This Week on the Frontiers, January 19th 2019

Africa

GDP growth in Africa to improve this year. Economies in Africa are expected to record 4% gross-domestic product growth this year, up from an estimated 3.5% in 2018, Micah Maidenberg reports. According to the latest forecast from the African Development Bank projected GDP growth is still lower than the 4.7% achieved from 2010-2014, a period marked by high commodity prices.

Countries have struggled to attracted investment, with foreign-direct investment falling to a 10-year low in 2017, according to the bank. Institutional investors have shown interest of late in bond offerings by African countries, though, the bank added.

Protests intensify in Sudan. Sudanese President Omar al-Bashir faces the stiffest challenge to his three-decade rule as protests over a worsening economic crisis pushed into a fourth week, Nicholas Bariyo reports. The protests, triggered by a sharp increase in the prices of bread and other staples, have spread throughout country, with some demonstrators borrowing chants calling for the ouster of the president that were made popular by the Arab Spring.

Sudan’s President Omar al-Bashir addressed supporters at a rally in Khartoum on Wednesday. “The government of Sudan cannot be changed by protests or outside forces,” he told a rally on Monday. ASSOCIATED PRESS

Roaring crowds have torched more than a dozen police bases and firebombed offices of Mr. Bashir’s ruling National Congress Party in several cities. Some prominent members of the ruling party are openly backing the protesters.

“Bashir’s position has never been that weak,” said Adeline Van Houtte, an analyst with The Economist Intelligence Unit. “If the security forces sense that the balance of power is shifting, their loyalty cannot be guaranteed.”

Former C?te d’Ivoire president acquitted but not freed. The International Criminal Court acquitted former C?te d’Ivoire President Laurent Gbagbo on Tuesday of crimes against humanity linked to monthslong violence that followed 2010 elections and left 3,000 people dead, Gabriele Steinhauser reports. Mr. Gbagbo, who was president of Ivory Coast from 2000 until his 2011 arrest, was the first former head of state to be tried at the court since its 2003 inauguration.

Former Ivory Coast President Laurent Gbagbo appears before the International Criminal Court in the Hague, Netherlands, on Tuesday. REUTERS

Head judge Cuno Tarfusser said the prosecution had failed to demonstrate that Mr. Gbagbo and his former right-hand man, Charles Blé Goudé, had ordered the attacks on civilians following the disputed vote, or that there had been a concerted plan to keep the now-73-year-old in power. Thousands of people died in the clashes between Ivorian security forces and supporters of his rival, Alassane Ouattara.

Late on Wednesday the ICC overturned the decision to release the pair, after a last-minute appeal by prosecutors. They will now remain in custody pending a February 1 hearing, but with a presidential election due in 2020, the potential return of Mr. Gbagbo could prove destabilizing, Victor Lopes, senior Africa economist at Standard Chartered, said. “The return of Laurent Gbagbo could reshape the political game in C?te d’Ivoire. The outcome of the 2020 election was already looking uncertain, given doubts around President Ouattara’s succession and a potential third term, as well as the 2018 split in the ruling coalition,” he added.

U.S. casts global dragnet in Mozambique corruption probe. Mozambique’s former Finance Minister Manuel Chang boarded a plane two weeks ago, planning to celebrate New Year’s Eve with his girlfriend in Dubai. Instead, he was arrested during a layover in South Africa and spent the holiday in a crowded Pretoria holding cell, awaiting potential extradition to the U.S., Matt Wirz, Gabriele Steinhauser and Thandi Ntoleba write. A few days later, Lebanese shipbuilding executive Jean Boustani flew to the Dominican Republic for a beach vacation with his wife. Dominican authorities arrested him at the airport and expelled him to New York, where he is being held in a Brooklyn detention center.

Manuel Chang, a former finance minister in Mozambique, appeared in a South African court last week. GETTY IMAGES

The men were detained as part of a global effort by the U.S. Justice Department to capture alleged conspirators in a $2 billion corruption scheme in Mozambique, one of the world’s poorest countries. Authorities in London earlier arrested three former Credit Suisse Group AG bankers who allegedly helped plan and finance the fraud, and other suspects have yet to be apprehended, according to court documents. The former bankers, Andrew Pearse, Surjan Singh and Detelina Subeva, have been released on bail.

The arrests on three continents—planned weeks ahead to occur in countries that have extradition treaties with the U.S.—are part of a widening effort by U.S. authorities to police what bond investors say is a growing intersection of high finance and corruption in emerging markets.

