* Your assessment is very important for improving the work of artificial intelligence, which forms the content of this project
SUBSAHARAN AFRICA Lazard Emerging Markets Debt Table of Contents Sub-Saharan Africa 661 Angola 663 Cameroon 673 Côte d’Ivoire 683 Ethiopia 693 Gabon 707 Ghana 717 Kenya 727 Mozambique 739 Namibia 749 Nigeria 757 Republic of Congo 767 Rwanda 777 Senegal 789 South Africa 799 Tanzania 811 Uganda 819 Zambia 829 662 Angola Summary Moody’s B1 / S&P B / Fitch B1 Economy: Agriculture 10%, Industry 62%, Services 28% Angola is rich in oil, operating as the second-largest African oil producer after Nigeria, with the thirdlargest reserves in Africa. In addition to oil, Angola has other significant natural resources such as diamonds, gold, and copper. Angola enjoys a close relationship with China, which is a major strategic partner with close commercial and financial ties. The government is stable as the current president, José Eduardo dos Santos, has been in power since 1979 and takes a market-friendly approach. Elections will be held in 2017, and President dos Santos is expected to be reelected, although he will retire from politics in 2018 and has not yet named a successor. Angola is highly dependent on oil, which accounts for a disproportionate share of exports and government revenues. The recent oil shock has highlighted this vulnerability. As such, diversification of the economy has become an important medium-term policy priority. Other challenges the country faces are its difficult business conditions and poor infrastructure, which are becoming an economic bottleneck. Economic Indicators 2012 2013 2014 2015 2016E 24.3 25.0 25.8 26.6 27.4 28.2 GDP per Capita (USD) 4,745 4,989 4,916 3,876 3,360 3,631 Nominal GDP (USD Billions) 102.3 Population (Millions) 2017E 115.3 124.9 126.8 103.0 91.9 Real GDP (%) 5.2 6.8 4.8 3.0 0.0 1.5 Year-End CPI (%) 9.0 7.7 7.5 14.3 48.0 32.0 Fiscal Balance (% of GDP) 4.6 -0.3 -6.6 -4.9 -5.4 -5.4 Interest (% of Revenues) 2.1 2.0 3.4 8.1 11.0 12.9 FC Debt/Public Debt (%) 65.5 65.5 60.5 66.7 68.7 70.0 Government Debt (% of GDP) 29.5 32.9 40.7 64.2 77.7 73.6 Government Debt (% of Revenue) 64.2 81.7 115.1 259.2 370.1 327.8 Current Account (% of GDP) 12.0 6.7 -2.9 -8.5 -5.4 -5.4 FDI (% of GDP) -83.6 -105.4 -59.2 17.3 21.8 19.5 External Debt (% of GDP) 18.8 23.7 25.5 38.3 36.4 34.9 Foreign Reserves/External Debt (%) 67.4 91.8 116.3 177.0 150.7 157.3 Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) 8.4 7.9 6.5 6.9 7.1 6.7 27.9 25.8 21.9 21.6 24.2 22.2 As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IMF, Standard Bank, Haver Analytics, Lazard 663 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB BB BB- BB- B+ B+ B 2000 2008 Moody’s 2016 S&P Fitch B 2000 2008 Moody’s S&P 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 1000 800 600 400 200 0 2008 Angola 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 664 Angola Strengths Oil and Gas Sector Angola has large oil reserves, estimated at 12.7 billion barrels, the third-largest in Africa and equivalent to 9.8% of all of Africa’s reserves.2 Oil output has doubled since the end of the civil war in 2002 from 905,000 barrels per day (bpd) to an estimated 1.8 million bpd in 2015 and 2016, second only to Nigeria.3 Most of Angola’s oil reserves are offshore, and the civil war limited onshore exploration. The large amount of onshore drilling currently being undertaken should also add to production. Important projects in the pipeline guarantee that oil output will continue increasing in the medium term. The country also has gas reserves amounting to 10.95 trillion cubic feet (tcf) and production totals 379 billion cubic feet per day. Most of the current gas output is vented, flared, or reinjected to aid oil recovery.4 The new US$10 billion liquefied natural gas project, which was shut down in April 2014 due to a rupture in a flare line, became operational in the third quarter of 2016.5 Abundant Natural Resources Angola is rich in natural resources across its geography. Oil, its major export commodity, is found in the north and west regions, and the western and central parts of Angola contain most of the country’s mineral resources. Angola is the third-largest diamond producer in the world and has abundant untapped natural resources such as gold, copper, barite, iron, copper, cobalt, and marble. The country’s interior has an ideal climate for agriculture, although less than 30% of the arable land is currently used for agriculture, suggesting untapped potential in this sector as well.6 Like other African countries, Angola used to be self-sufficient for food consumption, but it is now reliant on food imports.7 Additionally, Angola has a long coastline that could support the fishing industry; however, most of the current fishing is small-scale. Key Financial and Trade Partners Angola has a good relationship with emerging markets countries and the United States. Among the most important emerging markets partners are China and Brazil. In the past decade, China has provided oil-backed loans totaling more than US$25 billion to Angola,8 and Brazil has provided loans of over US$3 billion for infrastructure projects,9 although some Brazilian financing was suspended in 2016 due to a corruption scandal.10 China is Angola’s most important trade partner. In 2015, exports to China alone were almost equivalent to the sum of the next 10 trading partners combined.11 China is a major creditor that accounts for approximately 40% of Angola’s external debt, reflecting the strategic importance of Angola to China as its third-largest oil supplier.12 Sino-Angolan commercial relationships were also strengthened by President dos Santos’s visit to China in June 2015 to sign economic agreements,13 as well as the opening of a Bank of China branch in Angola.14 China has also partnered with Angola on large projects, such as the US$14 billion refinery project, “Prince of Kinkakala,” which is scheduled to be completed in 2020 and will have a refining capacity of 400,000 bpd.15 Stable Government Angola is politically stable as only one person, José Eduardo dos Santos, and one party, the People’s Movement for the Liberation of Angola (MPLA), have been in power since 1979. The president has complete control over most institutions and has used the country’s oil wealth to gain important allies. His family members have also benefited, especially his daughter, Isabel dos Santos—one of Africa’s richest women—who controls a large portfolio of public companies, including state-owned enterprise oil company Sonangol.16 In the 2012 665 Lazard Emerging Markets Debt elections, MPLA won once again by a landslide, and José Eduardo dos Santos was reelected, effectively making him president for 38 years, the second-longest serving in Africa.17 Like the previous elections, opposition parties, such as UNITA, were at a disadvantage as they had neither the financial resources nor the control of the media that the ruling party enjoys. Elections are scheduled for 2017, but Mr. dos Santos and the MPLA are likely to remain in power. Yet, at 74, having a presidential succession plan is becoming more relevant, and while Mr. dos Santos has said he will retire from politics in 2018,18 the country has not yet announced a successor, although Mr. dos Santos’s son and daughter are likely to remain influential.19 Market-Friendly Government The government, whose roots are tied to left-wing ideology, is gradually shifting toward more market-friendly policies and away from the state-led economic policies promoted in the 1980s and 1990s. The shift began in the early 2000s when the government started to liberalize the economy in favor of the private sector. The latest wave of structural reforms took place under the stand by agreement reached with IMF in 2010 and concluded successfully in May 2012.20 Still, much progress needs to be made, particularly to improve business conditions in order to attract more private investment, and to help adjust and diversify the economy. Weaknesses Oil Dependency The shock in oil prices has highlighted Angola’s vulnerability to this resource. Oil accounts for 75% of government revenues, and more than 95% of total exports.21 As such, any decline in oil prices tends to have an outsized negative economic impact on the country, forcing the government to undertake adjustments. For instance, during the 2008–2009 financial crisis, the collapse in oil prices eventually led Angola to seek the IMF assistance. During the current oil shock, Angola intended to collaborate with the IMF, which was also open to assist Angola, but the country declined to continue negotiations in 2016.22 Diversification Angola also faces diversification challenges due to its reliance on the oil sector, which is capital intensive and does not generate many jobs. Diversifying the economy would have a positive effect in terms of employment, tax revenues, and the distribution of power. The government needs to promote other sectors, such as agriculture and manufacturing, which are more labor intensive. A more dynamic non-oil sector would also reduce social pressures, creating more jobs for the poor, and would also help to generate higher non-oil tax revenues, which are extremely low. Finally, the development of the non-oil sectors would help promote new economic leaders, which would help to balance economic power away from the oil sector. Agriculture, for instance, is a sector with enormous potential as Angola has 35 million hectares of arable land, of which less than 4 million are currently used.23 Unfriendly Business Conditions In order to attract more private investment and diversify the economy, the government will need to make further progress on improving business conditions. In the World Bank’s Ease of Doing Business Index, Angola ranks 182nd out of 190 countries.24 Among the major challenges are starting a business, getting electricity, trading across borders, and enforcing contracts. Burdensome regulations, lack of judicial independence, and a paucity of qualified 666 Angola human capital are among other problems. If business conditions improve, Angola has the potential to grow at a much faster rate. Poor Infrastructure During the civil war, most of Angola’s infrastructure was destroyed, and the government has just begun to gradually rebuild it. Roads, airports, ports, and electricity infrastructure are still in very poor condition. This has resulted in economic bottlenecks, which are most evident in Luanda, the capital. Transportation is chaotic, making transportation infrastructure in other large emerging markets cities, such as Jakarta and São Paulo, appear good by comparison. Angola’s ports demonstrate another area of infrastructure problems; due to poor conditions, some products have to be exported out of Namibia’s ports, which are more than 2,000 kilometers away. While the government initially intended to continue major infrastructure projects despite the headwinds from falling oil prices,25 some projects have been suspended in 2016 as the government cut its budget by 20%.26 Social Pressures Social pressures are increasing as the general population is not content with living conditions. Protests over Angola’s social conditions are becoming more and more common, despite the repressive government, as very few people have benefited from oil wealth. A large share of the population remains poor, and health conditions are bad. According to the World Bank, 36.6% of the population lives on less than US$2 per day,27 and on the Human Development Index, Angola ranks 149th out of 187 countries.28 There is limited access to water and electricity, especially in rural areas. Access to health services is very rare, except among the small middle and upper classes. Income inequality is also stark, as Angola ranks 101st out of 155 countries on the Gini index.29 Only recently have social conditions started to improve due to the government’s large investment in social expenditures, which now amount to 11% of GDP.30 If the government maintains this level of social expenditure, Angola’s social conditions could improve very quickly, reducing the potential for further unrest. Instability in the Oil Region of Cabinda There is sporadic fighting in the region of Cabinda, where one-third of the country’s oil production originates. Cabinda is an enclave that is separated from the rest of Angola by the Democratic Republic of Congo. The region claimed its independence in 1974, but Angola invaded and regained control of Cabinda within months. Since then, this region has been led by the Front for the Liberation of the Enclave of Cabinda (FLEC), which agitated for independence until the 2006 peace accord. Not all the groups within the FLEC agreed with the peace agreement, and sporadic rumblings for independence still occur. However, tension and fighting have declined substantially since 2006, with only rare outbreaks of violence, such as the attack of the Togo soccer team during the 2010 African Soccer Cup in Angola.31 Still, most of Cabinda’s population is unhappy with the central government, especially since it is still a poor region despite being an important area of oil production. As part of the government’s economic development plan for the region, the first phase of construction on a deep water port in Cabinda has started, which will create 1,000 jobs in direct employment.32 The project is expected to be completed by the end of 2017.33 667 Lazard Emerging Markets Debt Country Background Size 1,246,700 KM2 (23rd) Capital Luanda Population 20.2 Million Ethnic Groups Ovimbundy 37%, Kimbundu 25%, Bakongo 13%, Mesitco 2% Religion Roman Catholic 41.1%, Protestant 38.1%, Other 8.6%, None 12.3% Median Age 18 Years Literacy Rate 71.1% Independence November 1975 Political System Republic Head of State José Eduardo dos Santos (MPLA) Legislative Elections 2017 Legislative Branch 220 Seats (Largest Parties: MPLA 175, UNITA 32) Economy Agriculture 10.2%, Industry 61.4%, Service 28.4% Labor Force Agriculture 85%, Service 15% Merchandise Exports Crude Oil, Diamonds, Refined Petroleum Products, Coffee Export Partners China 43.8%, India 9.6%, US 7.7%, Spain 6.2% Currency Kwanza (AOA) As of November 2016 Source: CIA 668 Angola Country Timeline Independence 1976 MPLA gains upper hand. 1979 MPLA leader Agostinho Neto dies. Jose Eduardo dos Santos takes over as president. 1987 South African forces enter Angola to support Unita. 1988 South Africa agrees to Namibian independence in exchange for removal of Cuban troops from Angola. 1989 Dos Santos, Unita leader Jonas Savimbi agree cease-fire, which collapses soon afterwards and guerrilla activity resumes. Towards peace 1991 April—MPLA drops Marxism-Leninism in favour of social democracy. 1991 May—Dos Santos, Savimbi sign peace deal in Lisbon which results in a new multiparty constitution. 1992 September—Presidential and parliamentary polls certified by UN monitors as generally free and fair. Dos Santo gains more votes than Savimbi, who rejects results and resumes guerrilla war. 1993 UN imposes sanctions against Unita. The US acknowledges the MPLA. 1994 Government, Unita sign Lusaka Protocol peace accord. 1995 Dos Santos, Savimbi meet, confirm commitment to peace. First of 7,000 UN peacekeepers arrive. 1996 Dos Santos, Savimbi agree to form unity government join forces into national army. 1997 April—Unified government inaugurated, with Savimbi declining post in unity government and failing to attend inauguration ceremony. 1997 May—Tension mounts, with few Unita troops having integrated into army. 1998 Full-scale fighting resumes. Thousands killed in next four years of fighting. Angola intervenes in civil war in Democratic Republic of Congo on the side of President Laurent-Desire Kabila. 1999 UN ends its peacekeeping mission. 2002 February—Savimbi killed by government troops. Government, Unita sign ceasefire shortly afterwards. Demobilization 2002 May—Unita's military commander says 85% of his troops have gathered at demobilisation camps. process. There are concerns that food shortages in the camps could threaten the peace 2002 June—UN appeals for aid for thousands of refugees heading home after the ceasefire. Medical charity Medecins sans Frontieres says half a million Angolans are facing starvation, a legacy of civil war. 2002 August—Unita scraps its armed wing. "The war has ended," proclaims Angola's defence minister. 2003 February—UN mission overseeing the peace process winds up. 2003 June—Unita—now a political party—elects Isaias Samakuva as its new leader. 2004 April onwards—Tens of thousands of illegal foreign diamond miners are expelled in a crackdown on illegal mining and trafficking. In December the government says 300,000 foreign diamond dealers have been expelled. 2004 September—Oil production reaches one million barrels per day. 669 Lazard Emerging Markets Debt 2005 March-May—Marburg virus, which is deadlier than Ebola, kills more than 300 people, most of them in the north. 2005 June—Chinese Premier Wen Jiabao visits, promises to extend more than $2B in new credit, in addition to a $3B credit line Beijing has already given Luanda. 2006 August—The government signs a peace deal with a separatist group in the northern enclave of Cabinda. 2006 October—The UN refugee agency begins "final repatriation" of Angolans who fled the civil war to the neighbouring DR Congo. 2007 February—President dos Santos says parliamentary elections will be held in 2008 and presidential polls in 2009. 2008 September—First parliamentary elections for 16 years. 2009 March—Pope Benedict celebrates mass in front of more than a million people in Luanda. 2009 October—Angola expels illegal Congolese diamond miners. Democratic Republic of Congo responds by expelling some 20,000 Angolans. Constitutional change 2010 January—Angola hosts African Nations Cup, continent's most popular sporting event. Bus carrying Togo football team is attacked by Cabinda separatists. Parliament approves new constitution strengthening the presidency and abolishing direct elections for the post. 2010 September—President of DR Congo, Joseph Kabila, visits Angola. Ties between the two neighbours deteriorated in 2009 and Congo retaliated when Angola began expelling illegal Congolese immigrants. 2010 November—Convoy carrying Chinese mine workers attacked in the region of Cabinda. A faction of the Cabinda separatist movement Flec claims responsibility. US urges Angola to investigate alleged rape of women recently deported to DR Congo. 2011 March—More than 20,000 people rally in support for President Dos Santos in response to a reported social media campaign calling on people to demonstrate against the government. Human Rights Watch accuses the government of a "campaign of intimidation" to suppress anti-government protests. 2011 December—Anti-election fraud law passed ahead of general elections due in second half of 2012. 2012 February—Opposition threatens to boycott elections unless head of National Electoral Commission is replaced; they say she is not independent as she is a members of ruling MPLA's women's league. 2012 May—Supreme Court annulls the appointment of the head of the electoral commission, upholding complaints from the opposition that she was not politically neutral. 2012 September—Governing MPLA wins a comfortable victory in parliamentary elections, guaranteeing another term in office for President Dos Santos. African Union observers deem the polls free and fair, despite allegations by opposition party Unita about lack of transparency. 2012 October—Angola launches a $5B sovereign wealth fund to channel the country's oil wealth into investment projects. 2013 November—Intelligence chief is sacked following an interior ministry report saying the security services were involved in the abduction and killing of two activists. 2014 May— First national census since 1970. Preliminary figures put population at 24.3 million. Anti-government protesters say they've been beaten and detained for demonstrating against the killing of three activists by security forces. 2014 November— Amnesty International accuses security forces of extra-judicial killings and excessive force, when suppressing dissent against the government. 2014 December— Rights groups urge the authorities to stop what they describe as the cruel and inhuman treatment of migrants from other parts of Africa, after more than 3,000 people are reportedly rounded up in Luanda. 670 Angola 2015 April— Mystery surrounds raid on Mount Sumi, with opposition alleging security forces killed some 1000 in action against Seventh Day Light of the World Church. Government demands apology from the UN after it called for a probe. 2015 May— Prominent anti-corruption activist Rafael Marques is given six-month suspended jail term for defaming army generals in a book about violence in the country's diamond mining industry 2016 December—State radio says President dos Santos will stand down before elections next year. Source: BBC Notes 1 As of December 2016 2 “BP Statistical Review of World Energy 2016,” BP, June 2016, accessed on November 24, 2016, http:// www.bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-worldenergy-2016-full-report.pdf. 3 “Angolan oil output at 1.79 mil b/d, to rise to 1.8 mil b/d in 2016: minister,” Platts, June 5, 2015, http://www. platts.com/latest-news/oil/vienna/angolan-oil-output-at-179-mil-bd-to-rise-to-18-26114849, accessed October 9, 2015. 4 “Angola,” U.S. Energy Information Administration, accessed on December 8, 2013, http://www.eia.gov/ countries/cab.cfm?fips=AO. 5 “Angola LNG shut down, production to resume late September”” LNG World News, July 21, 2016, accessed on November 24, 2016 http://www.lngworldnews.com/angola-lng-shut-down-production-toresume-late-september/ . 