East Africa
Ethiopia
A country gripped by intense war and poverty in its recent past, Ethiopia is now one the emerging markets talked of in finance circles. The appeal of high returns and an increasingly safe market[place has flowed the worlds capital into the void that is Ethiopia currently. The development and formation of a foundation is strong here and the future stages of embracing free markets and unleashing competition are in the plans of many who look at Ethiopia.
(Addis Ababa, capital of Ethiopia)
(Coptic Christianity is a branch of Christianity practiced to this day by Ethiopians)
Currencies- The Ethiopian Birr is the currency of Ethiopia. It is similar to many emerging market currencies in that it is minimal in world trade and is largely meant simply for the trade inside the country. Gyrations in value and the constant risk of politically encouraged inflation makes this currency a worrisome investment for many. The belief that the issuer of this currency being stable in its issuance is crucial to the value of the currency and the government of Ethiopia and the issuer of the currency have not done that. If there was an embarkation on a stable and constant supply of money, many niche groups would be lured into investing in Birrs, but not large money. The secular increase in the value of emerging markets currencies is a strong force though and the action of the central bank, or inaction are in control and easy analysis of the market, other determinants of a currencies value, interest rates, relative risk appeal to substitute currencies and many other features exist, but are harder to judge and less relevant to the long term appreciation of the Birr. I think this is one of the most appealing of Ethiopian asset classes, as it is very much correlated to the economy (hard to find for an Emerging Market), can be physically stored if needed in the country, is increasingly used for growing domestic trade and
Bonds- Ethiopia is not developed to the extent of other African markets, even in the most basic ways. The rule of law and lack of trust in anything that is not linked with the government or some other local body that can maintain a monitoring to the conditions. The Bonds that do exist usually go for Infrastructure on government levels. The risk of perils and hazards and ignorance of the Ethiopian economy makes many financiers bypass the country as a place to park their clients money. The nature of bond investing is a preference for safety anyway and Bonds in a country like Ethiopia are much more risk intense than those held in just about any other country. The lack of regulation, poor macro market conditions, lack of commitment by the government into projects and a lack of transparency are the main cites of bond investors.
The common projects in Ethiopia include logistic improvements, like roads being built and financed and general operations of the government. The Ethiopian government is the go to for security in attracting bond confidence. Investors simply do not trust anybody who is not largely connected in the state, or has means of enforcing collections of debt somehow in case of default.
Cement, Steel, Copper, Carpenters and other construction inputs are in high demand in Ethiopia and the capital part of the mix is one major hinerance from achieving a better state. The projects are there and the repayment is almost assured in many cases, but it takes a brave heart to invest ro put risks in a place like Ethiopia. I imagine the young CFA purchasing some bonds for a retirment portfolio and the investment going sour later and him being possibly called nto question for investing in "Ethiopia", who would invest there is the current mindset and this allows those with the heart and risk tolerance to pursue the best deals with no competing finance in many cases. The financiers will get a good deal for a long time in Ethiopia, but the development of larger financial institutions and the maturing of the countries resurces will better the countries Credit worthiness on a whole.
As of now the only bond market existent in large order in Ethiopia is the
Equities- Ethiopia is one of the few countries with a large population and no stock market. Again the lack of development in the rule of law, caused by rapid and constant changes ion political positions, constant warfare and investors with money to invest are 3 problems that prevent a stock market with companies created in Ethiopia, on an Ethiopian exchange, traded by native traders.
Commodities- Ethiopia is truly a resource blessed country and may be the best asset class to invest in. There is less political risk investing in something simple like commodities. The powers to finance it and to protect it from the unique risks presented in this country are concentrated, but find its way to work out.
Countries with strong commodity bases are susceptible and risk a very inefficient and horrible structure of corporations and governments, specifically in Commodities. To seize the gold mines or to stop oil production are powerful tools in the hands of people who are literally starving to death and in the most desperate of states.
A rare sight in the otherwise bleak present state of African economics as of now, is the establishment and blossoming of the Ethiopian Commodity Exchange, this addresses the major needs of investors, centralizes the market and helps to establish transparency through monitoring of each others situations of participants in the market. The traders, contracts being enforced and sense of law is very reinforcing to the development of the countries economy and financial maturing.