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Kenyan siege stirs concerns on extremists. On Tuesday afternoon, unmasked attackers carrying AK-47s and explosives shot their way into the 14 Riverside hotel and office complex in Nairobi—a favorite hangout for foreigners and upper-class Kenyans—detonated at least one suicide bomb and barricaded themselves in with hundreds of hostages overnight, Matina Stevis-Gridneff and Gabriele Steinhauser write. It took until late Wednesday morning for Kenyan special forces to kill five gunmen and free the remaining captives. By then, at least 20 people were dead.

Al-Shabaab, a Somali extremist group affiliated with al Qaeda, claimed responsibility for the assault. Kenyan police said it had arrested two people it believes helped facilitate the attack. The group said the attack stemmed from an al-Qaeda directive to hit Western and Zionist targets in retaliation for President Trump’s decision to recognize Jerusalem as the Israeli capital and move the U.S. Embassy there, in a statement on the website of SITE Intelligence Group, which tracks jihadist groups.

A gunman is pictured as he and others make their way into the hotel-and-office complex. REUTERS

The Islamist militants’ deadly 18-hour siege jolts a key U.S. ally in the war on terrorism and raises questions over how the Somalia-based insurgents have survived more than a decade of international military campaigns. One of Africa’s longest-living Islamist movements, al-Shabaab regularly carries out deadly attacks, mostly inside Somalia. In its bloodiest attack to date it killed more than 500 Somalis in the capital, Mogadishu, in 2017. Its insurgent-style assaults, often paired with explosives, have proven to be difficult to contain through conventional military tactics.

Middle East

Pompeo stresses friendship with Saudis amid storm clouds. U.S. Secretary of State Mike Pompeo on Monday met Saudi Arabia’s leaders, bearing a message of support for a close Trump administration ally at a time when the relationship is under pressure at home and abroad, Courtney McBride reports. Mr. Pompeo met separately with King Salman and Crown Prince Mohammed bin Salman at the royal court in the kingdom’s capital, telling reporters afterward that he raised at least two difficult issues—the war in Yemen and the 2018 killing of Saudi journalist Jamal Khashoggi at Saudi Arabia’s consulate in Istanbul.

On those issues and on allegations of Saudi human-rights abuses, Mr. Pompeo stressed the friendly nature of ties between Washington and Riyadh. “The Saudis are friends, and when friends have conversations, you tell them what your expectations are,” he said.

Mr. Pompeo’s stop in Riyadh came near the end of a multination Middle East trip and took place as U.S. lawmakers on both sides of the aisle are calling for a re-evaluation of the U.S. relationship with Saudi Arabia, including its support for the Saudi-led military coalition in Yemen.

Europe

Belarus in talks to boost U.S. presence. Belarus said it was in talks to boost the U.S. diplomatic presence in the former Soviet republic, a move that could exacerbate tensions between Moscow and Washington, Thomas Grove reports. Belarusian President Alexander Lukashenko reached out to the West after Russia renewed a push late last year to unify the two countries under an agreement signed in 1999 that both have long disregarded. Moscow has also angered Minsk by changing its oil-tax code, which could cost Belarus hundreds of millions of dollars a year.

Belarus is Russia’s closest ally, and Moscow sees the country as part of its exclusive strategic territory. The two countries share battle plans relating to their shared border with countries allied with the North Atlantic Treaty Organization. Any increase in the U.S. diplomatic presence there would alarm Moscow, which watched Ukraine slip out of the Kremlin’s orbit and become firmly entrenched with the U.S. Russia largely blames Washington for the Ukraine crisis because of the U.S.’s support for Kiev’s pro-Western aspirations.

Latin America

Venezuelan lawmakers anoint new leader they hope will replace Maduro. Venezuela may now have two presidents, Ryan Dube and Kejal Vyas write. Lawmakers in the National Assembly on Tuesday voted to allow Juan Guaidó, a little known politician who heads the legislative body, to become the country’s “legitimate” leader rather than President Nicolás Maduro. The resolution says he must assume an interim presidency to head a transitional government and help organize new elections.

Juan Guaidó, president of the opposition-controlled National Assembly, met with other lawmakers to debate actions against Venezuelan President Nicolás Maduro on Tuesday in Caracas. ASSOCIATED PRESS

Although the move is largely symbolic, the lawmakers hope it will help rally the country’s dispirited opposition and win backing from the U.S. and other regional states from Brazil to Argentina that could freeze Venezuela’s bank accounts and other assets.

The timing looks good. This week, Washington has been considering imposing tougher sanctionsagainst Venezuela’s military and vital oil industry, according to a senior Trump administration official, as it seeks to persuade Mr. Maduro to hold free and fair elections. The Trump administration is considering a range of measures including curtailing the flow of Venezuelan oil to the U.S., the official said, in what could be the harshest blow to the country’s money supply. No final decision has been made.