6 “Angola Economic Update,” International Monetary Fund, Issue 1, June 2013, accessed on December 8, 2013, http://www.imf.org/external/country/AGO/rr/2013/060113.pdf. 7 “Country Partnership Strategy FY14-FY16 for The Republic of Angola,” World Bank, August 15, 2013, accessed on December 8, 2013, http://www-wds.worldbank.org/external/default/WDSContentServer/ WDSP/IB/2013/09/06/000442464_20130906093626/Rendered/PDF/762250CAS0Ango0800OUO0900Box3 79823B.pdf. 8 Growing Chinese debt leaves Angola with little spare oil , Reuters March 14, 2016, “http://www.reuters. com/article/angola-oil-finance-idUSL5N16H3EV, accessed November 24 2016 9 “Brazil reaffirms its political and trade influence in Angola and Mozambique,” MercoPress, October 21, 2011, accessed on December 8, 2013, http://en.mercopress.com/2011/10/21/brazil-reaffirms-its-political-and-tradeinfluence-in-angola-and-mozambique 10Government of Angola seeks alternatives to suspended Brazilian funds, October 18th, 2016, http://www. macauhub.com.mo/en/2016/10/18/government-of-angola-seeks-alternatives-to-suspended-brazilian-funds/, accessed November 24, 2016 11Bloomberg Data, Nov 2016 12“Russia overtakes Saudi Arabia as China’s top oil supplier,” June 29, 2016, https://www.rt.com/ business/348826-russia-china-oil-exports/accessed, November 24, 2016 13McClelland, Colin, “Angola’s President Visiting China to Sign Economic Agreements,” Bloomberg News, June 8, 2015, accessed on October 9, 2015, http://www.bloomberg.com/news/articles/2015-06-08/angola-spresident-visiting-china-to-sign-economic-agreements. 14Bank of China’s arrival in Angola creates positive expectations, June 2016 http://www.macauhub.com.mo/ en/2016/06/06/bank-of-chinas-arrival-in-angola-creates-positive-expectations/, accessed November 24, 2016 15“Chinese-Angolan consortium will build oil refinery in Angola,” Macau Hub, July 9, 2015, accessed on October 9, 2015, http://www.macauhub.com.mo/en/2015/07/09/chinese-angolan-consortium-will-build-oilrefinery-in-angola/. 16“Africa’s 50 Richest, Isabel dos Santos,” Forbes, accessed on December 8, 2013, http://www.forbes.com/ profile/isabel-dos-santos/. 17Fletcher, Pascal and Shrikesh Laxmidas, “Angola’s dos Santos secures big election win,” Reuters, September 1, 2012, accessed on October 9, 2015, http://www.reuters.com/article/2012/09/01/us-angolaelection-idUSBRE88005020120901. 18Angola’s dos Santos says he will retire in 2018, Financial Times March 11, 2016 https://www.ft.com/ content/838ac59a-e78b-11e5-a09b-1f8b0d268c39, accessed November 24 2016 19MPLA’s August conference likely to confirm Angolan president’s dominance and pave way for his chosen successor, August 2016, http://www.janes.com/article/62754/mpla-s-august-conference-likely-to-confirmangolan-president-s-dominance-and-pave-way-for-his-chosen-successor, accessed November 24, 2016 671 Lazard Emerging Markets Debt 20“Statement at the Conclusion of the 2012 Article IV Consultation and First Post-Program Monitoring in Angola,” International Monetary Fund, May 17, 2013, accessed on December 8, 2013, http://www.imf.org/ external/np/sec/pr/2012/pr12183.htm. 21“IMF Staff Completes 2015 Article IV Mission to Angola,” International Monetary Fund, Press Release No. 15/388, August 25, 2015, accessed on October 9, 2015, https://www.imf.org/external/np/sec/pr/2015/ pr15388.htm. 22Angolan President Tells IMF His Country Wants to End Loan Talks, June 30 2016, http://www.bloomberg. com/news/articles/2016-06-30/angola-tells-imf-it-no-longer-wants-a-loan-seeks-technical-help, accessed November 24, 2016 23Angola Gets World Bank Support for Agricultural Productivity July 5, 2016 http://www.worldbank.org/en/ news/press-release/2016/07/05/angola-gets-world-bank-support-for-agricultural-productivity, accessed November 24, 2016 24“Economy Rankings,” Doing Business 2017, accessed on November 24, 2016, http://www.doingbusiness. org/data/exploreeconomies/angola 25Angola seeks $10bn for infrastructure despite oil price collapse, https://www.ft.com/content/c58e0bd8e803-11e4-9960-00144feab7de 26Angola Cuts 2016 Spending by 20%, March 2016, http://www.wsj.com/articles/angola-cuts-2016-spendingby-20-1457980425, accessed November 24, 2016 27“Data,” The World Bank, accessed on November 24, 2016, http://data.worldbank.org/country/angola. 28“Indices & Data,” United Nations Development Reports, accessed on November 24, 2016, http://hdr.undp. org/en/statistics/data/. 29“World Development Indicators: Distribution of income or consumption,” The World Bank, accessed on October 12, 2015, http://wdi.worldbank.org/table/2.9#. 30“Angola Resident Representative Site,” International Monetary Fund, accessed on December 8, 2013, http:// www.imf.org/external/country/ago/rr/index.htm. 31Pretot, Julien, “Angola says two attackers arrested; Togo out of Cup,” Reuters, Janauary 11, 2010, accessed on December 8, 2013, http://www.reuters.com/article/2010/01/11/us-angola-togo-idUSTRE60A1HV20100111. 32“Cabinda: First phase of construction of deepwater port launched,” Agencia Anolg Press (ANGOP), June 10, 2015, accessed on October 9, 2015, http://www.portalangop.co.ao/angola/en_us/noticias/ economia/2015/5/24/Cabinda-First-phase-construction-deepwater-port-launched,d76217cb-79c6-409f-b2773fd448d8da3e.html. 33Angola to spend $1.3 bn on ports this year, July 28 2016, http://www.portstrategy.com/news101/world/ africa/angola-to-spend-$1.3bn-on-ports-this-year, accessed November 24, 2016 672 Cameroon Summary Moody’s B2 / S&P B / Fitch B1 Economy: Agriculture 21%, Industry 31%, Services 48% Cameroon has abundant natural resources, significant growth potential, low GDP per capita, and weak institutions. Economic growth tends to be volatile due to heavy dependence on oil. Since the 1980s, the government has had different programs with the IMF and economic policies have improved, but further progress is needed. President Paul Biya has been in power since 1982, and he is likely to seek reelection in 2018. At 83 years old, political succession has become an increasingly important issue but there is currently no publicly announced transition plan, representing a major uncertainty as political and social disorder might ensue. Thus far, Cameroon remains relatively peaceful despite a diverse society with close to 250 ethnic groups, two major religious groups (Christians, 40% and Muslims, 20%), and with French spoken by about four-fifths of the population and English by the rest. The only social problem is the Islamist militant group, Boko Haram, in the north, but since the installation of an international task force in 2015, attacks have decreased and Cameroon has reopened its border with Nigeria. Economic Indicators 2012 Population (Millions) GDP per Capita (USD) Nominal GDP (USD Billions) 2013 2014 2015 2016F 21.5 22.0 22.5 23.1 23.7 2017F 24.3 1,234 1,345 1,424 1,235 1,303 1,364 26.5 29.6 32.1 28.5 30.9 33.1 Real GDP (%) 4.6 5.6 5.9 5.8 4.8 4.2 Year-End CPI (%) 2.5 1.7 2.6 2.8 2.2 2.2 Fiscal Balance (% of GDP) -1.6 -4.0 -4.6 -2.7 -6.2 -4.9 Interest (% of Revenues) 2.1 2.2 2.4 2.3 7.6 6.0 FC Debt/Public Debt (%) -- 63.7 66.9 66.6 66.6 67.7 Government Debt (% of GDP) 15.4 18.7 27.5 29.0 31.6 33.8 Government Debt (% of Revenue) 86.0 103.9 152.1 162.5 195.5 209.6 Current Account (% of GDP) -3.6 -3.9 -4.3 -4.2 -4.2 -4.0 -- 2.4 2.4 1.9 1.6 1.4 8.9 12.2 17.8 21.7 24.5 26.6 134.3 87.6 53.0 54.1 41.3 38.0 3.4 4.7 4.2 5.9 5.3 5.4 12.0 10.7 9.4 11.7 10.1 10.1 FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IMF, Haver, Citibank, Lazard 673 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency B+ B+ B B B- 2000 2008 Moody's S&P 2016 Fitch B- 2000 2008 Moody’s S&P 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 1200 1000 800 600 400 200 0 2008 2010 Cameroon 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 674 Cameroon Strengths Economic Growth Cameroon has posted strong growth in recent years averaging 4.9% from 2010–2016. Growth it is expected to slow slightly to an average of 4.3% in the medium term, according to the latest IMF forecasts.2 Over the past couple of years, tertiary sectors, such as the telecommunications, transportation, and financial sectors have contributed more to the economic growth. The economy would likely have performed even better if not for the armed conflict with the Islamist militant group, Boko Haram, in the north of the country. The decline in oil prices also hurt the economy although this was partially offset by an increase in production.3 The government is seeking to boost growth with an ambitious infrastructure program that includes building an improved highway connecting the two economic centers, Douala and Yaounde, as well as a deep sea port in Kribi. Both projects are being financed by the Export and Import Bank of China. Despite the steady high economic growth, poverty indicators remain high at around 40%, and have been stagnant over the past couple of years.4 Poor infrastructure, including ongoing electricity shortages and unfriendly business policies, remain major constraints for higher growth. Oil Production Cameroon’s oil production is once again on an upward trend after a steady decline for more than two decades from 185,000 barrels per day (bpd) in 1986 to 63,000 bpd in 2011. Oil production is rising thanks to new oil finds and new technologies, and at the beginning of 2015, production surpassed 100,000 bpd. Currently Cameroon is the sixth-largest oil producer in Africa and oil reserves are 325 million barrels. In the medium term, oil production is expected to continue increasing on the back of investment and exploration in the offshore Kribi/Campo oil field.5, 6 The World Bank estimates that oil production should surpass 150,000 bpd by 2017,7 but is expected to decline by 2018–2019.8 The government hopes that by then new oil discoveries will be made or that the country will start to exploit its huge natural gas reserves, which totaled 5.4 trillion cubic feet in 2015.9 Domestic-Led Economy While Cameroon is an oil producer, its economy is less dependent on oil today (in part due to the decline in production), and is increasingly driven by the domestic consumption of its 24 million people, significant infrastructure projects, and agriculture. Agriculture is a significant contributor to the country’s non-oil exports and the sector employs approximately 70% of the working population.10 Membership in the BEAC Like Congo and Gabon, Cameroon is a member of the Banque des Etats de l’Afrique Central (BEAC) which was created to promote economic and trade integration. The members share a common currency, the CFA franc, which was pegged to the French franc and now the euro. These countries have used the CFA franc since they were French colonies. The full convertibility of the CFA franc is guaranteed by the French Treasury where BEAC members keep half of their foreign reserves. This French guarantee substantially reduces the risk of a balanceof-payments problem and contributes to economic stability. 675 Lazard Emerging Markets Debt Political Stability Cameroon has only had two presidents since winning independence from France in 1960. President Paul Biya has been in power since 1986. However, he is 83 years old and succession planning has become more center-stage, although there are no clear transition plans that have been publicly announced. His party, Cameroon People’s Democratic Movement (CPDM), currently controls 148 out of the 180 seats in the National Assembly.11 The head of the Senate will assume power if the president has to step down; however, there is a lot of uncertainty of how peaceful the transition will be. The head of the Senate is Marcel Niat Njifenji, who is 82 years old. The next presidential election is not scheduled until October 2018 and Paul Biya is likely to seek reelection if his health permits him to do so. Weaknesses Fiscal Performance The fiscal performance is relatively weak with the fiscal deficit expected to be fluctuating close to 5.0% of GDP in 2017–2021. The high fiscal deficit is due in part to higher capital expenditures related to new infrastructure projects. The decline in oil prices had a negative impact on revenues but that was partially offset by the annulment of fuel subsidies in 2016.12 Military spending is on an upward trend as Cameroon fights Boko Haram in the north, adding further to fiscal pressure. Meanwhile, arrears remain very high at over 5% of GDP. Arrears are mainly transfers owed to public companies, especially the national refining company SONARA.13, 14 The IMF expects arrears to remain at a similar level in the medium term.15 Debt Levels The debt ratio is on a rapid upward trend, totaling an estimated 33.8% of 2017 GDP, almost tripling in the past seven years after receiving a major haircut as part of the HIPC (heavily indebted poor countries) debt relief in 2004, when its debt level was considered unsustainable. The IMF is concerned about this trend, and it has recommended that the government increase the share of debt borrowed on concessional terms.16 The IMF has recommended to slow down the capital infrastructure projects to reduce the deficit and the upward trend of the debt ratios. The government debt payment track record is also not that favorable, with the government defaulting on the local debt in 2004 and restructuring its debt several times with bilateral/multilateral entities in the 1980s to early 2000s. Donations and Financing Like most low-income countries, Cameroon is very dependent on multilateral/bilateral financing and donations from countries. Multilateral and bilateral debt amounts to 38% and 56% of public debt, respectively. Thus, maintaining a good relationship with the international community is key to covering the fiscal gaps. Donations are relatively moderate, amounting to an average of about 0.5% of GDP over the past couple of years. Boko Haram The Islamist terrorist group Boko Haram is based in Nigeria but very close to the borders of Cameroon, Niger, and Chad. These three neighboring countries joined forces last year with the support of the international community to push back Boko Haram to Nigeria’s territory. The United States sent 300 troops to Cameroon to fight Boko Haram. Despite the success of the military attacks, Boko Haram continues to have sporadic attacks in the region.17, 18, 19 The ongoing armed conflict has meant huge fiscal costs for the government, which has increased 676 Cameroon military spending. The armed conflict has also resulted in a surge in displacement, with an estimated 7,500 Cameroonians getting displaced.20, 21 While attacks are still taking place, the frequency has decreased, following the setup of a multinational task force in 2015, and Cameroon has now reopened its border with Nigeria, which was closed three years ago.22 North/South A potential risk for Cameroon is that religious and ethnic tensions increase, although this has not been an issue under the current government. Currently about two-thirds of the population are Christian and one-fifth are Muslim.23 Boko Haram could spark religious conflict within the groups although so far this has not been the case. Diversification The economy is not very diversified and remains vulnerable to declines in oil prices. The dependence on oil has declined over the past two years but that is due to the decline in oil prices. Oil still amounts to close to one-half of exports and one-fourth of revenues. Notably, Cameroon is also an energy importer because it lacks refineries. Oil imports amounting to about fourth-fifths of oil exports. The agriculture sector is also important, employing roughly 70% of the population. The most important agriculture products include cocoa, coffee, cotton, and bananas. Informal Sector Cameroon’s large informal sector represents a major drag on the economy, primarily due to lost tax revenue. According to the World Bank, the informal sector employs about 90% of the labor force with most working in agriculture. The large informal sector also poses challenges in measuring the true size of the economy. 677 Lazard Emerging Markets Debt Country Background Size 475,440 KM2 (54th) Capital Yaounde Population 24.4 Million Religion Catholic 38.4%, Protestant 26.3%, other Christian 4.5%, Muslim 20.9%, Animist 5.6% Median Age 18.5 Years Literacy Rate 75% Independence January 1, 1960 Political System Presidential Republic President Paul Biya since 1986 Presidential Election October 2018 Legislative Elections October 2018 Legislative Branch Bicameral Parliament Economy Agriculture 21.6%, Industry 30.6%, Service 47.7% Labor Force Agriculture 70%, Industry 13%, Service 17% Merchandise Exports Crude Oil, Lumber, Cocoa Beans, Aluminum Export Partners China 16.7%, India 15.7%, Spain 6.2%, Belgium 6.1%, France 6.1%, Portugal 5.6%, Netherlands 5%, Italy 5% Currency Central African CFA franc (XAF) As of November 2016 Source: CIA 678 Cameroon Country Timeline Independence 1958 French Cameroon granted self-government with Ahmadou Ahidjo as prime minister. 1960 French Cameroon granted independence and becomes the Republic of Cameroon with Ahidjo as president. 1961 Following a UN-sponsored referendum, the (British) Southern Cameroons join the Republic of Cameroon to become the Federal Republic of Cameroon, while Northern Cameroons join Nigeria. 1961-63 Large-scale insurrection, believed to have been orchestrated by the Cameroonian People's Party, put down with the help of French forces. 1966 National Cameroonian Union formed out of six major parties and becomes the sole legal party. 1972 Cameroon becomes a unitary state following a national referendum and is renamed the United Republic of Cameroon. Paul Biya era 1982 Prime Minister Paul Biya succeeds Ahidjo, who resigns. 1983 Ahidjo goes into exile after Biya accuses him of masterminding a coup. 1984 Biya elected to his first full term as president, changes the country's name to the Republic of Cameroon. 1986 Discharge of poisonous gases from Lake Nyos kills about 1,700 people. 1992 October—Biya re-elected in Cameroon's first multi-party presidential election. 1994 Fighting between Cameroon and Nigeria flares up over disputed oil-rich Bakassa Peninsula. 1996 January-May—Cameroonian-Nigerian border clashes. 1996 May—Cameroon and Nigeria agree to UN mediation over Bakassa Peninsula. 1997 May—Biya's party, the Cameroon National Democratic Movement (formerly the National Cameroonian Union), wins a majority of seats in parliament amid allegations of irregularities. 1997 October—Biya re-elected president in ballot that is boycotted by main opposition parties. Corruption 1998 Cameroon classed as the most corrupt country in the world by business monitor Transparency International. 2000 June—World Bank approves funding for oil and pipeline project in Cameroon and Chad despite strong criticism from environmental and human rights activists. 2000 October—Roman Catholic Church in Cameroon denounces corruption, saying it has permeated all levels of society. 2001 June—Fears for Cameroon's environment increase, with Global Forest Watch reporting that 80% of the country's indigenous forests have been allocated for logging. 2001 October—Growing tension between Biya government and separatists lobbying on behalf of country's 5m English-speakers. Unrest results in three deaths, several arrests. 2002 July—Parliamentary and municipal elections; opposition claims fraud and vote-rigging. Bakassi ruling 2002 October—Ruling by International Court of Justice (ICJ) gives sovereignty of oil-rich Bakassi peninsula to Cameroon. But Nigeria, whose forces occupy the area, rejects the ruling. 2003 December—Nigeria hands over 32 villages to Cameroon as part of the 2002 ICJ border deal. In January 2004 both countries agree to mount joint border patrols. 2004 September—Nigeria fails to meet a deadline to hand over Bakassi. 679 Lazard Emerging Markets Debt 2004 November—Paul Biya wins new seven-year term as president. 2004 June—Nigeria agrees to withdraw its troops from the Bakassi peninsula to settle its long-running border dispute with Cameroon. The breakthrough comes at a UN-mediated summit. The Paris Club of major lending nations agrees to cancel almost all of Cameroon's $3.5bn debt. 2006 August—A ceremony marks the transfer of the Bakassi peninsula to Cameroon after Nigeria completes its troop withdrawal from the area. 2006 December—Up to 30,000 refugees fleeing conflicts in Chad and the Central African Republic have crossed into east Cameroon over the past 18 months, the UN refugee agency UNHCR reports. 2007 November—Suspected Nigerian militants kill 21 Cameroon soldiers in Bakassi Peninsula. Nigerian senate rejects Nigeria-Cameroon agreement for hand-over of Bakassi Peninsula to Cameroon. Constitution amended 2008 January—Opposition leaders slam President Biya's New Year message hinting at changing constitution to extend president's term in office. 2008 February—A nationwide transport strike in protest at fuel costs turns into a series of antigovernment demonstrations in the capital, Yaounde, leaving at least 17 dead. 2008 April—Parliament amends the constitution to allow President Biya to run for a third term in 2011. The opposition condemns the move as a "constitutional coup". 2008 October—Nigeria and Cameroon agree to work together to protect their land and sea border from attacks by militants and pirates. 2009 March—Pope visits, says peaceful coexistence between Muslims and Christians in Cameroon should be seen as an example to other African nations. 2010 September—Senior security officials are sacked weeks after rumours of an attempted coup. 2011 January—Cameroon secures Chinese loan to build deep sea port at Kribi, terminal of an oil pipeline from Chad. 2011 October—Paul Biya wins a landslide re-election as president, officially taking 78% of the vote. His opponents reject the result, alleging widespread fraud. 2012 February—Hundreds of elephants are slaughtered in Bouba Njida national park in a wave of ivory poaching blamed on Sudanese and Chadian gangs. 2012 September—Minister Marafa Hamidou Yaya is jailed for embezzling $29m to be used as down-payment on a presidential plane. 2012 November—President Biya celebrates 30 years in power as riot police disperse an opposition protest. Boko Haram incursions 2013 February—A French family of seven is kidnapped by the Islamist group Boko Haram near the Nigerian border, and released two months later. France denies paying a ransom. 2013 October—Legislative elections. President Biya's party retains a majority in parliament. 2014 January—A French priest kidnapped by Islamist gunmen in the far north of Cameroon in November is freed. 2014 May—Cameroon deploys about 1,000 troops to the border with northern Nigeria to counter a rising threat of incursions and kidnappings by Boko Haram militants. 2014 October—Twenty-seven hostages kidnapped by Boko Haram in Cameroon earlier in the year, including 10 Chinese workers and the wife of the deputy prime minister, are freed. 2015 January—Chad pledges military support for Cameroon against Boko Haram. Source: BBC 680 Cameroon Notes 1 As of November 2016. 