Price discovery is also an important and very basic concept of steeping up the ladder. Farmers can now sell their crops at a consistent and somewhat assured price. The lack of collusion, fixed pricing and the efficiency of free markets has led to a price more reflective of the imaginary "intrinsic value" that the market price is always seeming to chase, but never achieve. Price discovery is very important for economies with a heavy emphasis on agriculture, which is 40% of Ethiopia's economy. The exchange trades Coffee, Green Beans and Sesame Seeds and accounts for 90% of all agriculture bought/sold in Ethiopia, an example of a concentrated market.
Countries with strong commodity bases are susceptible and risk a very inefficient and horrible structure of corporations and governments, specifically in Commodities. To seize the gold mines or to stop oil production are powerful tools in the hands of people who are literally starving to death and in the most desperate of states.
(American educated Dr. Eleni Gabre-Madhin, a pioneer of the ECX)
A rare sight in the otherwise bleak present state of African economics as of now, is the establishment and blossoming of the Ethiopian Commodity Exchange, this addresses the major needs of investors, centralizes the market and helps to establish transparency through monitoring of each others situations of participants in the market. The traders, contracts being enforced and sense of law is very reinforcing to the development of the countries economy and financial maturing.
Price discovery is also an important and very basic concept of steeping up the ladder. Farmers can now sell their crops at a consistent and somewhat assured price. The lack of collusion, fixed pricing and the efficiency of free markets has led to a price more reflective of the imaginary "intrinsic value" that the market price is always seeming to chase, but never achieve. Price discovery is very important for economies with a heavy emphasis on agriculture, which is 40% of Ethiopia's economy. The exchange trades Coffee, Green Beans and Sesame Seeds and accounts for 90% of all agriculture bought/sold in Ethiopia, an example of a concentrated market.
The exchange has led to farmers now keeping about 80% of what their crop sells for, when it used to be about 33%. There is now much more rigid quality standards and the free markets have encouraged the farmers to improve the crop each year, benefiting everyone involved.
The exchange also allows Ethiopia to participate in the world markets in a more efficient manner. If a Chinese coffee company needs some special kind of beans for a new flavor and they need a lot of it, they can find all they need here. They do not need to sign a ton of contracts and piece there buying out. The presence of middle man in the market who buy and hold different varieties to satisfy large purchasers like this have developed and insured a more liquid market for larger orders.
The participants in this exchange note that they are paid promptly and do not fear the usual risk of buying and selling in emerging markets. future plans of online trading, more crops traded and the outsourcing of warehousing are all rooms and ideas fro growth. The model of the commodity exchange will be a great role model for the equity exchanges of the future.
The basic developments of the exchange and the value added in it show the basic concepts that can be embraced in Ethiopia and its economy. The risk involved is contained and under works to being reduced right now by the many members who are concerned and have interests in the Ethiopian economy.
Data of the economy of Ethiopia (In US $) (2012 data unless otherwise noted)
- GDP- 42 billion
- GDP real Growth Rate- 7%
- GDP per Capita- $1,200
- GDP by sector Agriculture 47%, Industry 10%, Services 43%.
- Labor Force- 44 million
- Labor Force by occupation (2009)- Agriculture 85%, Industry 5%, Services 10%
- Population below poverty line- 30%
- Investment (Gross fixed) % of GDP- 27%
- Budget 6.4 Billion
- Expenditures- 7.5 Billion
- Taxes as a % of revenue- 15% of GDP
- Public Debt- 45% of GDP
- Inflation rate- 23%
- Narrow Money- 8 Billion
- Broad Money- 13 Billion
- Exports- 3 Billion
- Imports- 9 Billion
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$41.91 billion (2012 est.)
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7% (2012 est.)
country comparison to the world: 28
7.5% (2011 est.)
8% (2010 est.)
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$1,200 (2012 est.)
country comparison to the world: 210
$1,200 (2011 est.)
$1,100 (2010 est.)
note: data are in 2012 US dollars
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agriculture: 46.4%
industry: 10.7%
services: 43% (2012 est.)
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43.93 million (2012 est.)
country comparison to the world: 15 | |
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agriculture: 85%
industry: 5%
services: 10% (2009 est.)
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NA%
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29.2% (FY09/10 est.)
