Op-Ed: Ivory Coast – the best macro in Africa?

by Charles Robertson, Global Chief Economist, Renaissance Capital 0

This new arrival in the MSCI African equity universe has a lot going for it, including the right conditions for a banking sector boom. Renaissance Capital outlines the risks and opportunities in an economy which the IMF estimates is on course to double every decade.

This piece could have the shortest shelf-life of any piece since one of our equity analysts published on the great Iraq opportunity just weeks before ISIS took over half the country.

Indeed, last night reading this report on army mutinies in Ivory Coast (and related tweets about Burkino Faso) nearly encouraged me to pull the release. That article concludes “ Soldiers in Ivory Coast have mutinied in 1990 (twice), 1993, 1999, 2000 (twice), 2002, 2003, 2008, 2014 and now 2017. They are the most mutinous military in the region, and likely the continent. Their history of revolts precedes the country’s civil war. Resolutions that go far beyond payments will be needed for Ivory Coast to break this cycle.”When I was in Abidjan last week, the initial mutiny of 6-7 January seemed to have been resolved. But in the last few days, two soldiers are reported to have died, and the gendarme temporarily seized a port. The noise is calming down in the afternoons according to one Reuters journalist when Africa Cup matches are televised, but this does look serious.  

But we are frank about the political risk, and I think we correctly identify the likely macro threat stemming from these mutinies – which is fiscal.

It seems that the numbers an economist loves – stable, strong, sustainable growth – are not what a population likes.  Despite the incumbent winning the 2015 presidential and then the 2016 parliamentary elections  (just last month), there are big demands for more pay across the country.  It reminds me a little of Zambia in 2011 and arguably the US in 2016 – growth is not good enough unless the population feels real incomes have risen substantially.  

None of this is a great way to encourage interest in this piece – which focuses on what is the best macro in Africa – and suggests investors who can stomach illiquidity ($1m trading volume a day) should look at the country.  The numbers are pretty amazing – across the board improvements over the last five years, from the Ease of Doing Business to a 52% rise in GDP, to new IPOs, a double of the banking sector, low inflation, a stable currency, a small current account deficit and a budget deficit of just 4% of GDP.  Read this and weep, rest of the world. 

 Rencap _19Jan 2017

In a world convinced that Africa Rising is no longer a theme – this country has been acting as a strong economic challenge to that pessimism (indeed many in Africa are doing well  – but the theme has been under assault by problems in the top three economies, Nigeria, SA, and Egypt until recently, as well as Mozambique).  If Ivory Coast can manage what looks to be a growing challenge to state authority – this bullish story will encourage investors in.  For more detail – see the IMF EFF report issued here.

There has been little reaction to the mutiny in the past 10 days or so.

 

 Rencap _19Jan 2017_2

     Ivory Coast – 2032 Eurobond price over 5 years 

To see the full report: Thoughts from a Renaissance Man: Ivory Coast – the best macro in Africa?