2 IMF WEO Data, October 2016 , http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/index.aspx. 3 http://www.epmag.com/cameroons-oil-output-rose-nearly-20-2016-905541, accessed November 25, 2016. 4http://www.worldbank.org/en/country/cameroon/overview. 5http://www.reuters.com/article/2015/06/05/idUSFit92498620150605. 6http://www.reuters.com/article/2014/12/09/cameroon-crude-output-idUSL6N0TT3DY20141209. 7http://finance.yahoo.com/news/cameroon-ramping-oil-production-prices-155959086.html. 8http://finance.yahoo.com/news/cameroon-ramping-oil-production-prices-155959086.html. 9 Republic of Cameroon Bond Prospectus, November 3, 2015. 10http://www.worldbank.org/en/news/feature/2013/06/18/in-cameroon-agriculture-is-reemerging-as-a-promising-industry, accessed November 25, 2016. 11http://www.worldbank.org/en/country/cameroon/overview. 12 http://www.cameroonpostline.com/2016-budget-fuel-prices-to-soar-as-government-annuls-subsidies/, accessed November 25, 2016. 13http://www.reuters.com/article/2015/06/05/idUSFit92498620150605. 14http://www.imf.org/external/np/sec/pr/2015/pr15436.htm. 15IMF Cameroon Article IV Report, December 2015, http://www.imf.org/external/pubs/ft/scr/2015/cr15331.pdf. 16http://www.imf.org/external/np/sec/pr/2015/pr15436.htm. 17http://www.reuters.com/article/2015/11/09/us-cameroon-security-idUSKCN0SY1KF20151109. 18http://www.reuters.com/article/2015/10/23/us-cameroon-attacks-idUSKCN0SH15G20151023. 19http://www.cnn.com/2015/09/03/africa/boko-haram-cameroon-violence/. 20http://www.worldbank.org/en/country/cameroon/overview. 21http://www.theguardian.com/world/2015/oct/14/obama-deployment-us-troops-cameroon-boko-haram 22http://www.ibtimes.co.uk/cameroon-reopens-border-markets-nigeria-boko-haram-attacks-decrease-1593387, accessed November 25, 2016. 23http://africanarguments.org/2015/09/08/cameroons-rising-religious-tensions/. 681 Lazard Emerging Markets Debt 682 Côte d’Ivoire Summary Moody’s Ba3 / S&P NR / Fitch B+1 Economy: Agriculture 19%, Industry 19%, Services 62% Côte d’Ivoire has significant growth potential given its abundant natural resources. The economy has been booming since 2012, posting one of the fastest growth rates in the world due to a low base effect and because the country has gained the confidence of the international community. Investors are taking advantage of recent political stability by increasing participation in public-private infrastructure projects. The country has a strong economic team led by President Alassane Ouattara, formerly a deputy managing director at the IMF. Ouattara has delivered vital reforms that have unlocked disbursements and resulted in US$7.7 billion in debt relief.2 The government has outperformed fiscal targets, and debt ratios are at comfortable levels after declining sharply in 2012 as a result of the debt forgiveness. Political stability continues to be consolidated, as demonstrated by the smooth and peaceful October 2015 presidential elections. Economic Indicators 2012 2013 2014 2015 2016F 22.0 22.5 23.1 23.7 24.3 25.0 1,216 1,383 1,472 1,345 1,370 1,454 Nominal GDP (USD Billions) 26.7 31.1 34.0 31.9 33.3 36.3 Real GDP (%) 10.7 9.2 8.5 9.5 8.0 8.0 Year-End CPI (%) 3.4 0.4 0.9 1.3 1.2 1.7 Fiscal Balance (% of GDP) -3.1 -2.2 -2.3 -3.0 -4.0 -3.6 Population (Millions) GDP per Capita (USD) 2017F Interest (% of Revenues) 8.9 7.1 6.5 7.6 7.8 8.8 FC Debt/Public Debt (%) 62.2 60.4 60.0 61.8 53.3 53.6 Government Debt (% of GDP) 45.0 43.4 46.5 48.9 49.0 48.3 235.0 220.3 238.7 237.4 224.9 223.5 Current Account (% of GDP) -1.2 -2.0 1.5 -1.8 -1.8 -2.1 FDI (% of GDP) 1.2 1.3 1.2 1.3 1.3 1.3 External Debt (% of GDP) 29.6 31.0 27.5 38.8 37.3 35.0 Foreign Reserves/External Debt (%) 32.0 27.1 33.5 24.3 24.6 28.0 Foreign Reserves (Mo. of Imports) 2.5 2.6 3.0 3.2 3.1 3.2 Foreign Reserves (% of GDP) 9.5 8.4 9.2 9.4 9.2 9.8 Government Debt (% of Revenue) As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: BCEAO, Ministry of Finance, IMF, Bloomberg, Haver Analytics, Lazard 683 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB- BB- B+ B+ B B B- 2000 2008 Moody’s 2016 B- 2000 2008 Moody’s Fitch 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 4000 3500 3000 2500 2000 1500 1000 500 0 2008 2010 Côte d’Ivoire 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 684 Côte d’Ivoire Strengths Favorable Economic Growth Outlook Côte d’Ivoire’s disputed 2010 presidential election resulted in a six-month armed internal conflict that weighed heavily on economic activity. However, the country has experienced a strong recovery since fighting ended in April 2011, and the medium-term outlook is promising. The removal of trade and financial sanctions, the reopening of the banking system, the improvement in private-sector confidence, and political stability have contributed to the economic recovery. Foreign investment has grown considerably, and these inflows have funded oil exploration, the construction of a new hydroelectric power plant, and the completion of several mining projects. Going forward, potential growth will be supported by an increase in fixed investment from less than 10% of GDP in 2011 to more than 20% in 2017, as well as by favorable demographics, the reintegration of former fighters into the labor force, and higher productivity as private investment increases as a share of GDP.3 Real GDP is expected to grow more than 8% per year over the forecast horizon, which is slightly lower than the average annual growth of 9.5% between 2012 and 2014. Abundant Natural Resources Côte d’Ivoire has abundant natural resources in the agriculture, energy, and mining sectors. The country has an ideal climate for several agricultural products, making it the largest global producer of cocoa and cashew nuts, and the eighth-largest palm oil producer in the world. Côte d’Ivoire also has abundant mineral reserves and is a net exporter of oil. Since the stabilization of the political situation in 2011, foreign and domestic investors have shown increasing interest in Côte d’Ivoire, citing the country’s ports, well-established bureaucracy, low border-crossing risk, and sophisticated infrastructure, including the only fully operational power grid in West Africa.4 Well-Developed Infrastructure Infrastructure in Côte d’Ivoire is in relatively good condition, considering the fighting that erupted between the north and south of the country in 2002 and continued sporadically for several years thereafter. Côte d’Ivoire has several advantages relative to its neighbors. First, it is an oil producer, with one of the largest refineries in the region. Second, it is self-sufficient in electricity, which is rare in sub-Saharan Africa; Côte d’Ivoire even exports power to neighboring countries. Third, the country has a relatively well-developed transportation network, with extensive paved roads and the most modern port in West Africa. Finally, Côte d’Ivoire has good telecommunications services. Unfortunately, most of the infrastructure was built in the 1990s and urgently needs upgrading as there was almost no investment for nearly two decades. Nevertheless, the amount of infrastructure needed to catch up with developing countries (measured as a share of GDP) is lower than most of Côte d’Ivoire’s neighbors. Good Relationship with Multilateral Institutions Upon taking office in 2011, President Ouattara moved quickly to re-establish relations with the international financial community. He renegotiated a three-year Extended Credit Facility (ECF) with the International Monetary Fund, secured financial disbursements from other multilaterals, and enacted key IMF-mandated reforms that resulted in substantial debt relief under the Highly Indebted Poor Countries (HIPC) Initiative in June 2012.5 This debt relief reduced the country’s external debt by more than half in June 2012, and Ouattara subsequently negotiated additional grants worth approximately 2.0% of GDP in 2014–2015.6 The government also restructured and repaid its arrears to multilaterals, including the African 685 Lazard Emerging Markets Debt Development Bank, which helped unlock new disbursements. In June 2012, the government resumed interest payments on its sovereign bond maturing in 2032 and met with bondholders in the fourth quarter of 2012 to reschedule the three interest payments missed in 2010 and 2011. By the end of 2012, the government had cleared all arrears with multilateral and bilateral entities and bondholders—a major feat, considering arrears amounted to an estimated US$5.3 billion in 2008.7 Also in 2012, during the World Bank’s donor meeting in France, foreign donors pledged US$8.6 billion for development projects in Côte d’Ivoire between 2013 and 2015.8 The government has also made progress in securing additional donations and loans from other countries. For example, Côte d’Ivoire was deemed eligible in December 2015 for a partnership under the Millennium Challenge Corporation (MCC), a bilateral US foreign aid agency, which should unlock further financial assistance.9 Finally, Côte d’Ivoire regularly met the performance criteria of its three-year ECF that expired in December 2015 and recently negotiated a new three-year US$674.3 million ECF.10 Low Risk of a Balance-of-Payments Crisis Côte d’Ivoire is a member of the West African Economic and Monetary Union (WAEMU), which was created to promote economic and trade integration between Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. WAEMU members share a common currency, the CFA (African Financial Community) franc, which was originally pegged to the French franc and is now pegged to the euro. The CFA franc has been the currency of these countries since they were French colonies, and full convertibility is guaranteed by the French Treasury, where the WAEMU keeps half of its foreign reserves. Côte d’Ivoire is the most important member of this organization, as it has the largest economy and the highest level of foreign reserves in the WAEMU. This pooling of resources, coupled with the backing of the French Treasury, minimizes the risk of a balance-of-payments crisis in Côte d’Ivoire or in other WAEMU countries. The only period during which WAEMU members faced a balance-of-payments crisis was in 1994, when the CFA franc was devalued 50%.11 At that time, economic and political conditions were much less favorable, with most WAEMU states registering large fiscal and current account deficits. Since that time, fiscal and external imbalances have improved, as have relations with multilateral organizations, which also provide support to combat balance-of-payments pressures. Côte d’Ivoire is projected to register current account deficits equal to about 2% of GDP over the forecast horizon, owing to the import of capital goods related to the country’s infrastructure development program, but these shortfalls are expected to be nearly fully financed by foreign direct investment. Weaknesses Reliance on the Cocoa Industry Côte d’Ivoire is extremely dependent on the cocoa industry, which accounts for 20% of the country’s GDP, 17% of the government’s revenue, and 37% of exports.12 The country is the largest cocoa producer in the world, accounting for about 45% of world output.13 Despite its importance, the cocoa sector faces several weaknesses, including low productivity and poor quality. Most cocoa fields are at the mature stage of development, and the number of cocoa farmers is diminishing as younger people move to urban areas. As a result, more than 60% of cocoa growers live below the poverty line.14 The government is trying to tackle these problems through a restructuring of the cocoa industry, which requires forward sales of cocoa and guarantees farmers a higher percentage of sales revenues.15 The goal of these reforms is to raise incomes for cocoa farmers and encourage them to reinvest in the sector. The government is also trying to attract investment into the sector to improve productivity. Notwithstanding 686 Côte d’Ivoire these efforts, reliance on cocoa production leaves the economy vulnerable to crop disease16 and weather, with the El Niño weather phenomenon posing a particular threat to cocoa production in 2015–2016.17 Potential for Political Instability Côte d’Ivoire has experienced periodic internal conflicts, including a civil war from 2002 to 2007 fueled by ethnic, religious, and regional differences, and post-electoral violence following a disputed presidential election in 2010. The latter conflict, sparked by former President Laurent Gbagbo’s refusal to accept defeat by current President Ouattara, lasted six months and resulted in the death of more than 3,000 people.18 The medium-term risk of social unrest has declined, especially after the peaceful re-election of Ouattara in October 2015. The opposition’s participation in the election and the high voter turnout lent credibility to the election results and provided Ouattara with the political mandate to continue his economic reforms. Nevertheless, political stability is relatively new and still fragile. Moreover, former President Gbagbo went on trial at the International Criminal Court in The Hague in 2016, and these proceedings could potentially cause unrest among his supporters. Security Challenges Côte d’Ivoire faces a number of security issues, including a high risk of violence in a country with 3 million firearms among a population of less than 24 million people.19 In addition, large numbers of former fighters in the country’s civil war may have difficulty integrating back into society, especially since reconciliation processes are unlikely to meet expectations in the short term. Although new leadership has emerged within the opposition and the power of Gbagbo’s allies has diminished, the former president’s supporters account for about one-third of Côte d’Ivoire’s population, presenting a risk of future unrest, despite Ouattara’s overwhelming re-election victory in October 2015. In addition, the border with Liberia poses security risks, since this historically unstable region is controlled by warlords who are not loyal to any particular Ivorian party and whose principal aim is to control and exploit this remote area. Moreover, the towns near the Liberian border include a large number of Gbagbo supporters who are hostile to the ruling party. Many of these supporters were displaced during the armed conflict in 2010–2011 and are still living in refugee camps that are potential hot spots for unrest. 687 Lazard Emerging Markets Debt Country Background Size 322,463 KM2 (69th) Capital Yamoussoukro Population 23.7 Million Ethnic Groups Akan 32.1%, Voltaique 15%, Mande 12.4% Religion Muslim 40.2%, Catholic 19.4%, Evangelical 19.3% Median Age 20.7 Years Literacy Rate 43.1% Independence August 7, 1960 Political System Republic Presidents Alassane Ouatttara (RdR) Prime Minister Daniel Kablan Duncan (PDCI) Presidential Elections 2020 Legislative Branch 255 Seats (RdR 127 and PDCI 76) Economy Agriculture 18.9%, Industry 19.4% Service 61.8% Labor Force Agriculture 68% Merchandise Exports Cocoa, Coffee, Timber, Petroleum Export Partners US 8.5%, Netherlands 6.2%, France 5.6%, Germany 5.6%, Nigeria 5.5%, Burkina Faso 5.5%, Belgium 5.3%, India 4.6%, Ghana 4.4%, Switzerland 4.1% Currency West African CFA franc (XOF) As of November 2016 Source: CIA 688 Côte d’Ivoire Country Timeline Independence 1960 France grants independence under President Felix Houphouet-Boigny. He holds power until he dies in 1993. 1990 Opposition parties legalised; Houphouet-Boigny wins Ivory Coast's first multiparty presidential election, beating Laurent Gbagbo of the Ivorian Popular Front (FPI). 1993 Henri Konan Bedie becomes president following the death of Houphouet-Boigny. 1995 October—Bedie re-elected in a ballot that is boycotted by opposition parties in protest at restrictions imposed on their candidates. 1999 July—Alassane Ouattara, a Muslim, leaves job at International Monetary Fund and returns to run for president in 2000; his plan to challenge Bedie splits country along ethnic and religious lines. Opponents say he is national of Burkina Faso, not Ivory Coast. Coup 1999 Bedie overthrown in military coup led by Robert Guei. Bedie flees to France. 2000 October—Guei proclaims himself president after announcing he has won presidential elections, but is forced to flee in the wake of a popular uprising against his perceived rigging of the poll. 2000 October—Laurent Gbagbo, believed to be the real winner in the presidential election, is proclaimed president. Opposition leader Alassane Ouattara, excluded from running in the poll, calls for a fresh election. 2000 October—Fighting erupts between Gbagbo's mainly southern Christian supporters and followers of Ouattara, who are mostly Muslims from the north. 2000 December—President Gbagbo's Ivorian Popular Front (FPI) emerges as the biggest single party in parliamentary elections. 2001 January—Attempted coup fails. 2001 March—President Gbagbo and opposition leader Ouattara meet for the first time since violence erupted between their supporters inOctober 2000 and agree to work towards reconciliation. 2001 Reports of child slave ship off Africa's west coast spark allegations of child slavery in cocoa plantations, straining international relations. 2001 March—Calls for fresh presidential and legislative elections after Alassane Ouattara's party gains majority at local polls. 2001 June—Amnesty International criticises government's human rights record over alleged extrajudicial killings of 57 northerners during presidential election campaign in October 2000. Eight gendarmes accused of the killings are cleared in August. 2001 October—President Gbagbo sets up National Reconciliation Forum. General Guei refuses to attend in protest against the arrest of his close aide Captain Fabien Coulibaly. 2001 November—Opposition leader Alassane Ouattara returns, ending year-long exile in France and Gabon. 2002 August—Ouattara's RDR opposition party given four ministerial posts in new government. Rebellion 2002 19 September—Mutiny in Abidjan by soldiers unhappy at being demobilised grows into fullscale rebellion, with Ivory Coast Patriotic Movement rebels seizing control of the north. 2002 October-December—Short-lived ceasefire in October gives way to further clashes and battle for key cocoa-industry town of Daloa. Previously unknown rebel groups seize towns in west. 689 Lazard Emerging Markets Debt 2003 January—President Gbagbo accepts peace deal at talks in Paris. Deal proposes powersharing government. 2003 March—Political parties, rebels agree on new government to include nine members from rebel ranks. "Consensus" prime minister, Seydou Diarra, is tasked with forming cabinet. 2003 May—Armed forces sign ceasefire with rebel groups. 2003 July—At a ceremony in the presidential palace, military chiefs and rebels declare that the war is over. 2003 August—Group of suspected mercenaries and their backers detained in France; said to have planned to assassinate President Gbagbo. 2003 December—19 killed in armed attack on state TV building in Abidjan. UN deploys 2004 March—Deadly clashes during crackdown on opposition rally against President Gbagbo in Abidjan.First contingent of UN peacekeeping force deployed. 2004 May—UN report says March's opposition rally was used as pretext for planned operation by security forces. Report says more than 120 people were killed and alleges summary executions, torture. 2004 November—Ivorian air force attacks rebels; French forces enter the fray after nine of their soldiers are killed in an air strike. Violent anti-French protests ensue. UN imposes arms embargo. 2004 December—Parliament passes reforms envisaged under the 2003 peace accord, including abolishing the need for a president to have Ivorian parents. 2005 April—After talks in South Africa the government and rebels declare an "immediate and final end" to hostilities. 2005 June—Massacres in western town of Duekoue: President Gbagbo says more than 100 people were killed, but contradicts widely-held view that ethnic rifts lay behind violence. Poll called off 2005 October—Planned elections are shelved as President Gbagbo invokes a law which he says allows him to stay in power. The UN extends his mandate for a further year. 2005 December—Economist Charles Konan Banny is nominated as prime minister by mediators. He is expected to disarm militias and rebels and to organise elections due in October 2006. The UN Security Council broadens its embargo to include diamonds in addition to arms. 2006 January—Violent street demonstrations by supporters of President Gbagbo over what they see as UN interference in internal affairs. 2006 February—Main political rivals meet on Ivorian soil for the first time since the 2002 rebellion. They agree to meet again to iron out differences. 2006 June—Militias loyal to President Gbagbo miss disarmament deadlines. 2006 September—Political, rebel leaders say they've failed to make any breakthrough on the main issues standing in the way of elections—principally voter registration and disarmament. Government resigns over a scandal involving the dumping of toxic waste in Abidjan. Fumes from the waste kill three people and make many more ill. 2006 November—UN Security Council resolution extends the transitional government's mandate for another year. Power-sharing deal 2007 March—Government and New Forces rebels sign a power-sharing peace deal, mediated by Burkina Faso. Under the deal, New Forces leader Guillaume Soro is named as prime minister. 2007 April—President Gbagbo declares "the war is over" between his government and northern rebels, as the two sides move to dismantle the military buffer zone. Within days aid workers report an increase in violence. 2007 May—Militia begin to disarm. 2007 June—Prime Minister Soro survives a rocket attack on his plane. 690 Côte d’Ivoire 2007 December—Rebel, government soldiers pull back from front-line positions as part of process to reunite country. 2008 January—UN renews mandate of 8,000 peacekeepers for six months to ensure polls are held by mid-year. 2008 January—Ten people are arrested and charged for plotting a coup in December 2007. Their alleged ring-leader, Sergeant Ibrahim Coulibaly, denies the charges. 2008 April—President Gbagbo cancels custom duties after a second day of violent protests against rising food costs. Date of long-awaited presidential elections put back from June to the end of November. Disarmament begins 2008 May—Former rebels who still control the northern half of the country begin disarming. 