Costa Rica faces worries over debt servicing. Fitch Ratings downgraded Costa Rica’s debt, saying the Central American nation faces a rapidly climbing interest-payment bill even though the government passed a fiscal reform package last month, Micah Maidenberg reports. The agency dropped its rating on Costa Rica’s debt from BB to B+, potentially raising the country’s future borrowing costs.

Fitch said it’s skeptical that a reform bill Costa Rica passed in December would be effective at stabilizing central government debt at 65% of gross-domestic product, as the government has forecast. The government also can’t borrow on the international markets right now and has been tapping shorter-term loans from local lenders to meet its financing needs, Fitch said.

The ratings firm expects the country’s economy to grow 3% this year and in 2020, up from an estimated 2.7% last year, when output was hindered by a three-month public-sector strike and turmoil in Nicaragua.

Argentine inflation slows. A stable currency and a steep economic downturn that damped demand from consumers helped slow inflation in Argentina last month, Jeffrey T. Lewis writes. But while monthly inflation, at 2.6%, dropped by more than half a percentage point from the previous month, annual price rises still clocked in at a hefty 47.6%, according to Argentine statistics agency Indec.

The peso lost half its value against the dollar in 2018, first after rising U.S. interest rates lured many investors away from emerging markets and then as markets grew concerned about Argentina’s ability to repay its debt. President Mauricio Macri went to the IMF for help in May, and in early June his administration signed a $50 billion bailout agreement with the Fund committing the government to reducing spending. The Macri administration was forced to re-open talks with the IMF in September, asking the fund to speed up disbursements.

Global

Frontiers find a footing. After a brutal 2018, when the MSCI FM Index dropped more than 16%, the first half of January has provided welcome relief. The index is up 3% so far this year, and some individual countries have gained far more. Argentina’s stock market is already up 16% and Pakistan’s has risen more than 6% since the start of the year.

In its outlook for 2019, UK-based fund management group Ashmore said, “Frontier markets look well placed to stage a recovery in 2019. Catalysts include structural reform, a dissipation of idiosyncratic single country challenges and increased investor attention.”

Andy Brudenell, head of frontier markets at Ashmore, which has around $1 billion under management in its frontier funds, told the Journal that some of the larger markets appear poised for a strong recovery this year. “There are a few developments we want to see—interest rates reducing in Egypt, a successful presidential election in Nigeria, and stocks in Argentina getting a little cheaper, for example—but 2019 will be an interesting year. There are lots of things we really like and we see a lot of upside across the board.”

Andrew Howell, a frontier-markets analyst at Citi, expects the mix of winners and losers to change considerably from last year. “There is a mood of rotation to start the year, as last year’s two worst-performing markets—Pakistan and Argentina—have become top performers in early 2019,” he said. “Romania, which was a top performer last year despite being hit hard in December, has slumped further,” he added.

There is also a mood of optimism among frontier investors. The majority of investors surveyed by Citi expect the asset class to gain this year, with more than 80% expecting frontier to outperform developed markets.

KEY STORIES FROM THE WSJ

Glencore Gave Loans to Businesses Linked to Suspect Congo Dealings

Cambodia: The Chicest New Beach Destination in Asia

China Offers Iran $3 Billion Oil-Field Deal as Europe Halts Iranian Crude Purchases

Iran Works to Keep Iraq Open for Business

Venezuela Sued Over Bond Default

Venezuela Opposition Leader Detained, Then Released

AROUND THE WEB

Zimbabwe Slowly Returns to Normalcy After Violent Protests

Nigeria’s Top Judge to Face Trial on Asset-declaration Charges

China’s Lust for Rosewood Fuels Logging in Ghana’s Poorest Region

After Months Abroad, Gabon’s Bongo Returns Home

Ethiopia Launches Offensive Against Oromo Rebels

Pakistan and Saudi Arabia in Talks to Develop $10b Oil Refinery in Gwadar

Sri Lanka Asks IMF to Revive $1.5b Bailout

Cargill Plans $200m Investment in Pakistan

ADB Provides $200m to Upgrade Rural Road Network in Bangladesh

Vietnam Revives $58b High-speed Rail Project

Vietnam Abandons Plan to Merge Stock Exchanges

Amazon Offers Vietnamese Products Route to Global Market

Myamnmar Pushes $3b in Projects at Investment Summit

Ban Lifted for Two Cambodian Opposition Politicians

Ecuador Finds a Welcoming Chinese Market as Exports Surge