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lowest 10%: 4.1%
highest 10%: 25.6% (2005)
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30 (2000)
country comparison to the world: 116
40 (1995)
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26.8% of GDP (2012 est.)
country comparison to the world: 34 | |
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revenues: $6.388 billion
expenditures: $7.54 billion (2012 est.)
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15.2% of GDP (2012 est.)
country comparison to the world: 192 | |
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-2.7% of GDP (2012 est.)
country comparison to the world: 105 | |
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45.4% of GDP (2012 est.)
country comparison to the world: 76
47% of GDP (2011 est.)
note: official data cover central government debt, including debt instruments issued (or owned) by government entities other than the treasury and treasury debt owned by foreign entities; the data exclude debt issued by subnational entities, as well as intragovernmental debt; debt instruments for the social funds are not sold at public auctions
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23.4% (2012 est.)
country comparison to the world: 218
33.2% (2011 est.)
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NA%
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14.5% (31 December 2012 est.)
country comparison to the world: 35
16% (31 December 2011 est.)
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$8.144 billion (31 December 2012 est.)
country comparison to the world: 81
$6.532 billion (31 December 2011 est.)
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$13.35 billion (31 December 2012 est.)
country comparison to the world: 93
$11.51 billion (31 December 2011 est.)
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$14.46 billion (31 December 2012 est.)
country comparison to the world: 91
$11.73 billion (31 December 2011 est.)
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$NA
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cereals, pulses, coffee, oilseed, cotton, sugarcane, potatoes, khat, cut flowers; hides, cattle, sheep, goats; fish
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food processing, beverages, textiles, leather, chemicals, metals processing, cement
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9.2% (2012 est.)
country comparison to the world: 14 | |
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-$2.95 billion (2012 est.)
country comparison to the world: 149
-$1.965 billion (2011 est.)
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$3.109 billion (2012 est.)
country comparison to the world: 130
$3.029 billion (2011 est.)
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coffee, khat, gold, leather products, live animals, oilseeds
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China 13%, Germany 10.8%, US 7.9%, Saudi Arabia 7.8%, Belgium 7.7% (2012)
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$9.498 billion (2012 est.)
country comparison to the world: 99
$8.329 billion (2011 est.)
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food and live animals, petroleum and petroleum products, chemicals, machinery, motor vehicles, cereals, textiles
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China 13.1%, US 11%, Saudi Arabia 8.2%, India 5.5% (2012)
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$3.166 billion (31 December 2012 est.)
country comparison to the world: 108
$3.102 billion (31 December 2011 est.)
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$10.35 billion (31 December 2012 est.)
country comparison to the world: 100
$8.597 billion (31 December 2011 est.)
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Kenya
Currencies- The Kenyan Shilling has horror stories behind its past, just like many other emerging market currencies, but has done very well since QE in the Fed and the BOJ have flooded the world with the usual exchange pairs of the Kenyan Shilling. With 100% inflation achieved in a year (I know, it is amazing and mathematically possible for inflation to be at that level) the Kenyan Shilling is one of the currencies only the bravest can endure to long. The idea of Kenya falling off its trajectory of current growth by a black swan is more realizable in a place like Kenya. The whim of the nations currencies can be overwhelmed in central bank action in the Euro, Dollar, Pound and Yen. The small amount of broad money that has to trade alongside these massive sharks is comparable to a 7-11 being next to the the Bank of America tower in Atlanta (I had to use a local reference).
The Kenyan Shilling is interesting in where it ends up, the baking system is rapidly developing and bartering is evaporating even in the most remote regions. Mobile banking will drive the growth in the sector, as conventional banking seems to be leaped almost altogether for the earliest level of the income rise, Kenyans can now place their Shillings in a safe place from robbers, sudden spending habits and simply dropping their wallets/purses. The Shilling is being used in places that have no electricity and in that manner, may be looked at as a note to readjust the electronic balance, a check if you may. Having cash on hand to pay for small business operations is a necessary part of the use of the currency. In America, to put this into contrast, most of us use credit/debit/EBT and only cash for small ventures. The acceptance of these cards at more and more places have left the use of currency on the decrease.