2008 November—President Gbagbo and Prime Minister Soro agree to postpone presidential elections yet again, citing delays in voter 2009 April—International Monetary Fund (IMF) agrees to write off $3B (£2bn) of Ivory Coast's $12.8B national debt. 2009 May—Former rebels hand over 10 northern zones to civilian administrators, as part of the process of returning the northern part of the country to state control. 2010 31 October—First round of presidential election. Mr Gbagbo comes first with 38%, not enough to win outright. Former premier Alassane Ouattara is second with 32%. A run-off vote is held in November. Post-election standoff 2010 December—Election commission declares Mr Ouattara the winner of the run-off. Mr Gbagbo refuses to accept result and dispute between the two camps soon escalates into violence. 2011 April—Alassane Ouattara's forces capture Laurent Gbagbo.UN renews its arms and diamond sales embargo, in place since 2004-5, for another year. 2011 May—Alassane Ouattara is inaugurated as president. 2011 September—Truth, Reconciliation and Dialogue Commission—aimed at forging unity after post-election violence that left about 3,000 people dead and 500,000 displaced—is launched. 2011 November—Laurent Gbagbo is handed over to the International Criminal Court in The Hague to face charges of crimes against humanity. 2011 December—Parliamentary elections. President Ouattara and his allies secure a majority. Followers of Laurent Gbagbo boycott the vote. 2012 February—The International Criminal Court decides to extend its investigation into abuses in Ivory Coast back to 2002. It could highlight Prime Minister Guillaume Soro's role as a northern militia leader in the division of the country that year. Mr Soro steps down the following month, to become chairman of parliament. 2012 June—The interior minister says the authorities foil a plot to overthrow the government organised by supporters of ex-president Gbagbo. He says the plot was linked to Liberian mercenaries and Ivorian militias accused of killing seven UN peacekeepers and eight civilians earlier in the month. The peacekeepers have been in Ivory Coast since 2004. 2012 September-October—Ivory Coast closes its borders with Ghana for two weeks after a deadly attack on an army checkpoint in the border town of Noe. Officials blame the attack on exiled supporters of ousted President Laurent Gbagbo. 2012 November—President Ouattara dissolves the government after a row between the parties over a new marriage law. 2013 February—Ex-president Gbagbo appears before the International Criminal Court in the Hague for a hearing to decide whether he can stand trial. Months pass without a decision. 2013 August—Michel Gbagbo - son of ex-President Laurent Gbagbo - is released on bail along with 13 others considered Gagbo supporters. 691 Lazard Emerging Markets Debt 2013 October—International Criminal Court makes public an arrest warrant issued in December 2011 for Ivorian ex-minister Charles Ble Goude over war crimes allegations. 2013 December—Ghanaian officials accuse Ivory Coast of sending agents to kidnap or assassinate Gagbo supporters in Ghana. Ivory Coast denies this. 2014 April—UN Security Council lifts embargo on Ivory Coast's diamond trade. 2015 March—Former first lady Simone Gbagbo is sentenced to twenty years in prison for her role in violence that followed the presidential election in 2010 2016 March—Islamist militants attack the beach resort of Grand Bassam, near Abidjan, killing 18 people. The attack follows similar Islamist assaults on hotels in the capitals of Mali and Burkina Faso in recent months. Source: BBC Notes 1 As of November 2016. 2 “IMF, World Bank Back $4 billion Côte d’Ivoire Debt Relief,” International Monetary Fund, June 26, 2012, http:// www.imf.org/external/pubs/ft/survey/so/2012/car062612a.htm. 3 “Côte d’Ivoire: Eighth Review Under the Extended Credit Facility Arrangement,” IMF Country Report No. 15/341,” December 2015, http://www.imf.org/external/pubs/ft/scr/2015/cr15341.pdf. 4 “Africa: The Next Frontier,” Deutsche Bank Markets Research, October 20, 2015. 5 “IMF, World Bank Back $4 billion Côte d’Ivoire Debt Relief,” International Monetary Fund, June 26, 2012, http:// www.imf.org/external/pubs/ft/survey/so/2012/car062612a.htm. 6 “Côte d’Ivoire: Eighth Review Under the Extended Credit Facility Arrangement,” IMF Country Report No. 15/341,” December 2015, http://www.imf.org/external/pubs/ft/scr/2015/cr15341.pdf. 7 “Côte d’Ivoire: 2009 Article IV Consultation, First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waiver of Nonobservance of Performance Criteria, and Financing Assurances Review,” IMF Country Report No. 13/171, May 2013, http://www.imf.org/external/pubs/ft/scr/2009/ cr09326.pdf. 8 Bax, Pauline, “Ivory Coast Donors Pledge $8.6 Billion to Spur Development Plans,” Bloomberg, December 5, 2012, http://www.bloomberg.com/news/2012-12-05/ivory-coast-donors-pledge-8-6-billion-to-spur-developmentplans.html. 9 “MCC Board Selects Five Countries for MCC Partnerships,” Millenium Challenge Corporation, December 17, 2015, https://www.mcc.gov/news-and-events/release/mcc-board-selects-five-countries-for-mcc-partnerships-121715. 10 “IMF Reaches Staff-level Agreement with Côte d’Ivoire,” International Monetary Fund, Press Release No. 16/457,” October 11, 2016, http://www.imf.org/en/News/Articles/2016/10/11/pr16457-IMF-reaches-staff-levelagreement-with-cote-divorie. 11 “A Brief History of the CFA Franc,” African Business magazine, February 19, 2012, http://africanbusinessmagazine.com/uncategorised/a-brief-history-of-the-cfa-franc/. 12 “Special report: Côte d’Ivoire’s cocoa sector reforms 2011–2012,” Agritrade, December 16, 2012, http://agritrade. cta.int/en/layout/set/print/content/download/76645/1234553/file/218dcc0a56e1fd4582c3f4ce05a431d2.pdf, and “Côte d’Ivoire: Eighth Review Under the Extended Credit Facility Arrangement,” IMF Country Report No. 15/341,” December 2015, http://www.imf.org/external/pubs/ft/scr/2015/cr15341.pdf. 13 Olivier Monnier, “Ouattara Says Ivory Coast to Supply 50% Global Cocoa by 2020,” Bloomberg Business, October 28, 2015, http://www.bloomberg.com/news/articles/2015-10-28/ouattara-says-ivory-coast-to-supply-halfof-global-cocoa-by-2020. 14 “Côte d’Ivoire’s Cocoa Sector: A Holistic Approach to Addressing Poverty Alleviation and Child Labour Issues,” United Nations Development Programme, World Cocoa Foundation, International Cocoa Initiative, May 21, 2010, http://www.nhomatogdrikke.no/getfile.php/Sjokolade/Cocoa%20Ivory%20Coast%20Draft%20Concept%20 Paper%20Version%2021%20May.pdf. 15 “Special report: Côte d’Ivoire’s cocoa sector reforms 2011–2012,” Agritrade, December 16, 2012, http://agritrade. cta.int/en/layout/set/print/content/download/76645/1234553/file/218dcc0a56e1fd4582c3f4ce05a431d2.pdf. 16 “Cocoa plant disease pushes deep into Ivory Coast heartland,” Reuters, September 5, 2013, http://www.reuters. com/article/cocoa-ivorycoast-disease-idUSL6N0H133R20130905. 17 Oyinkansola Anubi,“Strong El Niño puts SSA at risk,” Sub-Saharan Africa Viewpoint, Bank of America Merrill Lynch, November 18, 2015. 18 “Ivory Coast: Conflict Profile,” Insight on Conflict, March 2015, http://www.insightonconflict.org/conflicts/ivorycoast/conflict-profile/. 19 “Communities shattered by arms proliferation and abuse in Côte d’Ivoire,” Amnesty International, March 2013, http://www.amnesty.nl/sites/default/files/public/4093_att_cotedivoire_complete_web.pdf. 692 Ethiopia Summary Moody’s B1 / S&P B / Fitch B1 Economy: Agriculture 41%, Industry 16%, Services 43% Ethiopia is one of the poorest countries in the world but has experienced one of the highest growth rates. The economy has grown at an average rate of 10.2% on the back of the “development state” model, which has helped to improve social conditions and infrastructure substantially. The challenge for Ethiopia going forward is to sustain strong economic growth without major economic imbalances. The public sector plays a key role in economic expansion, putting pressure on the public balance sheet and indirectly on the banking system as SOEs are major borrowers. The external sector is relatively weak given the high current account deficit and relatively low foreign reserves. On the political side, the ruling party won the parliamentary elections comfortably in 2015 and remains firmly in power. However, social tension has been erupting against the government from ethnic Oromos and Amharas, which has led to major protests and a state of emergency in October 2016 for six months. As a response to the crisis, the government has reshuffled the cabinet to include Oromo members. Economic Indicators 2012 2013 2014 2015E 2016F Population (Millions) 2011 85.6 87.0 88.3 89.8 91.2 92.7 GDP per Capita (USD) 504 548 628 687 759 830 Nominal GDP (USD Billions) 43.1 47.7 55.5 61.6 69.2 76.9 7.5 Real GDP (%) 8.7 9.9 10.3 10.2 6.5 Year-End CPI (%) 15.0 7.7 7.1 10.0 9.7 8.0 Fiscal Balance (% of GDP) -1.2 -1.9 -2.6 -2.5 -3.0 -3.2 Interest (% of Revenues) 1.9 2.1 2.4 2.7 3.2 3.2 FC Debt/Public Debt (%) 55.2 54.9 53.6 52.1 51.4 51.6 Government Debt (% of GDP) 36.9 42.4 46.3 56.1 57.4 60.3 238.6 268.0 310.7 347.2 332.5 353.1 Current Account (% of GDP) -6.9 -5.9 -7.9 -12.0 -10.7 -9.3 FDI (% of GDP) 2.5 2.6 4.0 5.2 6.4 6.3 External Debt (% of GDP) 20.3 23.3 25.5 30.0 32.9 35.0 Foreign Reserves/External Debt (%) Government Debt (% of Revenue) 27.4 22.5 23.0 18.4 16.1 15.3 Foreign Reserves (Mo. of Imports) 1.4 1.5 1.9 1.9 1.9 1.9 Foreign Reserves (% of GDP) 5.6 5.2 5.9 5.5 5.3 5.3 As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IMF, Standard Bank, Haver and Lazard 693 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency B+ B+ B B B- 2000 2008 Moody's 2016 S&P Fitch B- 2000 2008 Moody’s S&P 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 1000 800 600 400 200 0 2008 Ethiopia 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 694 Ethiopia Strengths Strong Economic Growth Ethiopia’s economy is growing at one of the fastest paces in the world, at an average rate of 10.2% in 2006–2016, which is among the top five globally.2 In the next five years, the International Monetary Fund expects the economy to grow at average rate of 7.4%, among the top 10 in the world.3 Expansionary fiscal policy is an engine of economic growth, especially as several public companies are completing major investment projects in the energy sector, as Ethiopia is aiming to become an energy exporting country. One of the most important projects in the pipeline is the construction of the largest hydropower plant on the Blue Nile River, which will increase electricity output fivefold by 2020.4 In the past decade, the service and agriculture sectors have led economic growth with the industrial sector lagging.5 Economic Growth Potential Not only is the country growing, it has untapped growth potential. Although Ethiopia’s economy is small by global standards, it is one of the largest economies in Sub-Saharan Africa, totaling US$76.9 billion.6 It has a very young population with an average age of 18, which may be an important source of growth.7 The young population and relatively low income levels may attract foreign firms looking for cheap labor. In addition, Ethiopia has the second-largest population in Africa; thus, it could continue to expand and become an attractive market, assuming income levels increase. Banking System The banking system is relatively healthy, although not very diversified, according to the IMF. The banking system is dominated by three banks that total close to 80% of banking assets. The Commercial Bank of Ethiopia (CBE), the public bank, is by far the most important, amounting to 70% of the system’s assets.8 The capital adequacy ratio of the banking system amounts to 15% compared to the minimum requirement of 8%, while non-performing loans represent 3.5% of total loans. Liquidity has declined, but remains slightly above the 15% minimum requirement at 16.1%. 9 Through the CBE, the banking system provides a substantial amount of credit to public enterprises.10 Political Stability Ethiopia is Africa’s oldest independent country, and since the overthrow of the communist regime in 1991, political stability has consolidated. However, democracy is rather weak as the country has been governed by one party, the Ethiopian People’s Revolutionary Party (EPRDF), since 1991. Meles Zenawi was the prime minister from 1995 until his death in 2012; he was replaced by Hailemariam Desalegn, who is still in power. During most of Prime Minister Zenawi’s term, economic performance was solid and social conditions improved, including ending famine in Ethiopia.11 However, on the political side, he was known for intimidating the opposition.12 Democratic elections tend to fall short of international standards, and although international observers criticized the previous election, no sanctions have been adopted.13 The last parliamentary elections took place in May 2015 and the EPRDF won by a huge margin. It, and its allies, won 546 seats out of the 547 seats in Congress, thus maintaining political stability for the country until the next election cycle. 695 Lazard Emerging Markets Debt Weaknesses Social Tensions The Oromos, Ethiopia’s largest ethnic group accounting for almost 35% population, have been staging protest rallies against systematic persecution and discrimination since April 2014. Oromos are traditionally farmers, and a development plan that intended to expand Addis Ababa territorial limits into towns and villages inhabited by Oromos was perceived as an annexation that triggered massive national protests14 resulting in thousands arrested and an estimated 400 deaths. This led the Amhara, the second-largest ethnic group accounting for 27% of the population, and traditionally a rival to the Oromos, to also protest against the government in July 2016, as both ethnic groups feel they are economically and politically marginalized by a government that is dominated by ethnic Tigray, who account for only 6% of the population.15 Ultimately, these protests evolved into a broader rally over politics and human rights that resulted in the government declaring a state of emergency for six months in October 2016, the first time in 25 years.16 Amid increasing social tensions, in November 2016, the prime minister reshuffled his entire cabinet to include Oromian ministers, but this is unlikely to calm the situation.17 Limited Economic Diversification The Ethiopian economy is not very diversified, with the agriculture sector playing a key role in the economy. According to CIA indicators, agriculture amounts to close to 50% of GDP and more than three-fourths of the labor force.18 Coffee is by far the most important export, amounting to about one-third of total exports.19 Meanwhile, agricultural products amount to close to three-quarters of total exports.20 The government is aiming to diversify away from the agricultural sector and to expand the industrial sector with the goal of increasing the share of the industrial sector from 12.9% of GDP to 18.8% of GDP.21 The government is spending a large share of its budget in the capital expenditure necessary to diversify away from agriculture, and has also developed a 10-year National Sustainable Tourism Master Plan to foster tourism.22 Government Balance Sheet The public-sector balance sheet is weak when public enterprises are included. The general government deficit totaled an estimated 3% of GDP in 2017–2018 and is expected to remain at similar levels in the medium term. A 3% deficit seems low, but this does not include the public enterprises, which are expanding considerably. Including the public enterprises, total financing needs of the public sector are close to 7.4% of GDP. Government debt has also increased considerably, increasing from 40% of GDP in 2010 to 60% in 2017, although a significant portion was used to finance large-scale infrastructure investments. Public Enterprises The public sector continues to play an important role in the economy as public companies control key industries such as in the electricity, telecommunications, and financial sectors. Opening up some key industries may help increase competition and put less pressure on the government balance sheet.23 The government has also created a new Ministry for Public Enterprises, which will strengthen the commercial profitability of SOEs and improve governance.24 However, there is also a risk that any potential problems with the public enterprises could lead to significant problems in the banking system. Banks have a high exposure to public enterprises, as they are the major borrowers in the economy, accounting for slightly more than 50% of the banking sector’s domestic credit.25 696 Ethiopia Financing Limitations/Low Savings Ethiopia has a very low savings rate, which is common among poor countries. The banking system is relatively small, with domestic credit totaling less than 10% of GDP.26 The domestic debt market is not very developed, even when compared with some other African countries such as Ghana, Kenya, and Nigeria. Like other African countries, the central government is dependent on multilateral lending. The central bank is also another important financing source of the central government. Meanwhile, public enterprises consume a large portion of banking system resources, crowding out the private sector. External Sector Ethiopia runs large external imbalances reflected in the high current account deficit, totaling close to 10% of GDP; the rising external debt; low foreign reserves; and an overvalued exchange rate. The high current account deficit reflects both the country’s low savings and lack of competitiveness despite an increase in exports. Like most African countries, Ethiopia imports many of the products it consumes domestically. The country’s ongoing investment projects have also resulted in higher intermediate capital imports. Meanwhile, the bulk of the financing comes from concessional lending and from foreign direct investment (FDI). At the same time, the level of foreign reserves remains very low, equivalent to two months of imports, which falls below the three-month threshold considered to be adequate. The exchange rate is overvalued by an estimated 10–15%.27 Landlocked Ethiopia’s location is not ideal. It is a landlocked country, which increases transportation costs substantially, especially since infrastructure is not limited. About 90% of Ethiopia’s trade goes through Djibouti, which is located about 700 kilometers from the capital.28 This results in significant costs. For example, the cost to import a container is US$2,660 in Ethiopia compared to US$670 in Vietnam.29 On the positive side, the government is replacing the railway connecting Addis Ababa and Djibouti, which should reduce costs by half.30 Location Ethiopia is located in a relatively unstable area as it shares borders with Sudan, South Sudan, and Somalia, three countries that are facing civil war or have faced a recent armed conflict. The armed conflicts in neighboring countries negatively affect economic growth via trade, while increasing social costs as a result of refugees from these countries.31 While Ethiopia’s relationship with Eritrea has improved since the end of the war in 2000, tension remains as a result of disputed border regions.32 Transparency of Economic Data A key constraint of Ethiopia is transparency and the quality of economic indicators, even by Sub-Saharan Africa standards. The best source of information is the IMF, and additional details of Ethiopia’s economic data is not readily available. The quality of the data is also limited; for example, the national accounts are not very reliable, according to the IMF.33 The government does not provide the details of the public balance sheet, especially the public enterprises and the financial system, which makes it very difficult to analyze the strength of the public and financial sectors. In addition, the informal sector is relatively large, totaling 38.6% of GDP, but this is in line with the 38% ratio for all low-income countries. The large informal sector is one of the reasons that tax collection is very low at only 11% of GDP.34 697 Lazard Emerging Markets Debt Income Level Although social indicators are relatively good by Sub-Saharan standards, Ethiopia is still one of the poorest countries in the world despite recent improvements. Ethiopia’s GDP per capita totals an estimated US$830, among the bottom 10 in the world.35 The government spends a substantial amount on social programs, with poverty-related expenditure totaling 12% of GDP.36 According to an IMF report, Ethiopia has “the second largest social protection program in Africa.”37 This has helped to reduce poverty levels faster than other African countries; poverty levels have declined from above 60% in 1982 to close to 30% in 2011, while in the rest of SubSaharan Africa, poverty has only declined from 60% in 1996 to 48% through 2010.38 Ethiopia also ranks higher than other low-income countries on the Human Development Index,39 and its income distribution is more evenly distributed than in other African countries.40 The government’s ultimate goal is to become a middle-income country by 2025. 698 Ethiopia Country Background Size 1,104,300 KM2 (27th) Capital Addis Ababa Population 102.4 Million Ethnic Groups Oromo 34%, Amhara 27%, Somali 6%, Tigrai 6% Religion Ethiopian Orthodox 43.5%, Muslim 33.9%, Protestant 18.5% Median Age 17.8 Years Literacy Rate 49.1% Independence — Political System Federal Republic Prime Minister Hailemariam Desalegn Legislative Elections 2020 Legislative Branch Bicameral Economy Agriculture 40.5%, Industry 16.2%, Service 43.3% Labor Force Agriculture 85%, Industry 5%, Service 10% Merchandise Exports Coffe, Khat, Gold Export Partners China 17%, Germany 7 %, US 7%, Belgium 7%, Saudi Arabia 7% Currency Birr (ETB) As of November 2016 Source: CIA 699 Lazard Emerging Markets Debt Country Timeline Italy invades 1895 Italy invades Ethiopia. 1896 Italian forces defeated by the Ethiopians at Adwa; treaty of Wuchale annulled; Italy recognises Ethiopia's independence but retains control over Eritrea. 1913 Menelik dies and is succeeded by his grandson, Lij Iyasu. 1916 Lij Iyasu deposed and is succeeded by Menelik's daughter, Zawditu, who rules through a regent, Ras Tafari Makonnen. 1930 Zawditu dies and is succeeded by Ras Tafari Makonnen, who becomes Emperor Haile Selassie I. 1935 Italy invades Ethiopia. 