Monthly Highlights: January 2010

•  Nigeria performed well amid uncertainty surrounding President Yar’Adua’s health and the imposition of term limits on bank executives
•  Ghana is likely to outperform over course of 2010
•  Kenya performed well amid increased foreign buying of telecom bellwether Safaricom
•  Zimbabwe performed well although generally weak performance across the region
 

Nigeria performed well amid uncertainty surrounding President Yar’Adua’s health and the imposition of term limits on bank executives

In West Africa, Nigeria held up well as the NSE All Share Index rose +7.5% despite deepening political divisions surrounding President Umaru Yar’Adua’s health and return to power. In fact, we heard mid-month rumours that President Yar’Adua had passed away, only to be quelled by a telephone interview with the BBC. Yar’Adua’s absence has created a power vacuum and looks to be creating a political rift in Nigeria’s delicately balanced political structure. Since the transition to democracy, Nigeria has been ruled as a de facto one-party state. The People’s Democratic Party (PDP) dominates Nigerian politics, with PDP governors in power in 28 of the country’s 36 states, and PDP politicians holding the posts of president, vice president and other high-ranking national offices. Yet within the PDP, there are small factions and individual loyalties that run along both ethnic and geographic lines. As such, the government is effectively controlled by an unwritten power-sharing agreement dividing Nigeria’s northern and southern territories. According to this agreement, an open secret in Nigeria, the presidency must rotate every eight years (two terms) between geopolitical zones, interchanging between north and south every time there is a change in presidential candidate. Yar’Adua is the party’s northern candidate and should thus hold the presidency for an eight year term. Yet Yar’Adua’s health concerns have put a spanner in the works, as Vice President Goodluck Jonathan, who hails from the southern Niger Delta region, must assume power in Yar’Adua’s absence. As such, there is significant reluctance on behalf of the Northern candidates to transfer power to the Vice President. Interestingly, Nigeria’s Cabinet has come out in support of Yar’Adua stating that he should carry on his duties as President despite being physically unable to do so. Within Nigeria, there is growing concern over this power vacuum and increasingly growing support for Jonathan to assume the Presidency in Yar’Adua’s absence.

Other news again relating to the troubled banking sector, the Central Bank of Nigeria imposed term limits on all bank’s Chief Executive Officers, where no chief executive officer can hold this position for longer than ten years. This will immediately impact Skye, UBA and Zenith Bank whose chief executives have been in place for ten, twelve and nineteen years respectively. Thus, any chief executive officer who is currently exceeding this term limit will need to step down by end of June 2010. Separately, Nigeria’s Finance Ministry has made several adjustments to increase spending in the already expansionary 2010 budget. The benchmark crude oil price in the planned 2010 budget is to be increased from $57/bbl to $60/bbl. That said, the daily production target remains optimistic at 2.088m bpd and the exchange rate assumption also remains rosy at NGN/USD 150. This will add approximately $2.3bn in additional spending or 31% above last year’s level. On a positive note, Nigeria YoY inflation decelerated from 12.6% to 12.0% in November.

Ghana is likely to outperform over course of 2010

In Ghana, the central bank governor indicated that Bank of Ghana will cut rates should inflation continue to slow. This is certainly positive in light of the prospects for monetary easing should the sustainable disinflation trend persist. Inflation retreated to 16.0% in December, from 20.7% in July, supported by a positive base effect and a somewhat stronger than anticipated cyclical impact on MoM inflation. The cyclical impact is reflective of a favourable harvest, but also early signs of fiscal consolidation and exchange rate stabilisation. Although bullish economic indicators have had little impact on equity market performance (GSE ALSI up +1.0% in Jan), we are optimistic that Ghana will exhibit strong returns this year given increased oil production, improved infrastructure development, normalised exchange rate and strong FDI flows. In other action, the BRVM Composite declined by -3.3% amid a strengthening greenback.

Kenya performed well amid increased foreign buying of telecom bellwether Safaricom

The East African equity markets posted mix performance in January with Kenya, Uganda and Tanzania posting gains of +8.7%, +7.5% and - 0.3% respectively. In Kenya, returns were driven by strong flows into Kenyan telecommunications bellwether Safaricom as management announced strong growth in revenues from both the data business and M-PESA – the money transfer service which now anticipates a 20% rise in its customer base this year. In terms of economic data, we saw inflation rebound from 5.0% to 5.3% YoY in December, but was still well below the 6.6% recorded in October. The inflationary pickup was largely due to a sharp increase in food and fuel prices across the nation.

Zimbabwe performed well although generally weak performance across the region

In Southern Africa, performance was broadly weaker on the month with the Gaborone DCI (Botswana) down -1.4%, NSE Local (Namibia) down -2.5%, LuSE ASI (Zambia) down -4.0% and ZSE Industrial (Zimbabwe) up +2.9%. The region’s lone bright spot in January was Zimbabwe as the ZSE Industrial and Mining Indices rose +3.0% and +13.1%, respectively. This was largely due to renewed foreign inflows and news that the Zimbabwean economy is likely to post upward revisions to its 2009 and 2010 GDP growth forecasts of 9% and 11% respectively.