WSJ Emerging & Growth Markets, April 10th 2021

Welcome to the latest edition of WSJ Pro Emerging & Growth Markets, our weekly review of key news affecting frontier and small emerging markets. This newsletter is a companion to Strategic Intelligence, an information resource focused on emerging markets that brings together the global news coverage of The Wall Street Journal with the analysis of market intelligence firm FrontierView. 

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Africa

Tension between Egypt and Ethiopia rises as Nile dam talks falter. Tensions are rising between Egypt and Ethiopia as Addis Ababa moves closer to diverting water to a massive hydroelectric project on the Nile that has been a center of a decade-long dispute over who controls Africa’s longest river, Amira El-Fekki and Jared Malsin report. Talks between officials from Egypt, Ethiopia, and Sudan hosted by the Democratic Republic of Congo ended without an agreement on Tuesday, sparking a new round of heated rhetoric between the two countries.

Egypt’s president on Wednesday hinted at the possibility of conflict with Ethiopia, but said he preferred cooperation on the issue. “I say to our brothers in Ethiopia, don’t touch a drop of Egypt’s water, because all options are open,” President Abdel Fattah Al Sisi said at a conference in Cairo.

Ethiopia began construction on the $4.8 billion Grand Ethiopian Renaissance Dam in 2011 and appears to be moving ahead with a plan to fill the reservoir of the dam for a second time in July, and start using it to generate power for the first time in August. Egypt regards the dam as a strategic threat that could siphon off critical water supplies from tens of millions of people.

Asia

Covid-19’s ground zero shifts to India. India on Monday recorded more than 100,000 fresh cases for the first time, topping the daily totals everywhere else in the world, Eric Bellman and Vibhuti Agarwal report. The South Asian nation is locking down neighborhoods and restricting travel again even as it tries to ratchet up its vaccination drive to save lives and salvage its nascent economic recovery.

The financial center of Mumbai and the surrounding state of Maharashtra are ground zero once again, dashing hopes that India’s megacities may have seen the worst as the most densely populated neighborhoods reached some sort of herd immunity. “It’s spreading very fast, much more than the first phase,” said Deepak Baid, a physician in charge of a Covid-19 unit in a government hospital in Mumbai. “It’s spreading to all the age groups.”

Vaccinations are provided at a primary health center in Srinagar. PHOTO: AP

After a predicted winter surge didn’t materialize and India began an ambitious vaccination program, more Indians became optimistic that the worst was behind them, attending larger gatherings and sports events. “The general feeling was that the pandemic was over,” said Giridhara R. Babu, an epidemiologist at the Indian Institute of Public Health in Bangalore and an adviser to the government.

• India faces Covid-19 vaccine shortage as cases surge

What all the people rushing to crowded events didn’t know was that more contagious versions of the virus were arriving from abroad and new ones were emerging in India. And while New Delhi ratcheted up its vaccination drive, administering more than 70 million doses so far, it has a long way to go to reach even its initial target of inoculating 300 million people by August.

Myanmar’s economy could face further pressure amid worsening protests. Myanmar’s real GDP could shrink by as much as 20% in the current fiscal year as the economy struggles amid ongoing protests and resistance actions against the military government, Yifan Wang reports. According to estimates from research firm Fitch Solutions, which had earlier predicted a 2% expansion for Myanmar this year, private consumption is slumping as incomes sharply decline amid strikes and suspension of operations, while investments will also fall as business risks rise.

Myanmar’s social instability after the military coup will likely worsen in the coming months and impose more pressure on the economy, the firm said. The death toll is expected to continue rising as anti-coup protesters press on with demonstrations despite an intensifying crackdown from the military government, which reportedly launched an air strike in the latest escalation.

• Myanmar’s economy is in a free fall, with empty factories, closed banks, failing internet

Exporters such as clothing makers and agricultural producers will likely be hit especially hard as new orders and shipping will be severely hurt by the country’s communication and internet disruptions.

Middle East

U.S. and Iran begin indirect talks to revive 2015 nuclear deal. Western and Iranian officials kicked off talks in Vienna on Tuesday aimed at reviving the embattled 2015 nuclear accord, amid the challenge of bitter relations between Washington and Tehran, punishing U.S. sanctions on the Islamic Republic and moves by Iran to accelerate its nuclear activity, Sune Engel Rasmussen writes.

• What to expect from Iran nuclear talks and what is at stake
• Ship thought to be spying for Iran is attacked in Red Sea
• In Iran nuclear talks, a familiar cast of characters faces fresh problems

American and Iranian negotiators aren’t expected to meet directly in Austria. Instead, diplomats from Iran, France, Germany, the U.K., Russia and China—parties to the 2015 agreement from which the Trump administration withdrew in May 2018—met Tuesday afternoon in one hotel in central Vienna while the U.S. delegation, headed by Robert Malley, the White House special envoy for Iran, stayed at a separate hotel nearby. European intermediaries shuttled between the Iranian and American delegations.

