am chilling out away from leeds
Archive for June, 2009
Africa’s Undersea Internet Cables
17
Jun
Just came across this map outline africa’s undersea internet cables and statistics. Click the link to visit the site
Go To Nouriel Roubini’s Global EconoMonitor Main Page Latvia’s currency crisis is a rerun of Argentina’s
12
Jun
After a recent failed public debt auction, the authorities in Latvia are desperately trying to prevent a depreciation of the currency, the lat. The country’s predicament is similar to the one that faced Argentina in 2000-01: a severe recession driven by global financial shocks, a sudden drying up of capital inflows and the need to reduce a large external deficit worsened by an unsustainable currency peg.As in Argentina, the International Monetary Fund initially went along – somewhat uncomfortably – with the authorities’ strong preference for not letting the currency depreciate, in spite of its significant overvaluation. But a real exchange rate depreciation is necessary to restore the country’s competitiveness; in its absence, a painful adjustment of relative prices can occur only via deflation and a fall in nominal wages that will take too long and exacerbate the recession.
Draconian cuts in public spending will be required if Latvia is to improve the current account. But this is becoming politically unsustainable. And while fiscal consolidation is needed – as Argentina found in 2000-01 – it will make the recession more severe in the short run. So it is a self-defeating strategy as long as the currency remains overvalued.
Of course, as in Argentina, letting the currency depreciate would lead to massive negative balance-sheet effects. The large foreign liabilities of households, companies and banks are in foreign currency; the real value in local currency of such debts would increase sharply after a devaluation. Devaluation may therefore lead to default by many private sector agents – and as the country’s banks are local subsidiaries of Swedish banks, a financial meltdown in Latvia could prove damaging for its neighbours.
Nonetheless, devaluation seems unavoidable and the IMF programme – which ruled it out – is thus inherently flawed. The IMF or the European Union could increase financial support for Latvia but, as in Argentina, this would be throwing good money after bad. International resources are better used to mitigate the collateral damage of depreciation.
An introduction of the euro immediately after devaluation could help prevent the exchange rate from overshooting, although it would require the eurozone to admit a country that does not yet satisfy the formal criteria for membership. Euroisation after depreciation is a more credible strategy for Latvia than dollarisation would have been for Argentina, as Latvia was on its way to membership and its business cycle is highly correlated with that of the EU. Euroisation without depreciation will not work, as a real depreciation is necessary to restore competitiveness. Of course, any depreciation – with or without euroisation – will make many foreign currency debts unsustainable and will require a forced debt restructuring, as in the case of Argentina.
To minimise the risk of contagion, the best strategy may be: depreciate the currency, euroise after depreciation, restructure private foreign currency liabilities without a formal “default”, and augment the IMF plan to limit the financial fallout. It is a risky strategy but – as in Buenos Aries nine years ago – when plan A does not work it is time to move to plan B sooner rather than later. Delaying plan B would only cause a bigger blowout when the unavoidable currency crisis eventually occurs. It is to be hoped the lessons of Argentina in 2001 have been learnt.
Latvia’s authorities are trying desperately to prevent depreciation by intervening in the foreign exchange market. While the very thin interbank market slows down the rate at which domestic and foreign financial institutions can short the Latvian currency and put pressure on the central bank reserves, the country is bleeding forex reserves at an alarming rate. Only a miracle or some draconian and credible fiscal adjustment (that does not exacerbate the recession) could restore the peg’s credibility and lead to a growth recovery.
At this point, a currency and financial crisis is pretty much unavoidable; the issue is how to minimise the domestic and international costs of the needed change in the policy regime. As the experience with Argentina suggests, procrastinating will make the unavoidable crash – and the regional contagion – even more dramatic and costly.
Source:
RGE Monitor
Africa’s recovery likely to be faster than expected
01
Jun
Africa is likely to pull out of the global economic recession faster than expected, owing to a steady resurgence in commodity prices.
With a majority of African countries relying on mining and agri-based commodities for foreign exchange earnings, competitive prices in the global trade arena stand to benefit fragile economies facing a decline in export receipts.
According to Mr Tony De Castro, the chief executive of investment banking group African Alliance, a recovery of commodity prices is in the offing and augurs well for Africa’s economies.
“Commodity prices have started to rise again and will continue doing so. Maybe not the record highs witnessed last year, but the levels will be good,” he said.
In the last one year prices for most commodities have fallen 40-50 per cent from their midyear peaks back in 2008.
The global economic slump has cast a pall on most markets and, while net cash income is projected at high levels relative to historical averages, economists say there remains much uncertainty. But this is gradually changing.
Coffee for instance, which is a key export earner for Kenya, is enjoying attractive prices in the global markets.
At the local auction, Arabica coffee futures closed at an eight-month high on Tuesday, as fund buying returned to the market, and investors and day traders were forced to cover their short positions.
Tea which is the country’s second biggest foreign exchange earner after horticulture is also gaining traction as global demand rises. The prospects for Horticulture remain bright since it is unlikely that the demand for vegetable foods in target markets such as the European Union will fall.