1936 Italians capture Addis Ababa, Haile Selassie flees, king of Italy made emperor of Ethiopia; Ethiopia combined with Eritrea and Italian Somaliland to become Italian East Africa. Haile Selassie’s reign 1941 British and Commonwealth troops, greatly aided by the Ethiopian resistance - the arbegnoch defeat the Italians, and restore Haile Selassie to his throne. 1952 United Nations federates Eritrea with Ethiopia. 1962 Haile Selassie annexes Eritrea, which becomes an Ethiopian province. 1963 First conference of the Organisation of African Unity held in Addis Ababa. Red terror 1973-74 An estimated 200,000 people die in Wallo province as a result of famine. 1974 Haile Selassie overthrown in military coup. General Teferi Benti becomes head of state. 1975 Haile Selassie dies in mysterious circumstances while in custody. 1977 Benti killed and replaced by Colonel Mengistu Haile Mariam. 1977-79 Thousands of government opponents die in "Red Terror" orchestrated by Mengistu; collectivisation of agriculture begins; Tigrayan People's Liberation Front launches war for regional autonomy. 1977 Somalia invades Ethiopia's Ogaden region. 1978 Somali forces defeated with massive help from the Soviet Union and Cuba. 1984-85 Worst famine in a decade strikes; Western food aid sent; thousands forcibly resettled from Eritrea and Tigre. 1987 Mengistu elected president under a new constitution. 1988 Ethiopia and Somalia sign a peace treaty. After Mengistu 1991 Ethiopian People's Revolutionary Democratic Front captures Addis Ababa, forcing Mengistu to flee the country; Eritrea establishes its own provisional government pending a referendum on independence. 1992 Haile Selassie's remains discovered under a palace toilet. 1993 Eritrea becomes independent following referendum. 1994 New constitution divides Ethiopia into ethnically-based regions. 1995 Negasso Gidada becomes titular president; Meles Zenawi assumes post of prime minister. 1998 Ethiopian-Eritrean border dispute erupts into armed clashes. 700 Ethiopia War with Eritrea 1999 Ethiopian-Eritrean border clashes turn into a full-scale war. 2000 June—Ethiopia and Eritrea sign a ceasefire agreement which provides for a UN observer force to monitor the truce and supervise the withdrawal of Ethiopian troops from Eritrean territory. 2000 November—Haile Selassie buried in Addis Ababa's Trinity Cathedral. 2000 December—Ethiopia and Eritrea sign a peace agreement in Algeria, ending two years of conflict. The agreement establishes commissions to delineate the disputed border and provides for the exchange of prisoners and the return of displaced people. 2001 February—Ethiopia says it has completed its troop withdrawal from Eritrea in accordance with UN-sponsored agreement. 2002 April—Ethiopia, Eritrea accept a new common border, drawn up by an independent commission, though both sides then lay claim to the town of Badme. 2003 April—Independent boundary commission rules that the disputed town of Badme lies in Eritrea. Ethiopia says the ruling is unacceptable. 2004 January-February—Nearly 200 killed in ethnic clashes in isolated western region of Gambella. Tens of thousands flee area. 2004 March—Start of resettlement programme to move more than two million people away from parched, over-worked highlands.January-February - Nearly 200 killed in ethnic clashes in isolated western region of Gambella. Tens of thousands flee area. 2004 November—Ethiopia says it accepts "in priniciple" a boundary commission's ruling on its border with Eritrea. But a protracted stalemate over the disputed town of Badme continues. 2005 March—US-based Human Rights Watch accuses army of "widespread murder, rape and torture" against Gambella region's ethnic Anuak people. Military angrily rejects charge. 2005 April—First section of Axum obelisk, looted by Italy in 1937, is returned to Ethiopia from Rome. Disputed poll 2005 May—Disputed multi-party elections lead to violent protests over months. April - First section of Axum obelisk, looted by Italy in 1937, is returned to Ethiopia from Rome. 2005 August-September—Election re-runs in more than 30 seats: Officials say the ruling party gains enough seats to form a government. 2005 December—International commission, based in The Hague, rules that Eritrea broke international law when it attacked Ethiopia in 1998. More than 80 people, including journalists and many opposition leaders, are charged with treason and genocide over November's deadly clashes. 2006 May—Six political parties and armed groups form an opposition alliance, the Alliance for Freedom and Democracy, at a meeting in the Netherlands. Several bomb blasts hit Addis Ababa. No organisation claims responsibility. 2006 August—Several hundred people are feared to have died and thousands are left homeless as floods hits the north, south and east. Somalia tensions 2006 September—Ethiopia denies that its troops have crossed into Somalia to support the transitional government in Baidoa. 2006 October—UN Secretary General Kofi Annan urges Eritrea to pull back the troops it has moved into the buffer zone on the Ethiopian border. The UN says the incursion is a major ceasefire violation. War of words between Ethiopia and Islamists controlling much of Somalia. Prime Minister Meles says Ethiopia was "technically" at war with the Islamists because they had declared holy war on his country. 701 Lazard Emerging Markets Debt 2006 November—UN report says several countries - including Ethiopia - have been violating a 1992 arms embargo on Somalia by supplying arms to the interim government there. Ethiopia's arch enemy Eritrea is accused of supplying the rival Islamist administration. Ethiopia and Eritrea reject a proposal put forward by an independent boundary commission as a way around a four-year impasse over the demarcation of their shared border. Ethiopian troops enter Somalia, engage in fierce fighting with Islamists controlling large parts of the country and capital. The Islamists disperse. Somalia invasion 2006 December—Exiled former dictator Mengistu Haile Mariam is convicted, in absentia, of genocide at the end of a 12-year trial. He is later sentenced to death. 2007 April—Gunmen attack a Chinese-owned oil facility in the south-east Somali region, killing 74 people working there. 2007 June—Opposition leaders are given life sentences over mass protests that followed elections in 2005, but are later pardoned. 2007 September—Ethiopia celebrates the start of a new millennium according to the calendar of the Coptic Orthodox Church. 2007 November—Ethiopia rejects border line demarcated by international boundary commission. Eritrea accepts it. 2008 June—Peace agreement signed between Somali government and rebels provides for withdrawal of Ethiopian troops within 120 days. 2008 July—UN Security Council votes unanimously to end UN peacekeeping mission monitoring disputed border between Ethiopia and Eritrea. 2008 September—Celebrations held to mark completion of reassembly of 1700-year-old Axum Obelisk, looted in 1937 during the Italian conquest and returned by Italy in three parts after 2005. 2008 December—Police re-arrest key opposition leader Birtukan Medeksa, who was jailed for her role in the opposition protests after the 2005 polls, and freed under a government pardon in 2007. Somalia pullout 2009 January—Ethiopia formally withdraws forces from Somalia. 2009 June—Ethiopia admits to "reconnaissance missions" in Somalia, but denies re-deploying troops there. 2009 August—Ethiopia, Eritrea ordered to pay each other compensation for their 1998-2000 border war. 2009 September—Chinese firms secure deal to build several hydro-power dams and wind farms. 2009 November—Twenty-six found guilty of coup plot. 2009 December—Rebels of the Ogaden National Liberation Front claim capture of several towns in the east in a month of heavy fighting. 2010 May—Ruling Ethiopian People's Revolutionary Democratic Front (EPRDF) wins huge majority in parliamentary elections, handing PM Meles Zenawi a fourth term. EU observes say the vote "fell short". Opposition leaders demand a rerun. 2010 October—Ongoing clashes reported between government forces and Ogaden rebels. Tensions with Eritrea 2011 March—Ethiopia accuses Eritrea of sending agents across the border to plant bombs and warns it will take all necessary measures to halt Eritrean "aggression". Ogaden National Liberation Front members, Mogadishu, 2006 Rebels from the ethnic Somali Ogaden region are seeking regional autonomy. 2011 April—Ethiopia for the first time declares openly that it will support Eritrean rebel groups fighting to overthrow President Isaias Afewerki. 702 Ethiopia 2011 June—Parliament designates three domestic political and armed organisations as terrorist groups. 2011 July—Drought. Millions of Ethiopians and refugees from Somalia need emergency aid. Two Swedish journalists are captured by Ethiopian troops in Ogaden region during a clash with ONLF rebels. 2011 October—The American military begins flying drone aircraft from a base in Ethiopia, as part of its fight against Islamist militants in Somalia. 2011 November—Ethiopian troops are spotted in Somalia. A government spokesman denies their presence. 2011 December—Two Swedish journalists arrested while covering conflict in Ogaden region are found guilty of supporting terrorism. They are sentenced to 11 years in jail. 2012 January—Ethiopia accused of forcing thousands off their land for foreign investors.Group of European tourists kidnapped, killed in remote Afar region near the border with Eritrea. 2012 March—Ethiopian troops attack positions in south-eastern Eritrea, alleging that subversive groups were being trained there. 2012 June—Rebel Ogaden National Liberation Front claims it attacked an army convoy and garrison, killing 168 Ethiopian troops. Ethiopian troops withdraw from towns in central Somalia which they had seized from rebel al Shabaab control. New leader 2012 August—Prime Minister Meles Zenawi dies after several months of rumours about his declining health. Deputy Prime Minister and Foreign Minister Hailemariam Desalegn takes over the following month. 2013 June—Ethiopia and Egypt agree to hold talks to quell tensions over the building of an Ethiopian dam on the Blue Nile. Egypt worries the dam will reduce vital water supply. 2015 March—Ethiopia destroys entire stockpile of illegally poached ivory. Conservationists say the country remains a key trafficking hub. 2015 May—Ruling Ethiopian People's Revolutionary Democratic Front (EPRDF) wins an overwhelming victory in general election. 2015 July—Barack Obama becomes the first sitting US president to visit Ethiopia, and praises the country's role in fighting Al-Shabab militants in Somalia. Anti-government protests 2016 January—Government drops plans to expand Addis Ababa boundaries after months of protests by Oromo ethnic group fearing farmers could be displaced. Rights groups estimate at least 140 people killed by security forces during protests. Millions of people face dire food shortages after Ethiopia suffers its worst drought in decades. 2016 July—Tens of thousands of people from Ethiopia's ethnic Amhara group take part in an antigovernment demonstration in the northern city of Gondar. 2016 September—The African Union calls for restraint in Ethiopia after months of anti-government protests which began in the central Oromo region before spreading to Amhara in the north. Human rights groups say at least 500 people have been killed. 2016 September—Britain, the EU and the World Bank announce a project to create 100,000 jobs in Ethiopia. A third of the jobs will be for Eritrean refugees to whom the Ethiopian government will grant full employment rights. 2016 October—Government declares a six-month state of emergency following months of violent anti-government protests. 2016 December—Economic growth declines to 8% from a previous annual average of 10%. Government blames drought but observers say unrest has also had an effect. Source: BBC 703 Lazard Emerging Markets Debt Notes 1 As of December 2016. 2 World Economic Outlook Database,” International Monetary Fund, October 2016, accessed on November 26, 2016, http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/index.aspx. 3 World Economic Outlook Database,” International Monetary Fund, October2016, accessed on November 26, 2016, http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/index.aspx. 4 Pronina, Lyubov, “Ethiopia Plans Debut Dollar-Bond Joining Ghana, Kenya,” Bloomberg, November 25, 2014, accessed on December 10, 2014, http://www.bloomberg.com/news/2014-11-25/ethiopia-plans-debutforeign-currency-bond-joining-ghana-kenya.html. 5 “Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 6 “World Economic Outlook Database,” International Monetary Fund, October 2016, accessed on November 26, 2016, http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/index.aspx. 7 “The World Factbook,” Central Intelligence Agency, accessed on December 9, 2014, https://www.cia.gov/ library/publications/the-world-factbook/geos/et.html. 8 “The Federal Democratic Republic of Ethiopia: Selected Issues,” International Monetary Fund, IMF Country Report No. 13/309, October 2013, http://www.imf.org/external/pubs/ft/scr/2013/cr13309.pdf. 9 Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 16/322, October 2016, https://www.imf.org/external/pubs/ft/scr/2016/cr16322.pdf. 10“Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 11Ethiopia Bond Prospectus, 2014. 12“Ethiopia’s Hailemariam Desalegn sworn in as prime minister,” BBC, September 21, 2014, accessed on December 10, 2014, http://www.bbc.com/news/world-africa-19672302. 13EU observers say Ethiopia election ‘falls short,’” BBC, May 25, 2010, accessed on December 10, 2014, http://www.bbc.com/news/10153216. Malone, Barry, and David Clarke, “Ethiopia’s Meles rejects poll criticism,” Reuters, May 26, 2010, accessed on December 10, 2014, http://www.reuters.com/article/2010/05/26/us-ethiopia-election-idUSTRE64P5IZ20100526. 14http://www.cnn.com/2016/08/09/africa/ethiopia-oromo-protest/ accessed November 26, 2016. 15http://qz.com/753252/ethiopias-previously-divided-ethnic-groups-are-unifying-to-protest-against-the-government/ accessed November 26, 2016. 16http://www.aljazeera.com/news/2016/11/ethiopia-state-emergency-arrests-top-11000-161112191919319. html accessed November 26, 2016. 17https://www.ft.com/content/53e0fe6e-a026-11e6-891e-abe238dee8e2 accessed November 26, 2016. 18“The World Factbook,” Central Intelligence Agency, accessed on October 13, 2015, https://www.cia.gov/ library/publications/the-world-factbook/geos/et.html. 19“Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 20November 2014 Prospectus. 21“Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 22Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 16/322, October 2016, https://www.imf.org/external/pubs/ft/scr/2016/cr16322.pdf. 23“Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 24Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 16/322, October 2016, https://www.imf.org/external/pubs/ft/scr/2016/cr16322.pdf. 25Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 16/322, October 2016, https://www.imf.org/external/pubs/ft/scr/2016/cr16322.pdf. 26“Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 27“Assessing the Need for Foreign Currency Reserves,” International Monetary Fund, April 7, 2011, accessed on December 10, 2014, http://www.imf.org/external/pubs/ft/survey/so/2011/POL040711B.htm. “ Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http:// www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 282014 Bond Prospectus. 29“Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 30Ethiopia Bond Prospectus, 2014. 31“2015 UNHCR country operations profile – Ethiopia,” United Nations High Commissioner for Refugees, accessed on December 10, 2014, http://www.unhcr.org/pages/49e483986.html. “As number of South Sudanese refugees grows, UN relief official urges support to Ethiopia,” UN News Centre, November accessed on October 13, 2015, http://www.un.org/apps/news/story.asp?NewsID=49445. 32“Eritreans ‘fleeing conscription drive’ for Ethiopia – UNHCR,” BBC, November 20, 2014, accessed on December 10, 2014, http://www.bbc.com/news/world-africa-30128002. 704 Ethiopia 33“Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 34“Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 35“http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/index.aspx . 36“Ethiopia: Article IV Consultation,” International Monetary Fund, IMF Country Report No. 14/303, October 2014, http://www.imf.org/external/pubs/ft/scr/2014/cr14303.pdf. 37“The Federal Democratic Republic of Ethiopia: Selected Issues,” International Monetary Fund, IMF Country Report No. 13/309, October 2013, http://www.imf.org/external/pubs/ft/scr/2013/cr13309.pdf. 38“The Federal Democratic Republic of Ethiopia: Selected Issues,” International Monetary Fund, IMF Country Report No. 13/309, October 2013, http://www.imf.org/external/pubs/ft/scr/2013/cr13309.pdf. 39http://hdr.undp.org/en/content/table-1-human-development-index-and-its-components. 40“The Federal Democratic Republic of Ethiopia: Selected Issues,” International Monetary Fund, IMF Country Report No. 13/309, October 2013, http://www.imf.org/external/pubs/ft/scr/2013/cr13309.pdf. 705 Lazard Emerging Markets Debt 706 Gabon Summary Moody’s B1 / S&P NR / Fitch B+1 Economy: Agriculture 5%, Industry, 53%, Services 42% Gabon’s economic growth is driven by the oil sector and infrastructure spending. The oil sector accounts for 40% of GDP, 85% of exports, and 45% of revenues.2 When oil prices are high, Gabon’s economy tends to perform relatively well, and when oil prices decline, the country has undertaken fiscal adjustments. While it is currently dependent on oil, Gabon’s oil reserves are expected to be depleted by 2030, and the government has embarked on a diversification plan, investing heavily in infrastructure with the ultimate goal of qualifying as an emerging market country by 2025, based on International Monetary Fund standards. Political risk is low as the Bongo family remains in control of most public institutions after narrowly winning the 2016 election, which was relatively peaceful despite protests. Economic Indicators Population (Millions) GDP per Capita (USD) Nominal GDP (USD Billions) 2012 2013 2014 2015 2016F 1.7 1.8 1.8 1.9 1.9 2017F 1.9 9,903 9,759 9,956 7,692 7,742 8,342 17.2 17.6 18.2 14.3 14.6 15.9 Real GDP (%) 5.3 5.6 4.3 4.0 3.2 4.5 Year-End CPI (%) 2.2 3.3 1.7 0.1 2.5 2.5 Fiscal Balance (% of GDP) 1.6 1.8 2.7 -1.2 -2.8 -2.7 Interest (% of Revenues) 3.3 5.8 4.7 9.6 10.8 11.0 FC Debt/Public Debt (%) 82.6 80.2 84.9 95.0 95.5 90.5 Government Debt (% of GDP) 19.7 29.2 32.2 44.0 47.5 46.5 Government Debt (% of Revenue) 65.5 96.9 123.1 206.5 242.2 231.6 Current Account (% of GDP) 15.9 11.6 8.1 -2.3 -5.3 -4.7 4.8 4.4 5.6 4.4 4.9 6.5 External Debt (% of GDP) 16.6 24.2 25.3 34.5 41.4 32.8 Foreign Reserves/External Debt (%) 74.8 70.5 53.8 37.8 24.1 30.6 Foreign Reserves (Mo. of Imports) 4.5 5.5 4.2 4.1 3.9 4.1 12.4 17.1 13.6 13.1 10.0 10.1 FDI (% of GDP) Foreign Reserves (% of GDP) As of November 2016 Forecasted or predicted data is not a promise or guarantee of actual results and is subject to change Source: IMF, Haver Analytics, Lazard. 