Despite tensions between Washington and Tehran, the gathering in the Austrian capital marks a diplomatic breakthrough. It comes six weeks after the Biden administration first offered to meet with Iran, the first U.S. diplomatic overture to Tehran in more than four years.

Jordan’s royal family starts mediation to end public rift. The royal family of Jordan is trying to mediate a rift between the country’s reigning monarch and a former crown prince, according to a mediator who is close to one of the parties, Stephen Kalin writes. Confrontation between King Abdullah II and his half-brother Prince Hamzah burst into the open last weekend, shaking the image of the U.S. ally as an island of stability in the turbulent Middle East.

Prince Hamzah bin Hussein.

PHOTO: KHALIL MAZRAAWI

The confrontation at the top of the Arab monarchy—which borders Israel, Syria, Iraq and Saudi Arabia—has threatened to upend Jordanian politics. The kingdom regularly collaborates on counterterrorism efforts with the U.S., which has come out in strong support of the king.

• Jordan’s government accuses king’s half-brother of role in plot to destabilize the country
• Behind Jordan’s royal family feud

King Abdullah II has faced rising public dissatisfaction amid Jordan’s economic struggles. Prince Hamzah, meanwhile, has maintained broad support, including among the monarchy’s core tribal base, because of his willingness to criticize the government and his perceived resemblance to his late father, a foundational figure in Jordan’s history.

Europe

Russia warns of full-scale war in eastern Ukraine. The recent deployment of Russian troops along Ukraine’s border and Moscow’s indication that it could intervene in the event of a full-scale war in eastern Ukraine are dimming hopes for a peaceful resolution of the conflict that has festered for seven years and cost thousands of lives, Ann M. Simmons reports. Kremlin spokesman Dmitry Peskov on Friday said the situation at the “dangerous, explosive region at its borders” with eastern Ukraine was extremely unstable and “the dynamics…create the danger of a resumption of full-scale hostilities.”

Tensions have continued to mount between Ukraine and pro-Russian separatists following a recent escalation of fighting along the demarcation line inside Ukraine, where Kyiv said several of its soldiers were killed last week.

A member of the Ukrainian armed forces near the rebel-controlled city of Donetsk, Ukraine, on Tuesday. PHOTO: SERHIY TAKHMAZOV/REUTERS

The recent escalation of violence, Russia’s troop buildup and the increase in Moscow’s menacing rhetoric has derailed chances for a diplomatic settlement, analysts said. “The cease-fire is over…and [Ukrainian] President Zelensky’s strategy of negotiating something with Moscow is generally over,” said Mykola Kapitonenko, an associate professor at the Institute of International Relations in Kyiv and consultant to Ukraine’s parliamentary committee on foreign affairs.

Latin America

School closures in Latin America leave children vulnerable to gangs. While the pandemic led to a global shutdown of schools, in Latin America the closures have been extreme, Kejal Vyas reports. Stringent lockdowns have led children on average to miss far more class days than elsewhere in the world, according to Unicef. The U.N. agency estimates that Latin American children missed 159 school days on average over the past year, compared with the global average of 95.

Children playing outside their home in Puerto Cachicamo on March 23. PHOTO: CARLOS VILLALON FOR THE WALL STREET JOURNAL

Only seven out of the 35 countries in the region have fully reopened schools, leaving 114 million young people out of the classroom in what Unicef has called an unfolding “generational catastrophe.” But unlike in other parts of the world, idle children in poor districts in Latin America from Mexico to Brazil are particularly vulnerable to powerful, cocaine-trafficking organizations.

A group that researches the impact of drug-related violence on children in Colombia, the Coalition Against the Involvement of Children in Colombia’s Conflict, said armed groups recruited 220 youths between 12 and 17 in 2020, an 11% increase from 2019. But the number of child recruits could be far higher, because it is believed few families report that their children joined armed gangs for fear of retribution.

“The guerrillas are always fishing in the rivers for new members,” said one school administrator. “With the kids out of class, this place turned into an aquarium for them.”

“The guerrillas are always fishing in the rivers for new members. With the kids out of class, this place turned into an aquarium for them.”

— A school administrator in Colombia

Leftist leads in Ecuador’s presidential election. Andres Arauz, a leftist politician, who is a close ally of ex-president Rafael Correa, is leading Ecuador’s runoff presidential race, ahead of conservative, pro-oil candidate Guillermo Lasso, Dan Molinski writes.