But even as commodity prices rise, African economies are still expected to feel the heat of the global economic downturn. Economists say Africa’s growth is expected to slow down to 2.8 per cent in 2009. Down from 5.7 per cent in 2008 and 6.1 per cent in 2007.
From an overall current account surplus position of 3.5 per cent of GDP in 2008, the continent will face a deficit of 3.8 per cent of GDP in 2009.
The vulnerability is becoming more apparent as private capital inflows into the region contract, resulting in increased foreign exchange liquidity drought.
Even as commodity prices show signs of improving, export volumes in individual economies are coming under pressure as constricting trade finance lines become a major concern for policy makers in African countries.
A weakness in some commodity prices also bodes well for a number of African economies — such as Kenya- which has managed to diversify foreign exchange revenue lines but is still bogged down by a huge import bill.
Economists at Standard Chartered Bank have posed the argument that while much analysis has focused on the impact of weaker commodity prices on African exports, the degree of causation may be overdone.
“As a region, Africa is diverse. Many of its key markets are oil importers and almost all import food. African countries stand to benefit from commodity price weakness” argues Razia Khan, Standard Chartered Bank’s regional head of research for Africa.
Ms Khan surmises that while commodities have been a contributing factor to the continent’s recent growth, the commodity boom that overheated last year was not the most important factor.
The fact that the continent’s resource rich and non-resource rich countries all recorded growth in the same period points to the fact that there were other drivers to the growth in African economies.
Even then, one fact remains certain, that while commodities are unlikely to regain frothy peaks recorded in the first half of this year, the normal recovery pattern makes it quite conceivable they will regain the relatively high levels reported in 2006 and 2007 — crude oil prices of $60-100 per barrel — in the next four years.
As the world turns towards domestic demand in both China and India — the world’s two most populous countries — a rise in commodity prices is expected as the two countries rush to satiate the appetites of their local industries
Source:
BD Africa
BD Africa
Major transport project to open up northern Kenya
01
Jun
Northern Kenya is set to undergo a major infrastructural development under a new Government project.
Under the plan, the vast and remote region will have railway lines, highways, oil pipelines, airports and resort cities.
The details are outlined in the Government’s proposal for a new transport corridor from Lamu to Southern Sudan and Ethiopia, with branches in Isiolo, Addis-Ababa, Juba and Nairobi.
Called the ‘Second Transport Corridor’, the main objective of the project is to build a port and oil refinery at Lamu’s Manda Bay and Naval Base for Southern Sudan to export crude oil and Ethiopia to import refined oil through Kenya.
 |
| The new Government infrastructure project will transform northern Kenya into a major business hub. [PHOTO: ALI ABDI/STANDARD] |
The Transport ministry and the Kenya-Southern Sudan Liaison Office developed the paper containing the proposal to link the Kenyan Coast with Southern Sudan and Ethiopia in 2005.
Kenya is keen to explore the Eastern Africa sub-region’s huge and growing market.
The market includes land-locked Ethiopia, with a population of more than 70 million, Southern Sudan that is set to become a major oil exporter, Uganda and the Democratic Republic of Congo.
However, the new market cannot be supported by the port of Mombasa as it is already near full capacity and was designed to convey 20 million tonnes of cargo a year.
The entry of Southern Sudan into the region’s market estimates unrestricted demand of cargo, rising to more than 32 million tonnes a year.
cargo demand
Thus, the Port of Mombasa will not sustain the growing demand for access brought by the demands from Southern Sudan and Ethiopia. Kenya, the principal gateway to the sub-region, had recognised the need for an alternative port. A study in 1975 identified Lamu as a suitable location.
For political and strategic reasons, Southern Sudan cannot rely on the Port of Sudan on the Red Sea Coast for its export of crude oil.
Likewise, Ethiopia had for a long time challenged Kenya to open up a road link through Moyale for its export and import trade.
Southern Sudan has several options of seaports to choose from. But it has to take into account factors like security, number of international borders to cross, the nature of terrain, length of route and accessibility to the markets in the West and East by sea.
In the region, the ports of Dar-es-Salaam, Doula in Cameroon, Kinshasa in the DRC, Port Sudan, Massawa and Djibouti were all ruled out by the Southern Sudan and Ethiopia as ports of choice.
The distance between Juba, the Southern Sudan capital, and Port Sudan is about 4,000 km, while the distance between Juba and Lamu is 1,500 km.
Political differences also make Southern Sudan and Ethiopia not to prefer Port Sudan and Massawa respectively
Dar-es-Salaam would involve goods transiting two countries before getting to the port and vice versa for Southern Sudan. Dar’s route is also longer and has no capacity to handle extra cargo.
Doula, on the continent’s western shores also faces similar challenges to those of Tanzania’s leading port, while the Kinshasa option has many challenges that include insecurity, long distance and tough terrain provided by the Equatorial rain forest.
Source:
EastAfrican Standard