(Kenyan Shilling paper notes)
Bonds- Like many other African markets, Kenya is largely left to invest in government securities for a bond market. I sometimes wonder if this is because the government is stamping out other competition for financing, or if it is genuine concern of the financiers. The progress of Kenya is noted and many should be comfortable allocating some of their bond holdings to the market of Kenya as a whole, through an ETF or the like.
The Kenyan government does have its fiscal house in great order, much better than we have them in America. The growth revenue and the conservative budgets have led to much room to wiggle.
The Kenyan government does have its fiscal house in great order, much better than we have them in America. The growth revenue and the conservative budgets have led to much room to wiggle.
Equities- The Kenyan stock market is relatively advanced to its neighbors. As a financial regional hub of the area, this stock market represents the saving and wealth of many of East Africa's population. The companies that finance themselves through this market are tapping into world and domestic investors, giving Kenyan companies a good choice in equity in the Debt or Equity choice of financing.
The volatility seen in the market is the result of low volume and a still forming a foundation of investors. Those who invest in Kenya are more likely to liquidate their positions in likelihood of any volatility, they are much less confident to wait it out than in other countries if they have not met their time objective of that particular trade or investment. Investments into Kenya may also be considered as the riskiest asset in many portfolios and they are sold almost immediately in volatility or a single large loss. The stomaching of watching a loss is intensified in Kenya is due more to the perception than reality. Kenya seems to be a relatively good market, and ones like Japan and America have proven to be more volatile.
(Partnerships for banking and credit services are emerging with the ties of strong Western and Eastern companies with assured balance sheets and expertise to handle common industry problems. The combination of the local Kenyan companies, like Equity bank (A Kenyan bank in the picture above, partnering with Mastercard on a MPOS product allowing merchants to sell their goods with no use of cash) is the kind of moves that will get huge returns in Africa. Kenya is a leader of this region of Africa in promoting this technology and the benefits are bold and large)
The link of this stock market to central banks and there work is also strong. Low interest rates flood money from the West to the East. Somewhere in the middle some is determined for Africa. The indiscriminate buying of assets simply due to their risk and moral hazard of having government bailouts if necessary have made Kenya a target of the weirdness of controlled markets.
The volatility seen in the market is the result of low volume and a still forming a foundation of investors. Those who invest in Kenya are more likely to liquidate their positions in likelihood of any volatility, they are much less confident to wait it out than in other countries if they have not met their time objective of that particular trade or investment. Investments into Kenya may also be considered as the riskiest asset in many portfolios and they are sold almost immediately in volatility or a single large loss. The stomaching of watching a loss is intensified in Kenya is due more to the perception than reality. Kenya seems to be a relatively good market, and ones like Japan and America have proven to be more volatile.
(Partnerships for banking and credit services are emerging with the ties of strong Western and Eastern companies with assured balance sheets and expertise to handle common industry problems. The combination of the local Kenyan companies, like Equity bank (A Kenyan bank in the picture above, partnering with Mastercard on a MPOS product allowing merchants to sell their goods with no use of cash) is the kind of moves that will get huge returns in Africa. Kenya is a leader of this region of Africa in promoting this technology and the benefits are bold and large)
The link of this stock market to central banks and there work is also strong. Low interest rates flood money from the West to the East. Somewhere in the middle some is determined for Africa. The indiscriminate buying of assets simply due to their risk and moral hazard of having government bailouts if necessary have made Kenya a target of the weirdness of controlled markets.
Commodities- Commodities in Kenya are shipped, mainly to African neighbors, but also to the large markets of America, China and Europe. Investing in commodities in Kenya is safer than the neighboring countries due to better accounting, rule of law and other small and simple parts f investing.
There are abundant energy resources in Kenya and a pipeline from the rich oil fields of Sudan and South Sudan make the country an even better place of capital. The Kenyan government seems to be very much in control of the Somali militants on the borders and the civil war raging in Sudan
Rwanda, Tanzania, Ethiopia and Uganda, are on a solid growth path of between around 5% and 7%. With the assumption of no major post-election turmoil in Kenya, growth is expected to amount to 4.5% in 2013 and to accelerate to above 5% in 2014. In Sudan, the economy has been heavily affected by the secession of South Sudan. In 2012, GDP contracted and for 2013 only moderate growth is projected and some acceleration in 2014.
