMMENTARY

Iran responds to “US Threats” with military exercises
Iranian state media has claimed that the country’s revolutionary guard forces successfully tested “smart and advanced” rocket systems during a 3-day military exercise in the central desert region which began yesterday. This announcement comes less than a month after the US put Iran “on notice” over its recent ballistic missile tests and is seen as another deliberate attempt by hardliners within the Iranian regime to gauge the reactions of the fledgling administration in Washington whose overall foreign policy direction still appears to be a work in progress . Meanwhile Iran’s Foreign Minister, Mohammed Javad Zarif, was quoted over the weekend as saying that “Iran doesn’t respond well to threats, we don’t respond well to coercion, we don’t respond well to sanctions, but we respond very well to mutual respect." His comments were a direct response to those made on Saturday by the US Vice President, Michael Pence, who stated; “Under President Trump, the United States will remain fully committed to ensuring that Iran never obtains a nuclear weapon capable of threatening our country and our allies.”

Portugal accuses Angola’s vice president of corruption
Portugal’s attorney general’s office announced last week that it would be bringing charges of corruption, forgery and money-laundering against Angola’s current Vice President, Manuel Vicente. The charges listed in a statement issued by the AG and published by the BBC, include allegations that Vicente paid more than US$800,000 in bribes to shut down the Portuguese-led corruption investigation. His lawyers have denied these latest allegations, while the Angolan government has described previous attempts by Portugal to investigate the Vice President, as “neo-colonialism.” Prior to taking up his current role, Vicente was the CEO of Angola’s state-run oil company Sonangol.

Nigerian CB struggles to rein in parallel market
The Nigerian Central Bank announced a new FX policy action last night stating that it would begin selling US$ 1 mio on a weekly basis to each local commercial bank at an exchange rate of 375.00-380.00 in an attempt to clear the hard currency backlog for retail clients. It appears the bank believes that if it can improve liquidity for that specific sector, then demand for US dollars via the exchange houses and the kerb market would dampen, leading the exchange rate differential between the official and unofficial markets to narrow. USD/NGN had hit a new high of 520.00 in the ‘kerb’ market prior to yesterday’s announcement compared to an official rate of 305.00/315.00. Local media has also reported that individuals will now need to provide their tax certificate before buying any US dollars. We however are not convinced these latest actions will be the solution to the country’s ongoing hard currency shortage and nor do we expect the differential between the exchange rates to tighten significantly. As discussed in our previous commentaries we think Nigeria needs to take a leaf out of Egypt’s book and, along with structural reforms, move swiftly towards a proper floating FX system although we understand that this particular subject does form a part of the government’s ongoing discussions with the World Bank over a potential disbursement of a US$2.5 bio loan.

Egyptian Pound continues to strengthen on back of investor inflows
USD/EGP touched 15.80 last week as the local currency continued to benefit from an increase in remittance and investor inflows. Foreign buyers have reportedly snapped up more than US$1 bio in Egyptian T-Bills since the beginning of February attracted by the country’s more transparent FX regime and the government’s progress thus far in implementing a range of economic reforms. However, although Egypt’s overall near-term outlook remains relatively positive, we think further strong gains by the pound from these current levels is likely to be limited, on a technical basis alone it seems to be somewhat overdone representing a 38% retracement of the entire move from low to high since November. There are also indications that demand by foreigners for Egyptian paper may be starting to ease, this was highlighted at last Sunday’s auction where yields in the 6 month and 1 year tenors rose sharply.

Proposed merger would be good for Qatar’s banking sector – Moodys
Moodys Investors Service issued a statement this week in which it suggests that while the proposed merger between, Barwa Bank, Masraf al Rayan and the International Bank of Qatar would face sizeable integration challenges, the creation of such a combined entity would “help to rebalance the Qatari banking sector.” The amalgamation would also establish the 3rd largest Shariah compliant banking institution in the region.

Kuwait’s parliament to debate anti-austerity bill
Kuwait’s parliamentary financial and economic affairs committee have reportedly approved a draft bill which proposes the cancellation of previous legislation which had ratified a government move to increase fuel and electricity prices. This new bill also calls for the introduction of a law stating that any increases of public fees and utilities can only be applied with the approval of the national assembly. The recommendations of the committee will now be sent to parliament for ratification, a debate which the Kuwait Times says will probably take place during the first week of March. The IMF and the government have warned that Kuwait needs to undertake austerity measures, due to the drop in oil related revenue these past few years, in order to avoid large deficits in the future as the country’s population expands. "Kuwait’s fiscal and external accounts have deteriorated markedly and further subsidy reform is critical," the IMF stated last year.

Saudi Arabia announces initial tenders for renewable energy contracts
Saudi Arabia’s Energy Ministry yesterday unveiled tenders for the first stage of its US$50 bio renewables program which includes the initial establishment of a 400MW wind project in Midyan and a 300MW solar plant in Sakaka. Successful bidders will enter into the round one qualifying stage set to begin on April 17th 2017, while the complete process is expected to close in July. Saudi Arabia plans to generate 9.5GW of its domestic power needs from renewable sources by 2023.

FITCH affirms Zambia rating
Fitch ratings agency has affirmed Zambia’s ratings at ‘B’ but with a negative outlook. In a statement the agency said its rating and outlook reflected “a combination of the country’s persistent fiscal deficits and structural constraints.”

21-02-2017

AND FINALLY…
Did you know that the ancient Egyptians were one of the first people known to have implemented the use of solar energy on a large scale? They designed and built their houses so that the buildings stored up the sun’s heat during the day and then released it at night. Their building techniques not only kept their homes warmer at night, but also helped regulate a cooler temperature indoors on hot days.

Glenn Wepener, Executive Director & Geopolitical Analyst Middle East & Africa
National Bank of Abu Dhabi
MarketInsights&Strategy@nbad.com
Tel: +971 2 6110 127

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NBAD Middle East & African Monitor - 21 February 2017

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