Algerian army "invades Libya"

For the last two weeks we have been establishing whether or not Algerian troops have “invaded” Libya as was reported in the London Times on 30 May and in Algeria’s El Watan newspaper on 6 June. Last week, we said that we were “inclined to believe that that some, or even a large part, of these forces (5,000) have moved into Libya, possibly to secure a “cordon sanitaire” on the Libya side of the frontier by taking control of water holes and other strategic points, in order to ensure that there is no penetration of Libyan-based “terrorist” elements into Algeria.”

This week we received direct, personal confirmation from France’s former Foreign Minister, Bernard Kouchner, that “the Algerian army has invaded Libya”. We have also received confirmation from other sources. Not only have these forces, believed to be at least 5,000 strong and backed up by air power, established, as we suggested last week, a “cordon sanitaire” on the Libyan side of the frontier, but it is widely believed that they have launched strikes deep into Libya against armed groups (generally referred to as “terrorists” or “jihadists”) that have set up base in southern Libya over the last year or so.

As the Algerian constitution prohibits its forces from taking part in military action outside its own territory, the government will almost certainly continue to deny that this operation is taking place, as it has done so far. For instance, on 10 June, Prime Minister Sellal told the Senate that the army will not undertake any operation outside Algerian territory, a principle, he said, that was enshrined in the constitution.

Besides the constitutional issue, many Algerians would find it totally unacceptable that its forces were engaged in concert with those of France and the US, especially in another Muslim country.

Thus, the longer the Libyan operation goes on, the more likely we are to hear the government talking about how Algeria’s borders are being threatened by terrorists and justifying troop movements and the like in the border areas. There have been several such articles in the Algerian media this week. For example, on 18 June it was reported that terrorists in Tunisia, Libya and Mali were trying to carry out attacks on Algeria. The Echorouk daily newspaper said that “The terrorist threat doesn’t stop planning attacks to sabotage Algeria’s security. To this end, Algeria, with its combined forces, expresses its determination to clean up its territory of terrorists.”

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

© 2014 Menas Associates

Ghana: Markets react positively to verdict

As one might expect the Supreme Court verdict in favour of the NDC and Mahama was positively received by the financial markets, which had been perturbed by the uncertainty created by the impending decision, the risk of unrest, the impact of a full or partial election re-run, and the partial paralysis of Ghana's political system due to this uncertainty.

In financial terms as the confidence of investors in Ghana increases, yields - or the implied market-demanded effective interest rates on outstanding bonds, given bonds' market price - on Ghana's cedi denominated bonds have indeed been falling. Rates on the planned September auctions of around 600 million cedis worth of bonds have perhaps fallen by between 2%-4% to as low as 17% - a rate not to be confused with the much lower rates and yields on the dollar denominated Ghana Eurobond.

 

Cedi depreciation may well also be slowed as investors stop the shift to dollar-denominated assets due to electoral uncertainty - with Elvis Darku of Nigeria's Access Bank projecting a slight cedi appreciation versus the dollar by the end of the year. This is even if other analysts remain pessimistic and unlikely to shift from predictions of further cedi decline, even with the recent influx of Eurobond dollars and expected receipt of Cocobod financing dollars through the agreed US$1.2 billion syndicated financing facility which should both increase dollar supply and thus reduce its relative price compared to the cedi.

 

On the inflation front, despite double-digit inflation and the impact of cedi depreciation on inflation due to relatively more expensive (in cedis) imports, the most recent release from the state Ghana Statistical Service (GSS) indicates that July producer price inflation has fallen by 0.5% in month-on-month terms and by 2% points on a year on year basis, to 5% for July 2013 compared to July 2012 (whereas the June producer price level was 7% higher than that in June 2012).

 

Although this may seem like positive news, further detail revealed by GSS statistician Dr Philomena Nyarko indicates that while manufacturing inflation rose from 10.6% to 10.9% (year-on-year), mining and quarrying inflation fell significantly into the sub-zero zone partly due to lower gold prices - a factor which (broader implications for Ghana's economy aside) is unlikely to cause sustained inflation relief.

 

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2013 Menas Associates

Nigeria: Bank governor Sanusi keeps tight grip on money supply

Security risks, corruption and unemployment do not seem to have dented foreign optimism about Nigeria's economy. The country's US$1 billion Eurobond was four times oversubscribed at its launch in July and the capital markets continue to attract interest.

Central Bank of Nigeria governor Mallam Sanusi Lamido Sanusi's decision to maintain a tight monetary policy rate in spite of the prevailing favourable economic indices was designed to keep the Nigerian economy attractive as a destination for portfolio investors and raise the volume of foreign exchange.

 

But some analysts think that the hot money being pumped in through portfolio investments could do more harm than good if a stronger regulatory structure is not imposed on fund managers.

 

Even Kingsley Moghalu, the CBN Deputy Governor for Financial Stability, seemed to agree. "The monetary policy rate at this point in time is reasonably high," he recently said.

 

Tope Fasua, the chief executive officer of Global Analytics Consulting Limited in Abuja, thinks the reliance on foreign funds is a possible risk - the money could flee as quickly as it is now pouring in.

 

"In 2008/9 we had a crash in our stock market of about 70%, from which the market is still recovering," Fasua told Nigeria Politics & Security. "A lot of the market recovery is actually from foreign portfolio investment, which may also disappear in a jiffy" if conditions turn sour.

 

A lot of the monies playing in that market are from foreign portfolio managers.

 

The influx of foreign portfolio investments increases the reserves level and strengthens the naira, which means the central bank has to intervene in the market less often, Fasua said. Meanwhile, many Nigerian investors are watching the market from the sidelines, having been burnt in the past.

 

"When these investors are leaving they will demand foreign currency," said Fasua. "There is a huge risk that the naira will fall if these guys, for any reason, decided to exit their investments en masse, and we would be in a much worse shape than ever. The reserves we have accumulated may therefore be a mirage."

 

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2013 Menas Associates