Mr. Lasso could be gaining ground, though, according to Nicholas Watson at consultancy Teneo, who notes that Virna Cedeno, the running mate of Yaku Perez who made a strong third-place showing in February’s first-round vote, says she will cast her vote for Mr. Lasso, “not because she wants him as president but to keep out ‘21st Century socialism.’”

Mr. Perez, himself an environmentalist and self-described leftist known for fighting against Chinese mining companies, isn’t endorsing either candidate. Mr. Lasso wants to increase oil output, which doesn’t sit well with Amazonian indigenous groups after an April 2020 oil spill.

Global

Covid-19 hits informal workers hard in poor economies. When times get tough in the developing world, many workers eke out a living by doing odd jobs, driving taxis or selling snacks on the street. In the post-Covid economy, even those options aren’t working out for many people, Eun-Young Jeong writes.

Informal, underground-economy jobs are fixtures of the developing world, employing more than 90% of the labor force in some countries. The often ad-hoc jobs, without formal pay slips and set hours, take on even greater importance during downturns, filling in gaps in countries with limited social safety nets.

Rickshaw riders waiting for customers in Chiang Mai, a normally-bustling tourist hub in Thailand. PHOTO: ALLISON JOYCE FOR THE WALL STREET JOURNAL

But social-distancing rules, lockdowns and other lingering restrictions have made it harder for informal workers to set up profitable businesses in many places. Many informal jobs are concentrated in travel and leisure—among the hardest-hit and slowest-to-recover parts of the world economy. An accelerated shift toward a digital economy during the pandemic has left out many workers who lack the resources or skills to take part.

“Always in a crisis, I have seen that informal work and the informal economy becomes a sort of buffer for many workers” who are laid off, said Shalini Sinha, India country representative for Women in Informal Employment: Globalizing and Organizing, a U.K.-based nonprofit policy and research network. “But the slices of the cake become thinner and thinner” and are spread across more people.

As U.S. economy roars back, life in many poor countries gets worse. Powered by the U.S. and China, the global economy is set to make a stunning comeback this year from its deepest contraction since the Great Depression, economists say. For many developing countries, though, 2021 is shaping up to look a lot like 2020, with the pandemic still raging and poverty deepening, Gabriele Steinhauser, Saeed Shah and Ryan Dube report.

“The harsh reality is for the poorest countries, they’re not looking at vaccines being delivered to them until well into next year,” which means slower economic recoveries and more pain for the poor, Geoffrey Okamoto, the International Monetary Fund’s first deputy managing director, said.

People lined up to receive free food in Karachi, Pakistan, last month.

PHOTO: SHAHZAIB AKBER/EPA/SHUTTERSTOCK

The IMF on Tuesday raised its global gross domestic product growth forecast to a blistering 6% this year, but while most developing countries are seeing growth resume in many places, it isn’t nearly enough to make up for the economic damage caused last year.

By the end of 2022, the IMF projects that per-capita income in emerging and developing countries, excluding China, will be 20% lower than it would have been had the pandemic never happened. Developing-world governments are also facing a debt reckoning. The 72 developing countries considered most vulnerable on the debt front are due to repay $598 billion between now and the end of 2025, the U.N. said.

What We’re Reading

Ethiopia seeks market-friendly solution to debt restructuring. (Bloomberg)

‘Leave no Tigrayan’: In Ethiopia, an ethnicity is erased. (AP) 

Nigeria prison attack frees 1,800 inmates. (WSJ) 

Vietnam’s real estate market continues record run. (Forbes) 

Bangladesh enforcing weeklong lockdown to counter virus surge. (AP)  

EU may withdraw trade concessions to Sri Lanka. (Tamil Guardian)

Sri Lanka bans palm oil imports and tells producers to uproot plantations. (Reuters)

Philippines’ Duterte seeks peaceful solution to South China Sea dispute. (Radio Free Asia) 

North Korea’s Kim warns of ‘arduous march’ as economic problems bite. (WSJ) 

Israel’s Netanyahu given another try at forming a government. (WSJ)

WSJ News Exclusive: Saudi Aramco selling stake in oil pipelines for more than $12 billion. (WSJ)

Iran releases South Korean oil tanker seized over frozen funds. (WSJ) 

U.S. ‘increasingly concerned’ by Russian military threat to Ukraine. (The Guardian) 

U.S. considering sending warships to Black Sea amid Russia-Ukraine tensions. (CNN) 

Covid-19 cases overwhelm Romania’s hospitals. (Romania Insider) 

Romania launches bond sale to fund infrastructure and recovery spending. (Bloomberg)  

Election surprises end Bulgaria’s political stability. (Balkan Insight) 

With voters ‘fed up of politicians,’ Peru’s election is wide open. (Reuters) 

Suez blockage offers a global trade snapshot. (WSJ Logistics Report) 

The EM dollar-bond binge will come home to roost even without a blow-up. (WSJ)