No. 146 – Three AM Reads: South Africa’s Junk Status a Quick Fix? | Another Innovators List | Chevy Volt Designer Goes Home to Nigeria

South Africa Central Bank Governor Says Junk Status Can be Addressed Quickly

During the World Economic Forum held in Durban this week, South African Central Bank Governor Lesetja Kganyago said that South African can quickly deal with the concerns ratings agencies have raised in cutting the country’s credit rating to junk status or putting its rating on review for a downgrade. I’m curious what path he sees for that to happen. The ratings cuts happened after President Zuma flipped his entire cabinet in the wee hours of the night last month. The political uncertainty driven by the President is the primary issue and I don’t see how that changes unless he’s no longer in office.

Quartz Releases 2017 Africa Innovators List

Yesterday, I highlighted a list of women innovators across Africa. Today, Quartz released its list of innovators across the continent, and it’s a good one as well. Kudos to Karim Sy for making the list!

Chevy Volt Designer Leading Development of Nigeria’s Automotive Industry

So, I definitely missed this in the news cycle several weeks ago. Jelani Aliyu, the designer of the Chevy Volt, has been tapped to lead Nigeria’s National Automotive Design and Development Council. That’s really cool. More vim to him in contributing to the country building up industries outside of the energy space.

No. 36: The Fight Continues for Governance and the Central Bank of Nigeria’s Independence

Key Points

1. The saga around the suspended Central Bank of Nigeria governor continues;
2. The Central Bank governor is handily backing up his reputation;
3. President Jonathan could get a black eye from this fight; and
4. The independence of the Central Bank of Nigeria is in the balance.

The Saga

The February 20 suspension of Central Bank Governor Sanusi Lamido Sanusi for “financial recklessness and misconduct” drew many a side-eye. Two months prior to the suspension announcement, Governor Sanusi made claims that Nigeria’s National Petroleum Company had failed to repatriate 49.8 billion USD to the government, before reducing the claim to 20 billion USD.

Governor Sanusi challenged his suspension on the grounds that it is illegal for the President to suspend the Central Bank Governor under the Central Bank of Nigeria Act. This past Thursday, Nigeria’s High Court declined to rule on Governor Sanusi’s challenge. Check out Governor Sanusi’s response.

The suspension is not the only issue Governor Sanusi is dealing with. The Financial Reporting Council of Nigeria is pushing to investigate his use of 1 billion USD while CBN Governor. Nigeria’s High Court has struck down to-date and Governor Sanusi has provided a detailed response.

Dueling Reputations

Governor Sanusi points to the stability of the Central Bank of Nigeria and its effectiveness in fixing the country’s banking system, controlling inflation, and stabilizing currency as wins. The global investing community has taken note and I wouldn’t be surprised if we see Governor Sanusi advising other central banks on their activities when the dust settles – unless the forensic audit of the NNPC proves the company’s financials to be in good shape.

President Jonathan, on the other hand, could be licking his wounds from this fight and the continued threat of Boko Haram in parts of the country. The results forensic audit of the NNPCs financials will serve as vindication for one or the other.

Central Bank Independence

The bottom line is that this situation has big implications for the independence of the Central Bank of Nigeria. Will future governors have Governor Sanusi’s fate on their minds when making decisions? If so, we could very well see the slow unwinding of the governance structure Governor Sanusi helped develop.

No. 26: As a Third Grader, I Broke Up a Fight Between Two Fifth Graders

Credit: CBS

And thankfully, Mark Mobius aka Lex Luthor is breaking up the fight going on between emerging and developed markets on US Federal Reserve Bank guidance rumors. The dance has gone something like this:

Emerging Markets: Sigh, the Fed is being pretty tight with it’s currency. Come on coach, let emerging markets spin!

Ben Bernanke: Policy accommodations are warranted. You get cash! You get cash! You get cash! Everybody gets cash!

Emerging Markets: Invest in [Insert Emerging Market country]. Check out our growing middle class, enormous investment returns, and sandy beaches.

Ben Bernanke: My arm is getting a little tired from throwing these hundreds, so I’m thinking I’m going to wrap this thing up a little early.

Chorus aka Traders: Sell!

Emerging Markets: Wait! Hold up! Oh snaps, what are we going to do? (Christine LaGarde’s name pops up on the cellphone)

Jim O’Neill: Why are you crying? Quit being punks. Step up your financial market game. Give me one good reason why US currency continues to be more important to your economy than your currency is to developed markets. (Silence) That’s what I thought. Quit crying.

Richard Koo: Welp, that’s what you get for not making some hard decisions and preventing US currency from impacting your economy so heavily.

Mark Mobius aka Lex Luthor: Hey. Everybody calm down. Looking historically, emerging markets are killing the game with the returns they are generating for investors. Their foreign exchange reserves are larger than those of developed markets. And, their debt-to-GDP ratios are typically lower. That’s attractive, and if emerging markets keep it up, will remain so for a while. A bump in the road here and there will only make them stronger. Furthermore, there’s still a ton of liquidity out there. Ben has been throwing dollars Lil Wayne style. On another note, do you like my creme suits?

My Take

Mark Mobius is spot on. Involving oneself in emerging markets is a long-term play.  Because of that, traders looking for quick hits are going to find themselves in panic-mode more often than they would like – especially if they have not done thorough research. Commit to the long-term, do the homework, don’t panic, and investors won’t regret the experience.

Emerging market policy makers have a tough line to walk. Consumers in emerging markets are working hard to be able to afford Nando’s (delicious stuff). Policy makers in efforts to create a virtuous cycle of FDI are trying to put consumers in a position to meet their aspirational tastes. At the same time, emerging markets must instill the discipline necessary to position their citizens for Singapore-like sustainable growth. That takes hard teamwork from all stakeholders. Done well, I anticipate having fewer restless nights pondering why Africa is so far back.

I agree with Jim O’Neill’s challenge to emerging markets to develop their financial markets and reduce their dependence on US currency.  A few years ago, Nigeria’s Central Bank shifted a portions of its foreign exchange reserve to include Chinese Renminbi.  Will we see other Central Banks doing more of this? The newly minted East African Exchange and the continued work of the Asset Management Corporation of Nigeria are examples of African countries taking steps to strengthen their financial markets.

The Work Continues

The emerging market sell-off that has been going on for the past few months has been frustrating to watch. It must reinforce the urgency with which emerging market policy makers create environments for wealth creation locally and globally. The investors who conduct country-specific research rather than look for key words will continue to do well. At the end of the day, folks are going to make money.