707 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB BB BB- BB- B+ B+ 2000 2008 2016 2000 2008 Moody’s S&P 2016 Fitch As of December 2016 S&P Moody’s Fitch Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 1400 1200 1000 800 600 400 200 0 2008 Gabon 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 708 Gabon Strengths High Economic Growth Like many Sub-Saharan African countries, Gabon is growing at a fairly fast pace, averaging 5.1% from 2010–2016, although growth slowed down in 2015 and 2016 as a result of the oil shock and reduced capital spending. Public projects and infrastructure were the major drivers of growth, the former of which was related to the African Soccer Cup in 2012 and included the construction of new stadiums, the expansion of the national airport, new hotels, and new roads in Libreville. While infrastructure will remain an important driver of growth, the economy is also diversifying away from oil, and the non-oil sector is expected to contribute more significantly to growth going forward. For instance, the government expects a compounded average growth rate in the period 2014–2019 of 10% for transportation and communications; 9% for forestry; and 8% for construction, trade and services,3 and the IMF projects GDP growth averaging 4.8% in the period 2017–2021. Emerging Gabon Strategic Plan Emerging Gabon is a transformational plan and key pillar of future growth supported by a US$12 billion investment plan to lead Gabon to be classified as a diversified emerging market country by 2025. High-level objectives are to promote local processing of raw materials for exports; create 325,000 jobs by 2025; increase energy capacity from 620 megawatts (MW) currently to 2,000 MW in 2020, mainly via natural gas and hydroelectricity; and develop transportation and telecommunications infrastructure. One of the tangible results of this plan is that Gabon has not exported rough-saw timber since 2010; instead, it exports higher value wood manufacturing products for which the country has created a hub.4 The industrialization of the timber sector is paramount to the development of Gabon, as forests cover almost 85% of the country, and most timber is exported to France.5 Membership in the BEAC Like Congo, Gabon is a member of the Banque des Etats de l’Afrique Central (BEAC). The BEAC was created to promote economic and trade integration. The members all share a common currency, the Central African CFA franc, which was pegged to the French franc and now the euro. These countries have used the CFA franc since they were French colonies. The full convertibility of the CFA franc is guaranteed by the French Treasury, where BEAC members keep half of their foreign reserves. This French guarantee substantially reduces the risk of a balance-of-payments problem and contributes to economic stability. Strong Fiscal Position and Adjustments Gabon’s fiscal position remains solid, although less so than in the past. Gabon posted a fiscal surplus from 2000 until 2015, when oil revenues declined. Historically, fiscal revenue has been fairly high, approaching 30% of GDP up until the oil shock, which has resulted in revenues decreasing to circa 20% of GDP since 2015.6 In the medium term, the fiscal deficit is expected to be less than 3% in 2017–2021. Another fiscal strength is the government’s willingness to adjust; for instance, the government has institutionalized expenditure cuts in 2016, such as the removal of all fuel subsidies, freezing new infrastructure projects, and removing the inflation indexing in the wage bill. 709 Lazard Emerging Markets Debt Strong and Stable Government Gabon is a politically stable country as the same leadership, the Bongo family, has been in power for more than three decades. Since gaining its independence, Gabon has had only three presidents: Leon M’Ba (1961 to 1967), Omar Bongo Ondimba (1967 to 2009), and Ali Bongo Ondimba (2009 to present), who was reelected in 2016 by a small margin of 6,000 votes.7 The last period of major social unrest was in 1993 when one of the opposition figures claimed that the ruling party had manipulated election results. More recently, political conditions have deteriorated periodically during presidential elections when the opposition has raised questions about the legitimacy of the results, but rarely do these protests lead to the same levels of unrest seen in earlier decades. For instance, following the narrow electoral victory of 2016, some citizens took to the streets to protest and ask for the results to be overruled; while three people were killed and less than were 200 injured, these figures were much lower than in the past.8 Weaknesses Declining Oil Output The government needs to reduce the country’s dependency on oil, as oil reserves are expected to be exhausted in about 15 years. Oil production declined from 364,000 barrels per day (bpd) in 1997 to 240,000 bpd in 2008; since then it has stabilized near these levels, with oil production estimated at 233,000 bpd in 2015.9 The government expects that with no new discoveries, oil production will decline slightly but should remain at a similar level at least until 2018.10 To mitigate this, the government is expecting that new recovery technologies will help increase production in more mature fields and has started granting offshore blocks for exploration. More significantly, the government adopted a new “Oil Resources Code” in 2014, which creates a more transparent framework for the sector. Vulnerability to Oil Prices Gabon’s economic performance is vulnerable to commodity price fluctuations. During times of high oil prices, Gabon typically posts high growth rates as well as large fiscal and current account surpluses. During times of low oil prices, Gabon’s economy tends to perform poorly; the government typically accumulates arrears and the foreign reserves decline. Oil accounted for 40% of GDP, 85% of exports, and 45% of revenues during 2015.11 As a result of the recent decline in oil prices, oil revenue decreased substantially, from 1,035 billion CFA in 2014 (45% revenue) to 409 billion CFA in 2017, meaning oil will represent only 23% of revenues by 2017.12 This decrease in oil revenue has in turn resulted in a fiscal deficit. To help smooth out the volatility in revenues due to commodity dependence, the government has established a stabilization fund, which aims to reach US$500 million by 2020. Transparency It is very difficult to track the economic performance of Gabon given the lack of economic data. Much of the data published by the government is not reliable. Moreover, there is a long lag for many economic statistics. The IMF has noted in its Article IV that Gabon needs to substantially improve its data quality, timeliness, and transparency. 710 Gabon Poor Infrastructure, High Labor Costs, and Lack of Skilled Labor Gabon has poor infrastructure, high labor costs, and a lack of skilled and unskilled labor. As a result, foreign firms are often forced to build their own infrastructure and hire foreigners to run local operations. Most projects are outside the capital, Libreville, where locals do not want to work despite potentially higher salaries. As part of the Emerging Gabon plan, the government aims to build roads and railways to connect major cities and industrial hubs. Poverty and Income Inequality Gabon has a fairly high GDP per capita, but the bulk of the wealth is concentrated in a small group of families.13 One-third of the population lives below the poverty line, and income inequality is among the highest in Africa.14 Additionally, although Gabon is a middle-income country, its human development indicators are similar to low-income countries. Immigration and Resentment About one-fourth of Gabon’s population is foreign.15 Unskilled workers come from Cameroon and Congo, and skilled workers come from all over the world. Unskilled foreign workers are often willing to work for lower wages, and the lack of skilled local workers forces companies to hire foreigners. The government is trying to force the private sector to hire and train more locals. As has happened in other countries with large foreign populations, such as Ivory Coast, tension within Gabon could rise in the future. Payment Culture Gabon has a poor debt repayment culture. In the past decade, it has missed two coupon payment deadlines, but made payments during the grace period, avoiding default.16 The last time this happened was June 2012, when the government’s debt payment was blocked by a judicial order, which was later cleared. A South African company had gone to court to freeze bond payments, but an agreement was eventually reached.17 The government also temporarily failed to make voluntary payments on the sinking fund for Gabon’s 2017 bonds, which led S&P to change the outlook on Gabon’s credit rating to negative.18 Gabon has also incurred significant arrears in the past, including US$700 million of debt owed to the private sector, which it cleared in 2014;19 Fitch estimates that arrears to domestic suppliers amounted to 2.4% of GDP as of February 2016.20 711 Lazard Emerging Markets Debt Country Background Size 267,667 KM2 (76th) Capital Libreville Population 1.7 Million Religion Catholic 41.9%, Protestant 13.7%, other Christian 32.4%, Muslim 6.4% Median Age 18.6 Years Literacy Rate 83.2% Independence August 17, 1960 Political System Presidential Republic Presidents Ali Bongo Presidential Election 2023 Legislative Elections Senate 2021, National Assembly Legislative Branch Bicameral Parliment Economy Agriculture 4.7%, Industry 52.8%, Service 42.5% Labor Force Agriculture 60%, Industry 15%, Service 25% Merchandise Exports Crude Oil, Timber, Manganese, Uranium Export Partners China 15.5%, Italy 7.3%, Trinidad and Tobago 7.2%, Australia 7%, Spain 6.3%, South Korea 5.4%, Netherlands 5%, US 4.7% Currency Central African CFA Franc (XAF) As of November 2016 Source: CIA 712 Gabon Country Timeline 1960 Gabon becomes independent. 1961 Leon Mba elected president. 1964 French forces restore Mba's presidency after crushing military coup. 1967 Bongo becomes president after Mba dies. 1973 Bongo converts to Islam and assumes the first name of Omar. Multi-party elections 1990 Opposition parties legalised, accuse the government of fraud in parliamentary elections held in September and October. 1991 Parliament adopts a new constitution that formalises the multi-party system. 1993 Omar Bongo narrowly wins presidential election, the first held under the new multi-party constitution; opposition accuses government of electoral fraud. 1996 Governing Gabonese Democratic Party wins significant majority in parliamentary elections. 1998 Bongo re-elected to a seven-year term. 2002 January—Ruling Gabonese Democratic Party retains a convincing majority in parliamentary elections. Constitution amended 2003 July—Constitution changed to allow President Bongo to run for president as many times as he wishes. 2004 February—French oil firm Total signs deal to export Gabonese oil to China. 2004 September—Agreement signed with Chinese company to exploit around one billion tonnes of iron ore. 2005 November—Omar Bongo is re-elected as president. Opposition supporters clash with police in the capital. 2006 February—Gabon and Equatorial Guinea agree to start talks over disputed islands in potentially oil-rich waters in the Gulf of Guinea. 2006 December—President Bongo's party wins parliamentary elections comfortably amid opposition accusations of fraud. 2008 January—Government temporarily bans 20 non-governmental organisations for alleged interference in politics. 2009 February—French court freezes President Omar Bongo's bank accounts in the country after he was ordered to return a payment made to him to release a jailed French businessman, Rene Cardona. Presidential succession 2009 June—President Omar Bongo dies while undergoing treatment at a clinic in Spain. 2009 September—Ali Ben Bongo, son of late president, named winner of August election. Critics say poll was fixed to ensure dynastic succession. Opposition supporters clash with security forces. 2010 August—Gabon marks 50 years of independence. Bongo says France no longer its exclusive parter, as Gabon signs deals with India and Singapore for major infrastructure projects. 713 Lazard Emerging Markets Debt Presidential succession 2010 December—Parliament passes constitutional changes allowing government to delay calling an electoral college. The opposition National Union says the changes open the door to dictatorship. 2011 January—A leader of the opposition National Union party, Andre Mba Obame, takes refuge at UN compound in Libreville. His party was dissolved after he declared himself to have been legitimately elected president in the 2009 elections. 2011 December—President Bongo's ruling PDG party takes 95% of seats in parliamentary election, sparking opposition accusations of fraud. 2012 January—Gabon and Equatorial Guinea co-host Africa Cup of Nations, the continent's biggest football tournament. 2013 February—French police search a villa in Nice bought by the late President Omar Bongo—father of incumbent President Ali Ben Bongo—as part of a long-running corruption investigation 2014 December— Protester killed in demonstration calling for president’s resignation. 2014 February— Gabon lifts ban on main opposition party National Union (UN) 2015 April— Main opposition leader Andre Mba Obame dies in Cameroon. Tens of thousands turn out to greet his coffin as it returns home. 2015 August— President Ali Bongo pledges to give his share of the inheritance from his late father to a foundation for youth and education. 2015 November— A French court allows the release of President Ali Bongo's birth certificate following accusations he lied about his place of birth. 2015 August— Incumbent President Ali Bongo and his main challenger Jean Ping both claim victory in the presidential election. UN Secretary-General Ban Ki-moon appeals for restraint pending the announcement of the result. 2016 September— President Ali Bongo is sworn in for a second seven-year term as the Constitutional Court upholds his narrow election victory. Source: BBC 714 Gabon Notes 1 2 3 4 5 As of December 2016. As of October 2015, Source: IMF, Haver Analytics. “Gabon 2015 IMF Article IV Consultation, March 2016 ttp://www.imf.org/external/pubs/ft/scr/2016/cr1686.pdf “Gabon, A new dawn,” African Business Special Report, August–September 2015. Oil dependent Gabon seeks to diversify industry, April 14, 2016 http://africa-me.com/oil-dependent-gabonseeks-diversify-industry/, accessed November 25, 2016. 6 IMF WEO Data, October 2016 http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/index.aspx. 7 “Gabon election: Jean Ping takes Ali Bongo to court,” http://www.bbc.com/news/world-africa-37316746, accessed November 25, 2016. 8http://www.ibtimes.co.uk/gabon-opposition-fails-unite-around-president-ali-bongos-political-dialogue-1591617, accessed, November 25, 2016. 9 “BP Statistical Review of World Energy 2016,” BP, June 2016, accessed on November 25, 2016, http:// www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html . 10“The Gabonese Economy: Recent Development and Prospects,” Investor Presentation, Gabon Economy Ministry, June 2015. 11IMF Country Report No. 16/87 – Gabon Selected Issues, March 2016 https://www.imf.org/external/pubs/ft/ scr/2016/cr1687.pdf. 12Gabon 2015 IMF Article IV Consultation, March 2016 ttp://www.imf.org/external/pubs/ft/scr/2016/cr1686.pdf. 13The 20% of the richest segment of the population amount to 48% of the country’s income or consumption. Source: http://data.worldbank.org/indicator/SI.POV.GINI/countries?display=default. 14The Gabonese Republic Prospectus, June 2015. 15“2012 Investment Climate Statement Gabon,” United States Department of State, June 2012, accessed on December 11, 2013, http://www.state.gov/e/eb/rls/othr/ics/2012/191151.htm. 16“TEXT-S&P revises Gabonese Republic otlk to neg, afrms ‘BB-/B’ rtgs,” Reuters, September 7, 2012, accessed on December 11, 2013, http://in.reuters.com/article/2012/09/07/idINWLA296420120907. 17Kay, Chris and Stephen Gunnion, “Gabon Paid Overdue Eurobond Coupon on Settlement, S&P Says,” Bloomberg, June 22, 212, accessed on December 11, 2013, http://www.bloomberg.com/news/2012-06-22/ gabon-paid-overdue-eurobond-coupon-on-settlement-s-p-says-2-.html. 18“TEXT-S&P revises Gabonese Republic otlk to neg, afrms ‘BB-/B’ rtgs,” Reuters, September 7, 2012, accessed on December 11, 2013, http://in.reuters.com/article/2012/09/07/idINWLA296420120907. 19Gabon says pays investors more than $700 mln in arrears http://www.dailymail.co.uk/wires/reuters/ article-2831846/Gabon-says-pays-investors-700-mln-arrears.html, accessed November 25, 2016. 20Fitch Revises Gabon’s Outlooks to Negative; Affirms at ‘B+’ http://www.reuters.com/article/idUSFit957983, accessed November 25, 2016. 715 Lazard Emerging Markets Debt 716 Ghana Summary Moody’s B3 / S&P B- / Fitch B1 Economy: Agriculture 22%, Industry 28%, Services 50% Ghana is one of the most economically diversified countries in Sub-Saharan Africa, with strong institutions that enhance political and economic stability. The country is an important producer of cocoa, gold, and oil, and has successfully exploited its natural resources and developed its services sector in areas such as tourism and telecommunications. Ghana’s strong institutions have helped to attract large foreign direct investment (FDI) inflows. However, the country is facing rising economic imbalances, including high inflation and large fiscal and current account deficits. The government has responded to these challenges by improving its relationships with multilateral organizations, which has opened the door to new financing. Ghana also reached an agreement with the International Monetary Fund (IMF) in April 2015 that has helped the country regain market credibility. However, the government has had difficulty implementing some of the IMF’s required adjustments, especially ahead of general elections scheduled for December 2016. Economic Indicators Population (Millions) GDP per Capita (USD) Nominal GDP (USD Billions) 2012 2013 2014 2015 2016F 24.9 25.6 26.2 26.9 27.6 2017F 28.3 1,632 1,768 1,411 1,378 1,589 1,694 47.9 40.7 45.2 37.0 37.1 43.8 Real GDP (%) 9.3 7.3 4.0 3.9 4.2 6.2 Year-End CPI (%) 8.1 13.5 17.0 17.7 17.3 11.8 Fiscal Balance (% of GDP) -11.3 -12.0 -10.1 -6.2 -5.1 -4.8 Interest (% of Revenues) 17.5 28.1 33.7 33.9 33.0 29.6 FC Debt/Public Debt (%) 57.7 54.9 60.5 66.0 69.2 71.6 Government Debt (% of GDP) 50.1 58.1 70.7 73.8 70.4 67.0 Current Account (% of GDP) 270.8 347.3 383.9 385.0 362.8 348.1 FDI (% of GDP) -11.7 -11.9 -9.6 -7.5 -6.5 -6.0 8.1 7.1 9.1 8.0 6.6 6.3 38.6 27.9 24.6 22.5 22.3 24.0 External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) 2.8 2.4 2.6 2.7 3.1 3.2 13.2 10.1 11.8 11.9 11.7 12.5 As of November 2016 Forecasted or predicted data is not a promise or guarantee of actual results and is subject to change. Source: Bank of Ghana, IMF, Haver Analytics, Bloomberg, Lazard 717 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB- BB- B+ B+ B B B- CCC+ 2000 2008 Moody’s 2016 S&P Fitch B- 2000 2008 Moody’s S&P 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 2000 1600 1200 800 400 0 2008 Ghana 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 718 Ghana Strengths Economic Potential Ghana has been one of the fastest growing economies in the world, expanding at an average annual pace of about 7% over the past decade.2 However, average annual growth slowed to less than 4% in 2014 and 2015, owing, in part, to lower commodity prices, electricity shortages, and tighter fiscal and monetary policies. Growth is projected to accelerate to nearly 6% in 2017, driven by increased oil production, as well as a normalization of electricity supply as new gas projects come on line. Ghana has fostered relatively friendly business conditions and strong institutions that have encouraged long-term investments. The country ranks in the top 10 on “The FDI Report 2015: Global Greenfield Investment Trends,” and accounts for 4% of FDI market share in the Middle East and Africa.3 Abundant Natural Resources Ghana has abundant natural resources across the agriculture, mining, and energy sectors that are not tied to a specific product or industry, unlike many of its African peers. In the agriculture sector, Ghana’s most important crops are used primarily for domestic consumption, including corn, rice, yams, cassava, and other root vegetables. The country is currently the second largest producer of cocoa in the world, after Côte d’Ivoire, accounting for 20.6% of global production.4 The government has put in place a successful cocoa auction system that has resulted in increased production. Ghana also exports higher-income crops such as mango and pineapples, and is now the third largest supplier of pineapples to Europe.5 It has potential to increase its agricultural production, since less than 60% of its arable land is currently cultivated.6 In the mining sector, the country is among the top 10 producers of gold in the world and second in Africa after South Africa.7 Ghana has been one of the most prolific gold-producing regions in the world, and additional projects in the pipeline should provide a further boost to gold output.8 The country is also an important producer of manganese, bauxite, and diamonds. In the energy sector, Ghana began producing oil in 2010, although the government is taking longer than expected to meet its ambitious production targets. Ghana began producing natural gas in April 2015,9 which it will use to generate cheaper electricity and reduce its dependence on unreliable imports from Nigeria. Strong Institutions Ghana’s public institutions are solid compared to other African countries, and the country is among the highest ranked within Africa across various governance indicators, such as the World Bank’s Rule of Law Index.10 There are press freedoms, transparency is better than most countries in the region, and economic data is published more frequently than in many other African countries. Ghana’s education system is superior to that of other countries in the region. Government institutions are respected and elections tend to be free. The strength of these institutions was reflected in the smooth transition after the death of the former president John Atta Mills in 2002, when Vice President John Dramani Mahama assumed power as established by the constitution.11 Another demonstration of Ghana’s institutional strength came after the December 2012 elections, when the defeated party disputed the results in the courts rather than carrying out major protests. 719 Lazard Emerging Markets Debt IMF Agreement Ghana signed a three-year US$918 million Extended Credit Facility (ECF) with the IMF in April 2015, which bolstered the country’s economic credibility and led to improved relations with other multilateral lenders and donor countries. The IMF approved the first review of the ECF in August 2015, and the exchange rate immediately rallied more than 20%, a reflection of market confidence in Ghana’s economic policies. The IMF agreement also prompted the World Bank to guarantee 40% of the US$1.0 billion Eurobond that the country issued in November 2015. The IMF’s third review of Ghana’s ECF was delayed in August 2016 as the IMF awaited parliamentary approval of three key reforms, including a central bank reform law, a public finance management law, and legislation to restructure and refinance state-owned enterprises. The central bank reform was a key sticking point after parliament approved legislation allowing the bank to provide financing to the government equal to as much as 5% of the previous year’s revenues (the IMF had requested a prohibition on central bank financing of the government). However, the IMF eventually approved the ECF program and released its tranche of financial aid after the finance ministry pledged to adhere to a zero-financing policy and submitted to parliament a revision to the financing law that would prohibit central bank financing of the government. Weaknesses Underdeveloped Infrastructure Ghana’s growth is constrained by poor infrastructure, limited energy capacity, a shortage of skilled workers, and low productivity. The country’s ports, roads, and railway system need to be updated, and electricity shortages force the government to engage in power rationing, which creates bottlenecks, particularly in the economically important mining sector. About 47% of Ghana’s electricity relies on the water level of Lake Volta, and when there is not enough rainfall, the government is forced to rely on thermal generation, which is costlier than hydropower. The government is encouraging foreign investment to double the power supply and achieve total rural electrification in the coming years. Education is improving, but there is still a shortage of skilled workers, and productivity lags other African countries, such as Kenya. Government Balance Sheet The government is making some progress on reducing its sizable fiscal deficits, but more progress is needed as public debt levels have risen sharply in recent years. The government met its primary fiscal target for 2015, which was a major accomplishment since it missed the fiscal targets in the prior three years. Under the IMF program, the government has undertaken a series of unpopular fiscal measures, such as the reduction of utility subsidies, but public debt remains high, at about 70% of GDP. Further reductions of the fiscal deficit will be challenging because current government expenditures include a significant outlay for wages of public sector employees. Interest payments also account for about one-third of total government revenues. General elections are scheduled for December 2016, and preliminary evidence suggests the government has not accelerated spending ahead of the balloting. 720 Ghana Balance-of-Payments Vulnerabilities Although Ghana’s current account balance has improved in recent years, the deficit remains sizable at more than 7% of GDP. The economic slowdown contributed to an improvement in the current account deficit from double-digit levels in 2013, thanks to a reduction in imports. FDI has accelerated in recent years and now fully finances the current account shortfall. Nevertheless, Ghana continues to be dependent on external debt to meet its financing needs, causing the stock of external debt to nearly double between 2011 and 2015. Ghana issued a US$1.0 billion Eurobond in October 2015 and sold another US$750 million bond in September 2016, using a portion of the proceeds to complete the buyback of its bond maturing in 2017. Foreign exchange reserves have stabilized at about US$5 billion, representing about three months of imports, which is slightly below the central bank’s target of 3.5 months.12 Banking System The banking system’s balance sheet is improving, but its rapid expansion in previous years could pose problems in the medium term. There are 30 banks in Ghana, half of which are domestic institutions, and they are well capitalized with an average capitalization ratio of 16.7% as of July 2016, compared to a regulatory minimum of 10%. However, the capitalization ratio has fallen from 18.6% in 2013. Real credit growth declined slightly by 0.2% between July 2015 and July 2016, after registering real growth of 4.4% and 28.9% in the year to July 2015 and 2014, respectively. Although credit growth has slowed, the credit boom in past years has resulted in a rise in nonperforming loans (NPLs) to a fairly high 19.1%, from 13.1% in July 2015.13 Banks’ capital levels might not be adequate if NPLs continue to rise. Moreover, public-sector arrears to contracted suppliers could jeopardize these suppliers’ ability to repay their loans, adding further to NPLs. 721 Lazard Emerging Markets Debt Country Background Size 238,535 KM2 (103rd) Capital Accra Population 26.9 Million Ethnic Groups Akan 47.5%, Mole-Dagomba 16.6%, Ewe 13.9%, Ga-Dangme 7.4% Religion Christian 71.2%, Muslims 17.6% Median Age 21 Years Literacy Rate 76.6% Independence March 6, 1957 Political System Constitutional Democrary Presidents John Dramani Mahama Presidential Election December 2016 Legislative Elections December 2016 Legislative Branch Unicameral Parliament 275 Seats (Largest Parties: NDC 150, NPP 120) Economy Agriculture 20.7%, Industry 27.7%, Service 51.6% Labor Force Agriculture 44.7%, Industry 14.4%, Service 40.9% Merchandise Exports Oil, Gold, Cocoa, Timber Export Partners India 25.2%, Switzerland 12.2%, China 10.6%, France 5.7% Currency Cedi (GHS) As of November 2016 Source: CIA 722 Ghana Country Timeline Independence 1957 March—Ghana becomes independent with Kwame Nkrumah as prime minister. 1960 Ghana proclaimed a republic; Nkrumah elected president. 1964 Ghana becomes a one-party state. 1966 Nkrumah overthrown in military coup; Russian and Chinese technicians expelled. 1969 New constitution facilitates transfer of power to civilian government led by Kofi Busia. 1972 Busia ousted in military coup led by Colonel Ignatius Acheampong 1978 Acheampong forced to resign; General Frederick Akuffo takes over. Rawlings era 1979 Akuffo deposed in coup led by Flight Lieutenant Jerry Rawlings. Acheampong and Akuffo executed. 1979 September—Rawlings hands over power to an elected president, Hilla Limann. 1981 Limann ousted in military coup led by Rawlings after two years of weak government and economic stagnation. 1983 Rawlings adopts conservative economic policies, abolishing subsidies and price controls, privatising many state enterprises and devaluing the currency. 1992 Referendum approves new constitution introducing a multiparty system. Rawlings elected president. 1994 One thousand people are killed and a further 150,000 are displaced in the Northern Region following ethnic clashes between the Konkomba and the Nanumba over land ownership. 1994 June—Seven ethnic groups involved in violence in Northern Region sign peace agreement. 1995 Government imposes curfew in Northern Region as renewed ethnic violence results in a further 100 deaths. 1996 Jerry Rawlings re-elected president. Kufuor elected 2000 December—John Kufuor beats Vice-President John Atta Mills in the presidential election. 2001 February—Petrol prices rise by 60% following the government's decision to remove fuel subsidies. 2001 April—Ghana accepts debt relief under a scheme designed by the World Bank and the IMF. 2001 May—National day of mourning after football stadium stampede leaves 126 dead. Inquiry blames police for overreacting to crowd trouble. 2001 June—Government scraps public holiday celebrating Rawling's military coup in an effort to wipe out the legacy of his rule. 2001 June—Floods hit Accra, causing 10 deaths and forcing 100,000 to flee their homes. 2002 April—State of emergency is declared in the north after a tribal chief and more than 30 others are killed in clan violence. State of emergency is lifted in August 2004. 2002 May—President Kufuor inaugurates reconciliation commission to look into human rights violations during military rule. 723 Lazard Emerging Markets Debt Kufuor elected 2003 October—Government approves merger of two gold-mining firms, creating new gold-mining giant. 2004 February—Former President Jerry Rawlings testifies at commission investigating human rights offences during the early years of his rule. 2004 October—Group of current and former military personnel detained on suspicion of planning to destabilise government ahead of elections. 2004 December—Presidential poll: Incumbent John Kufuor wins a second term. 2005 April-May—Thousands of Togolese refugees arrive, fleeing political violence in their home country. 2006 April—A boat capsizes on Lake Volta reservoir; more than 100 passengers are feared drowned. 2006 June—Visiting Chinese Premier Wen Jiabao promises to lend Ghana about $66M to fund development projects. He is on an African tour aimed at opening new export markets for China's booming economy and at securing energy and mineral supplies. 2007 March—Ghana celebrates 50 years of independence from Britain. Oil discovered 2007 June—Major off-shore oil discovery announced. President Kufuor says oil will turn Ghana into an "African tiger". 2007 September—The worst floods for more than 30 years cause widespread devastation, destroying much of the annual harvest. 2007 December—President Kufuor says off-shore oil reserves total 3 billion barrels. 2008 December—John Atta Mills elected president. 2009 July—US President Barack Obama visits. Ghana secures a $600M three-year loan from the International Monetary Fund (IMF). 2009 October—Controversy over sale of national communications network Ghana Telecom, allegedly for less that it was worth. 2010 December—Offshore oil production begins. 2011 July—President John Atta Mills chosen as ruling National Democratic Congress party's candidate for the 2012 presidential election, defeating Nana Konadu Agyemang-Rawlings, wife of former President Jerry Rawlings. 2011 August—UK-based oil exploration company Tullow Oil, says it will spend at least $4B to develop oil fields off the coast of Ghana. 2012 June—Thousands are displaced by communal violence in the east, sparked by the exhumation of the body of a Muslim cleric. 2012 July—President Mills dies. 2012 September-October—Ivory Coast closes its borders with Ghana for two weeks after a deadly attack on an army checkpoint blamed on exiled supporters of ousted President Laurent Gbagbo. 2012 October—Ghana becomes embroiled in a row with Argentina after impounding an Argentine naval training vessel on behalf of creditors. A Chinese boy is killed and some 100 Chinese are detained in an operation against illegal gold mining. 2012 December—President John Mahama wins re-election. 2013 June—Authorities arrest hundreds of Chinese and other migrants working in unlicensed gold mines. The government says around 4,700 illegal miners, most of them Chinese, were deported in 2013. 2013 August—The supreme court rejects an appeal by the main opposition NPP against President Mahama's 2012 election victory. 724 Ghana 2013 December—Ghana says Ivory Coast sent hit squads into the country to try to kidnap or kill exiled supporters of former Ivorian President Laurent Gbagbo. Ivory Coast denies the accusation. 2014 July—Thousands take to the streets to protest against the government's alleged mishandling of the economy. 2015 April—Two Ghanaian men appear in court in Accra on charges of planning to import nearly six tonnes of cocaine from Bolivia. 2015 June—Three days of national mourning are declared after 175 people were killed by flooding and a petrol station explosion. 2015 December—Twenty judges are sacked after being implicated in a high-profile bribe-taking scandal. Source: BBC Notes 1 As of November 2016. 2 “World Economic and Financial Surveys,” International Monetary Fund, http://www.imf.org/external/pubs/ft/ weo/2016/02/weodata/index.aspx. 3 “The FDI Report 2015: Global Greenfield Investment Trends,” Financial Times, http://forms.fdiintelligence. com/report2015/files/The-fDi-Report-2015.pdf. 4 “Production - Latest figures from the Quarterly Bulletin of Cocoa Statistics,” International Cocoa Organization, August 31, 2016, http://www.icco.org/about-us/international-cocoa-agreements/cat_view/30related-documents/46-statistics-production.html. 5 Bond Prospectus, Republic of Ghana, September 2014. 6 “Ghana: Land Use and Agricultural Inputs,” Food and Agricultural Organization of the United Nations, http:// ghana.opendataforafrica.org/ymjdrxb/ghana-fao-stat-land-use-and-agricultural-inputs. 7 “Mineral Commodity Summaries,” U.S. Geological Survey, January 2016, http://minerals.usgs.gov/minerals/ pubs/mcs/2016/mcs2016.pdf. 8 “Ghana,” Perseus Mining Limited, http://www.perseusmining.com/projects_overview.12.html. 9 “Ghana Overview,” U.S. Energy Information Administration, August 2016, https://www.eia.gov/beta/international/country.cfm?iso=GHA. 10World Bank Worldwide Governance Indicators 2015, http://data.worldbank.org/data-catalog/worldwidegovernance-indicators. 11“Ghana: Constitution and Politics,” Commonwealth, accessed on December 11, 2013, http://thecommonwealth.org/our-member-countries/ghana/constitution-politics. 12“Ghana: Third Review Under the Extended Credit Facility Arrangement and Request for Waiver for Nonobservance of Performance Criteria, and Modifications of Performance Criteria,” International Monetary Fund, IMF Country Report No. 16/321, October 2016, http://www.imf.org/external/pubs/ft/scr/2016/cr16321. pdf. 13“Financial Stability Report Vol. 1.2,” Bank of Ghana, September 2016, https://www.bog.gov.gh/privatecontent/MPC_Press_Releases/Financial%20Stability%20Report%20-%20September%202016.pdf. 725 Lazard Emerging Markets Debt 726 Kenya Summary Moody’s B1 / S&P B+ / Fitch B+1 Economy: Agriculture 29%, Industry 17%, Services 53% Kenya has the largest economy in East Africa that is also one of the most diverse with established banking and tourism sectors and a nascent energy sector. Kenya has a reputation for entrepreneurship and attracting multinational companies as a top destination for foreign direct investment (FDI) in Africa. China is becoming an increasingly important commercial partner and supporter. The oil sector has the potential to have a positive long-term fiscal, external and economic impact. Its main shortterm challenge is to reduce its fiscal deficit and debt ratios. Kenya has a precautionary arrangement with the International Monetary Fund (IMF) that can act as a buffer. Another key challenge stems from instability in the region which negatively affects economic growth. In 2017, Kenya is scheduled to hold an election and President Kenyatta is expected to run for a second term amid reports of escalating political tensions. Economic Indicators Population (Millions) GDP per Capita (USD) Nominal GDP (USD Billions) 2012 2013 2014 2015 2016F 40.7 41.8 43.0 44.2 45.5 2017F 46.7 1,239 1,318 1,428 1,434 1,522 1,599 50.4 55.1 61.4 63.4 69.2 74.7 Real GDP (%) 4.6 5.7 5.3 5.6 6.0 6.1 Year-End CPI (%) 3.2 7.1 6.0 8.0 5.6 5.5 Fiscal Balance (% of GDP) -5.0 -5.7 -7.4 -8.3 -7.4 -6.4 Interest (% of Revenues) 11.2 12.2 13.2 13.7 13.4 13.2 FC Debt/Public Debt (%) 42.7 52.1 49.7 49.1 48.1 47.9 Government Debt (% of GDP) 41.7 41.5 46.7 51.3 52.7 53.0 217.8 210.6 236.0 263.0 268.2 267.9 Current Account (% of GDP) -8.4 -8.8 -10.3 -6.8 -6.4 -6.1 FDI (% of GDP) 2.0 1.9 1.7 1.7 2.2 2.1 External Debt (% of GDP) 28.4 29.5 37.2 42.5 45.1 46.2 Foreign Reserves/External Debt (%) 39.9 39.0 34.6 27.9 24.8 24.1 Foreign Reserves (Mo. of Imports) 4.3 4.7 4.0 4.5 4.8 5.2 11.3 11.5 12.9 11.8 11.2 11.1 Government Debt (% of Revenue) Foreign Reserves (% of GDP) As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IMF, Haver Analytics, Lazard 727 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB BB- BBB+ B+ B B B- 2000 2008 Moody’s 2016 S&P Fitch B- 2000 2008 Moody’s S&P 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 1000 800 600 400 200 0 2008 Kenya 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 728 Kenya Strengths Development Kenya is the most industrialized country in East Africa and among the most developed in Sub-Saharan Africa. It has some of the best infrastructure most business-friendly conditions, and a well-trained labor force. Not surprisingly, Kenya is among the leading African countries in FDI inflows. In fact, among Greenfield FDI projects in Sub-Saharan Africa, Kenya ranked second after South Africa in 2015.2 Kenya is also a business hub of East Africa and several large companies have their regional headquarters in Kenya. Dynamic Economy Kenya has one of the most dynamic and diverse economies in the region with established banking and tourism sectors and a nascent energy sector. Kenya enjoyed strong growth following peaceful presidential election in 2013 with average growth of 5.6% from 2013–2016 and growth is expected to increase to 6.4% for the 2017–2021 time period.3 The government has ambitious infrastructure plans to sustain high growth, including the recently begun construction of a new port in Mombasa, which will increase shipping capacity by 50%.4 Other plans include an airport expansion and improvements to the domestic railway system. The government’s ultimate goal is to transform Kenya to a middle-income industrialized country and a regional transportation and financial hub by 2030. Tourism Kenya has a strong tourism sector as it is a top destination for safaris and Nairobi is a regional airport hub. The tourist infrastructure is among the best in the region and numerous hotels have recently been built targeting both business travelers and tourists. Tourism directly accounted for 3.8% of 2015 GDP and is expected to rise to 10.1% GDP by 2026. Similarly, tourism currently accounts for 3.5% of total employment and is expected to increase to 9.5% by 2026.5 However, tourism has been hurt by recent terrorist attacks by the Somali rebel group, Al-Shabaab, leading to a 12.6% decline in the number of tourists versus 2014.6 Oil Sector Kenya’s oil sector shows signs of potential growth as significant discoveries have been made; however, they have not yet been declared commercially viable. Oil production has the potential to have a significant positive long-term fiscal, external and economic impact. From a fiscal standpoint, it could result in higher tax and royalty revenue. On the external front, the country could reduce or eliminate its reliance on energy imports and potentially become an oil exporter. Lastly, from an economic standpoint, oil has the potential to increase FDI and increase wealth levels. However, even if Kenya’s oil projects are commercially viable, it will be several years until they reach full production. Kenya expects to produce 2,000 barrels per day (bpd) as early as June 2017.7 The UK company Tullow is the main player in the country, and it has discovered an estimated 750 million barrels of oil.8 The company estimates that Kenya has the potential to export at least 100,000 barrels per day, which is more than its current consumption of 81,000 bpd. Kenya had planned to build an oil pipeline from Uganda, but Uganda opted to route the pipeline through Tanzania, so Kenya will instead build a shorter pipeline from Lokichar to the Lamu port.9 729 Lazard Emerging Markets Debt The “China” Factor China is becoming an important trade partner, helping to reduce dependency on Europe and the United States. Total trade with China, which is mostly imports, has tripled from US$2.1 billion in 2013 to US$6.6 billion in 2015.10 Meanwhile, the Chinese are investing large sums into the construction, manufacturing, and communication sectors. China’s government investment for infrastructure projects in Kenya is estimated at US$6.5 billion, as of August 2016.11 IMF The government continues to make progress on an IMF program approved in February 2015. The previous agreement, which ended in December 2013 included important fiscal and value-added tax reforms allowed Kenya to avoid a balance-of-payment problem and helped the country to strengthen its economic position. Kenya has consistently made progress on structural reforms and in March 2016, the IMF extended a US$1.5 billion Stand-by Arrangement and Stand-by Credit Facility as precautionary measures.12 Transparency Kenya’s economic data is some of the most reliable in Sub-Saharan Africa. The Central Bank of Kenya publishes detailed economic data on a monthly basis, and the lag of the economic, fiscal, and balance-of-payment data is less than that of other African countries.13 Although large revisions to economic data are not uncommon, the quality and transparency of Kenya’s date are still considered very good by Sub-Saharan Africa standards. Weaknesses Market Intervention In August 2016, President Uhuru Kenyatta defied opposition from the central bank and signed legislation imposing limits on bank lending and deposit rates in an effort to increase bank lending. This was viewed as a populist move that threatens Kenya’s reputation as a free market financial center in the region. Moreover, evidence from other countries suggests that these types of measures rarely help the population and may in fact have the opposite effect of what is intended.14 In its November 2016 review, the IMF expressed concern that these measures would have an adverse impact on the economy. Economic Volatility Linked to Electoral Cycles Kenya has a history of experiencing economic slowdowns following election years. Politically charged violence and uncertainty have contributed to this pattern which has occurred in 7 of the past 10 elections. However, the economy did not experience a slowdown following the last election in 2013 as better governance and electoral reforms have helped address these issues. Kenya is scheduled to hold a presidential election in 2017 and President Kenyatta is expected to run for a second term amid reports of escalating political tensions and preelectoral conditions that are similar to 2007, when violence erupted following the election.15 730 Kenya Fiscal Deficit Kenya’s main weakness is the government’s balance sheet. The government’s fiscal deficit has been steadily increasing, with an expected deficit of 6.3% in 2017, a relatively high figure for a relatively poor emerging markets country. Much of the fiscal deficit is due to infrastructure investment, which is positive for long-term growth. However, pressures to increase wages continue to grow. In 2015, Kenya increased wages by 12% bowing to pressure from unionized labor.16 Debt ratios are at moderate levels, but increasing at a steady pace. Government debt-to-GDP is expected to increase to 53% in 2017, up from 42% in 2012.17 About half of Kenya’s debt is domestic and half is external, the bulk of which is owed to multilateral and bilateral organizations. Security and Ethnic Tension Security problems and ethnic tension are two major sources of political and economic instability. Security problems are mainly related to the instability of Kenya’s neighbor, Somalia. In the past, the rebel group Al-Shabaab from Somalia has committed a number of terrorist attacks across Kenya, negatively impacting on the tourism industry. With the support of the international community, Kenya and other African countries have responded by fighting Somalia’s terrorist groups. Nevertheless, terrorism remains an issue and in 2015, an attack at Garissa University College resulted in the deaths of almost 150 people.18 Europe Kenya’s economy is closely linked to Europe in a number of ways and is therefore prone to stagnant growth in Europe. Europe is an important trade partner with the United Kingdom, the Netherlands and Germany accounting for almost 20% of total exports. Additionally, nearly half of Kenya’s tourists are European.19 Europe is also a significant source of investment with both private and public sector loans. Lastly, a large share of remittances, which are approximately 4% of GDP, comes from Europe.20 731 Lazard Emerging Markets Debt Country Background Size 580,367 Square KM2 (49th) Capital Nairobi Population 46.8 Million Ethnic Groups Kikuyu 22%, Luhya 14%, Luo 13%, Kalenjin 12%, Kamba 11%, Kisii 6% Religion Christian 82.5% Median Age 19.5 Years Literacy Rate 78% Independence December 12, 1963 President Uhuru Kenyatta Election 2018 Economy Agriculture 32.9%, Industry 17.8%, Service 49.2% Labor Force Agriculture 75%, Industry Service 25% Merchandise Exports Small-Scale Consumer Goods, Agricultural Products, Horticulture, Oil Refining, Aluminum, Steel, Lead, Cement, Commercial Ship Repair, Tourism Export Partners Uganda 11.2%, US 8.3%, Tanzania 8.1%, Netherlands 7.4%, UK 6%, Pakistan 4.2% Currency Shilling (KES) As of October 2016 Source: CIA 732 Kenya Country Timeline Independence 1961 Kenyatta freed and assumes presidency of Kanu. 1963 Kenya gains independence, with Kenyatta as prime minister. 1964 Republic of Kenya formed. Kenyatta becomes president and Odinga vice-president. 1966 Odinga, a Luo, leaves Kanu after ideological split, forms rival Kenya People's Union (KPU). 1969 Assassination of government minister Tom Mboya sparks ethnic unrest. KPU banned and Odinga arrested. Kanu only party to contest elections. 1974 Kenyatta re-elected. Moi era begins 1978 Kenyatta dies in office, succeeded by Vice-President Daniel arap Moi. 1982 June—Kenya officially declared a one-party state by National Assembly. 1982 August—Army suppresses air force coup attempt. Private Hezekiah Ochuka rules for about six hours. 1987 Opposition groups suppressed. International criticism of political arrests and human rights abuses. 1989 Political prisoners freed. 1990 Death of the foreign minister, Robert Ouko, in suspicious circumstances leads to increased dissent against government. Multi-party elections 1991 August—Forum for the Restoration of Democracy (Ford) formed by six opposition leaders, including Oginga Odinga. Party outlawed and members arrested. Creditors suspend aid to Kenya amid fierce international condemnation. 1991 December—Special conference of Kanu agrees to introduce a multi-party political system. 1992 Approximately 2,000 people killed in tribal conflict in the west of the country. 1992 August—Ford splits into two factions—Ford-Asili (led by ex-government minister Kenneth Matiba) and Ford-Kenya (led by Odinga). 1992 December—Moi re-elected in multi-party elections. Kanu wins strong majority. 1994 Odinga dies. Opposition groups form coalition—the United National Democratic Alliance— but it is plagued by disagreements. 1995 New opposition party—Safina—launched by palaeontologist Richard Leakey. Party refused official registration until November 1997. 1997 Demonstrations calling for democratic reform. World Bank withholds disbursement of $5B in structural adjustment credit. 1997 December—Moi wins further term in widely-criticised elections. His main opponents are former vice-president Mwai Kibaki and Raila Odinga, son of Oginga Odinga. Embassy bomb 1998 August—Al-Qaeda operatives bomb the US embassy in Nairobi, killing 224 people and injuring thousands. 1999 Moi appoints Richard Leakey to head government drive against corruption. 2001 April—Leakey appears in court to face charges of abuse of power and perverting the course of justice. 2001 June—Parliament passes a law allowing the import and manufacture of cheap copies of antiAids drugs. 733 Lazard Emerging Markets Debt 2001 Ethnic tensions culminate in several violent clashes. In December thousands flee and several people are killed in rent battles involving Nubian and Luo communities in Nairobi's Kibera slum district. 2002 July—Some 200 Maasai and Samburu tribespeople accept more than $7M in compensation from the British Ministry of Defence. The tribespeople had been bereaved or maimed by British Army explosives left on their land over the last 50 years. 2002 November—Terror attack on Israeli-owned hotel near Mombasa kills 10 Kenyans and injures three Israelis. A simultaneous rocket attack on an Israeli airliner fails. A statement—purportedly from al-Qaeda—claims responsibility. Kibaki victory 2002 December—Elections. Mwai Kibaki wins a landslide victory, ending Daniel arap Moi's 24-year rule and Kanu's four decades in power. 2003 January—Government bill proposes anti-corruption commission. Moi critic John Githongo appointed anti-graft czar. 2003 November—International Monetary Fund (IMF) resumes lending after three-year gap, citing anti-corruption measures. 2003 December—Government decides to grant former president Daniel arap Moi immunity from prosecution on corruption charges. 2004 March-July—Long-awaited draft of new constitution completed. Document requires parliament's approval and proposes curbing president's powers and creating post of prime minister. But deadline for enactment is missed. 2004 July-August—Food crisis, caused by crop failures and drought, dubbed "national disaster" by President Kibaki. UN launches aid appeal for vulnerable rural Kenyans. 2004 October—Kenyan ecologist Wangari Maathai wins the Nobel Peace Prize. Controversy over jail conditions amid intense media coverage of inmate deaths at Meru jail in the east. 2005 January—Clashes over land and water rights leave more than 40 people dead. 2005 February—Corruption takes centre stage when it is claimed that graft has cost Kenya $1B under Kibaki. Leading anti-graft official John Githongo resigns. International donors voice unease. 2005 July—Parliament approves a draft constitution after days of violent protests in Nairobi over aspects of the draft which demonstrators say give too much power to in the president's hands. Constitution spurned 2005 November-December—Voters reject a proposed new constitution in what is seen as a protest against President Kibaki. The president replaces his cabinet; some nominees reject their appointments. 2006 January—Government says four million people in the north need food aid because of a drought which the president calls a "national disaster". 2006 January-February—Government ministers are linked to a corruption scandal involving contracts for a phantom company, Anglo Leasing. One of them, Finance Minister David Mwiraria, resigns and says allegations against him are false. 2006 March—Armed police, acting on government orders, raid the offices and presses of the Standard group, one of Kenya's leading media companies. 2006 April—Three days of national mourning are declared after an aircraft carrying several prominent politicians crashes in the north. 2006 April—Visiting Chinese President Hu Jintao signs a contract allowing China to prospect for oil off the Kenyan coast. His African tour has focused on trying to satisfy China's hunger for energy and raw materials. 2006 October—UN says some 35,000 Somalis escaping drought, Islamist rule and looming conflict have arrived in Kenyan camps since early 2006. 2006 November-December—Regional flooding renders thousands homeless. Some 100,000 Somali refugees cut off by floodwaters in the north-east are supplied by air drops. 734 Kenya 2007 May—A Kenya Airways plane crashes in Cameroon, killing all 114 on board. An official investigation finds pilot error was to blame. 2007 December—Disputed presidential elections lead to violence in which more than 1,500 die. The government and opposition come to a power-sharing agreement in February and a cabinet is agreed in April. 2008 October—Report into post-election clashes calls for international tribunal to try those implicated in violence. Many political leaders are reluctant to implement the commission of inquiry's recommendations, with some arguing that prosecutions could trigger further clashes between communities. 2008 December—Kenya Anti-Corruption Commission (KACC) accuses seven current and former MPs of taking illegal allowances worth $250,000. 2009 August—Visiting US Secretary of State Hillary Clinton criticises Kenya for failing to investigate the deadly violence after the 2007 election. Kenya says that at least 10 million people, or one third of the population, are in need of food aid. The government mobilises the military to distribute food, water and medicines to areas hit hardest by drought. 2009 October—The government says it will co-operate with the International Criminal Court (ICC) to try key suspects in post-election violence. Constitution approved 2010 January—The US suspends $7M of funding for free primary schools in Kenya until fraud allegations are investigated. 2010 February—President Kibaki overturns a decision by Prime Minister Odinga to suspend the country's agriculture and education ministers over alleged corruption. The row threatens the coalition government. 2010 July—Kenya joins its neighbours in forming a new East African Common Market, intended to integrate the region's economy. 2010 August—New constitution designed to limit the powers of the president and devolve power to the regions approved in referendum. Controversy over release of national census figures that include tribal affiliations. 2010 December—A grenade explosion kills three people on a Kampala-bound bus in Nairobi. 2011 March—Governments of Kenya, DR Congo agree to investigate illegal gold trade, in which Kenyan allegedly plays a key role. 2011 April—Truth commission begins public probe into 3,000 killings at Wagalla airstrip during a 1984 crackdown on ethnic Somalis, a hushed-up chapter in Kenya's history. Six politicians appear before the International Criminal Court in The Hague, accused of links to 2007-8 postelection violence. 2011 June-September—East Africa hit by worst drought in 60 years. 2011 August-September—Suspected Somali militants raid Kenyan coastal resorts and a refugee camp, targetting foreigners. Troops in Somalia 2011 October—Kenyan troops enter Somalia to attack rebels they accuse of being behind several kidnappings of foreigners on Kenyan soil. Kenya suffers several apparent reprisal attacks. 2011 November—High court orders arrest of Sudanese President Omar al-Bashir if ever he visits. Sudan orders Kenya's ambassador to leave. 2012 January—International Criminal Court rules that several prominent Kenyans must stand trial over the 2007 post-election violence. 2012 March—Oil discovered. President Kibaki hails it as a ''major breakthrough''. Launch of Lamu port project which is to become South Sudan's oil export outlet. 2012 May—More than 30 people are injured in an attack on a Nairobi shopping centre, allegedly by Somalia's al-Shabab Islamist militia. 2012 June—Internal Security Minister George Saitoti is killed in a helicopter crash. 735 Lazard Emerging Markets Debt 2012 July—Fifteen people are killed in an attack on two churches in Garissa, near the Somali border. Al-Shabab is again the prime suspect. Britain acknowledges that its colonial administration tortured detainees during the Mau Mau uprising. Veterans are claiming damages in the High Court in London. Outbreaks of violence 2012 August-September—More than 100 people are killed in communal clashes over land and resources Coast Province. Junior minister Dhadho Godhana is charged with incitement. He denies the charge. Five people die in riots by Muslim protesters in Mombasa after the shooting of preacher Aboud Rogo Mohammed, accused by the UN of recruiting and funding al-Shabab Islamist fighters in Somalia. Muslim cleric Abubaker Ahmed is charged with inciting the protests. 2012 September—Junior minister Ferdinand Waititu is charged with hate speech and incitement to violence over anti-Maasai remarks caught on video tape and made in response to the reported killing of a child by a Maasai security guard. 2012 November—Troops rampage in the town of Garissa, near the Somali border, after gunmen shoot dead three Kenyan soldiers serving in the African Union mission in Somalia. 2012 December—Deputy PM Uhuru Kenyatta and former minister William Ruto—bitter political rivals facing trial at the International Criminal Court over the 2007 post-election violence— confirm that are forming an alliance for the 2013 election 2013 March—Uhuru Kenyatta, the son of Kenya's first president, wins presidential election with just over 50% of the vote. A challenge to the results by his main rival, Prime Minister Raila Odinga, is rejected by the Supreme Court. International Criminal Court (ICC) drops charges against Francis Muthaura, a co-accused of Mr Kenyatta, over the 2007 election violence. 2013 May—Court sentences two Iranians to life imprisonment for plotting to attack Western targets in Kenya. 2013 June—The British government says it sincerely regrets the torture of thousands of Kenyans during the suppression of the Mau Mau insurgency in the 1950s and promises £20m in compensation. 2013 September—Deputy President William Ruto pleads not guilty to crimes against humanity charges at the International Criminal Court. He and President Uhuru Kenyatta are accused of orchestrating violence after elections in 2007, and will be tried separately at The Hague. Somali al-Shabab militants seize a Nairobi shopping mall and kill more than 60 people, saying they want Kenya's military to pull out of Somalia. 2013 October—Radical Muslim cleric Sheikh Ibrahim Rogo killed by gunmen in Mombasa. Supporters allege the security forces killed him. 2014 April—Radical cleric Sheikh Abubakar Shariff Ahmed, alias "Makaburi", is shot dead. Some accuse the government of the slaying. 2014 May—Several countries issue travel warnings following several attacks over the past few months blamed on Somali al-Shabab militants. 2014 June—At least 48 people die after Islamist militants attack hotels and a police station in Mpeketoni, near the island resort of Lamu. 2014 December—Prosecutors at the International Criminal Court drop charges against President Kenyatta over the 2007 post-election violence, citing insufficient evidence. 2015 April—Al-Shabaab militants carry out a massacre at Garissa University College in northwest Kenya, killing 148 people. 2015 June—Four Kenyans and a Tanzanian charged with terrorism offences over the Al-Shabaab Garissa attack. 2015 July—Barack Obama praises Kenya's progress but urges action to improve gay rights, as he make his first visit to his father's homeland as US president. Source: BBC 736 Kenya Notes 1 As of December 2016. 2 “The FDI Report 2016: Global Greenfield Investment Trends,” Financial Times, Accessed on November 26, 2016, http://forms.fdiintelligence.com/report2016/files/The_fDi_Report_2016.pdf. 3 IMF WEO October 2016 data. 4 http://www.africanews.com/2016/09/06/kenya-inaugurates-new-terminal-at-mombasa-port/, accessed November 26, 2016. 5 “Travel & Tourism Economic Impact 2016: Kenya,” World Travel and Tourism Council, accessed on November 26, 2016, http://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2016/ kenya2016.pdf. 6 http://www.nation.co.ke/news/tourism-kenya-terrorism/1056-3188110-juobruz/index.html, accessed November 26, 2016. 7http://www.bloomberg.com/news/articles/2016-06-29/kenya-will-begin-constructing-its-crude-oil-pipelinein-2018, accessed November 26, 2016. 8 http://www.tullowoil.com/operations/east-africa/kenya, accessed November 26, 2016. 9https://www.theguardian.com/global-development/2016/may/12/uganda-chooses-tanzania-over-kenya-foroil-pipeline-route, accessed November 26, 2016. 10As of November 2016. Source: Bloomberg data. 11http://www.capitalfm.co.ke/business/2016/08/chinese-investments-kenya-hit-sh663bn-fm-wangsays/?doing_wp_cron=1480202080.7496368885040283203125, accessed November 26, 2016. 12https://www.imf.org/en/News/Articles/2016/11/04/PR16486-Kenya-IMF-Conducts-Review-Discussions, accessed November 26, 2016. 13As of December 2013. Source: Lazard 14https://www.ft.com/content/42836c50-6a0d-11e6-a0b1-d87a9fea034f, accessed November 26, 2016. 15https://www.issafrica.org/iss-today/signs-of-violence-ahead-of-kenyas-2017-elections, accessed November 26, 2016. 16http://www.businessdailyafrica.com/Kenya-raises-minimum-wage-12-per-cent/539546-2703210-ljrtemz/ index.html, accessed November 26, 2016. 17IMF WEO Economic Outlook, October 2016. 18Levis, Josh and Holly Yan, “147 dead, Islamist gunmen killed after attack at Kenya college,” CNN.com, April 2, 2015, accessed on October 15, 2015, http://www.cnn.com/2015/04/02/africa/kenya-university-attack/. 19“Monthly Economic Review,” Central Bank of Kenya, June 2013, accessed on December 11, 2013, Central Bank of Kenya http://www.centralbank.go.ke/images/docs/Monthly%20Economic%20Reviews/2013/ MER%20June%202013.pdf. 20“Kenya,” IMF Country Report No. 13/107, April 2013, accessed on December 11, 2013,Source IMF http:// www.imf.org/external/pubs/ft/scr/2013/cr13107.pdf. 737 Lazard Emerging Markets Debt 738 Mozambique Summary Moody’s Caa3 / S&P CC / Fitch RD1 Economy: Agriculture 25%, Industry 20%, Service 54% Mozambique is rich in natural resources, including coal and gas. Large mining and energy projects resulted in growth rates averaging 6.5% over the last several years, and investments in gas projects are expected to drive growth in the medium term. Mega-projects have led to a surge in imports and a high current account deficit financed by FDI and loans related to the projects. Gas riches facilitated a borrowing spree including undisclosed loans of US$1.4 billion (10% of GDP); the revelation of these undisclosed loans led the IMF and the international donor community to suspend assistance, creating a fiscal and debt crisis that prompted the government to renegotiate terms with bondholders. In addition to a narrow economic base, poor infrastructure constrains growth, which aggravates social and economic development; GDP per capita remains among the lowest in the world. The risk of renewed political crisis is relatively low as the ruling Frelimo Party and the opposition party, Renamo, signed a ceasefire peace accord in 2014. Economic Indicators 2012 2013 2014 2015 2016F 2017F Population (Millions) 25.7 26.5 27.2 28.0 28.8 29.5 GDP per Capita (USD) 590 605 620 529 419 387 Nominal GDP (USD Billions) 15.2 16.0 16.9 14.8 12.0 11.4 Real GDP (%) 7.2 7.1 7.4 6.6 3.7 5.5 Year-End CPI (%) 2.2 3.0 1.1 11.1 29.0 12.2 Fiscal Balance (% of GDP) -3.8 -2.6 -10.7 -7.4 -5.8 -4.0 Interest (% of Revenues) 3.5 2.6 3.3 4.6 9.7 11.7 FC Debt/Public Debt (%) 86.5 83.3 85.0 86.4 87.6 92.9 Government Debt (% of GDP) 40.1 53.1 62.4 86.0 130.0 126.1 Government Debt (% of Revenue) 148.0 162.1 178.0 261.8 268.0 229.6 Current Account (% of GDP) -44.7 -39.1 -34.4 -39.4 -36.7 -24.4 FDI (% of GDP) 37.1 38.6 29.1 26.1 29.1 64.4 External Debt (% of GDP) 34.5 42.4 48.1 50.6 84.0 88.4 Foreign Reserves/External Debt (%) 52.9 46.3 37.1 32.2 13.9 16.4 Foreign Reserves (Mo. of Imports) 2.7 3.0 3.1 2.7 2.0 2.5 18.3 19.6 17.8 16.3 11.7 14.5 Foreign Reserves (% of GDP) As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IMF, Haver Analytics, Lazard 739 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB- BB- B+ B+ B B B- 2000 2008 Moody’s S&P 2016 Fitch B- 2000 2008 Moody’s S&P 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 2200 1650 1100 550 0 2008 2010 Mozambique 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 740 Mozambique Strengths Economic Growth Mozambique has been among the most dynamic economies in the world since the end of its 15-year civil war in 1992. Around that time, the government started to adopt market-friendly policies and take advantage of natural resources. The left-wing government abandoned the state-led economic model and moved toward a market economy. Since 2010, the economy has grown at an average rate of 6.6%, which places it among the fastest-growing economies in the world. Going forward, this trend is likely to continue, with the economy expected to grow by 6.5% per year in 2017–2021, driven mainly by major mining and energy projects.2 Natural Resources Mozambique, like most Sub-Saharan African countries, is rich in natural resources, especially minerals and energy. It was not until very recently that coal and gas mega-projects started developing these resources. Mozambique is estimated to have the second-largest coal reserves in Africa, totaling 32 billion tons, and according to the IMF, Mozambique could become one of the largest producers of coal in the world, in particular in the Tete province and Zambezi area, where Vale and Rio Tinto are operating. Coal production is expected to total 41.8 million metric tons per annum (mtpa) by 2017, up from 6.3 mtpa in 2011. Most of this will be exported to China and India;3 however, this potential has not fully been explored due to both external factors, such as the fall in demand as China’s growth slows and declining prices as a consequence of the commodity shock in 2014–2015, and companies becoming more cautious and deciding to slow expansion plans. Internal factors including poor infrastructure also limit ongoing coal exploration and production. The potential in the energy sector is also significant as the private sector is making large investments that will allow Mozambique to become a significant gas producer in about a decade. Mozambique’s total recoverable resources are estimated at more than 100 trillion cubic feet, among the 10 largest in the world. The first liquid natural gas (LNG) export was expected for 2018 with an initial capacity of 20 million tons annually, and an investment of more than US$30 billion, according to the State Oil Company ENH.4 This has now been delayed to the end of the decade at the earliest as the drop in oil and gas prices created uncertainty regarding the project’s profitability.5 Final investment decisions (FIDs) for major LNG projects have been postponed many times. ENI is expected to make an FID on its first offshore LNG project by the end of 2016, while Anadarko Petroleum is expected to make an FID in 2017,6 delayed from initial expectations of the first quarter of 2016.7 Political Stability Mozambique has a relatively stable political environment despite tensions between the ruling party, Frelimo, and the opposition party, Renamo. The country has been ruled by Frelimo since independence and has had only four presidents: Joaquim Chissano from 1975 to 1986; Joaquim Alberto Chissano from 1986 to 2005; Armando Emilio Guebuza from 2005 to 2014; and the current president Felipe Nyusi, who won by a comfortable margin in the October 2014 election. The results were contested by the opposition, although this issue, which created fears of returning to civil war, ultimately came to a peaceful resolution.8 Despite sporadic bouts of violence, Frelimo and Renamo have maintained communications to overcome disagreements on a range of issues.9 We expect Frelimo to maintain tight economic and political control of the country. Nyusi is a close ally of former president Guebuza, who remains highly influential within the government as the president of Frelimo. 741 Lazard Emerging Markets Debt Weaknesses Lack of Transparency and Credibility In April 2016, the government of Mozambique announced the existence of US$1.4 billion of previously undisclosed loans, amounting to 10% of GDP. These loans include obligations undertaken by state-owned enterprise Pro-Indicus of US$633 million; Mozambique Asset Management Company of US$535 million, borrowed in 2013 and 2014; and bilateral loans of US$221 million.10 This revelation led the international donor community, which Mozambique relies on heavily, to suspend further budget support for 2016; the IMF also immediately suspended financial assistance. Debt Crisis and Bond Renegotiation The revelation of hidden loans has triggered a debt crisis. Mozambique started with a high debt level of 86% of GDP as of the end of 2015; hidden debt of US$1.4 billion (10% of 2015 GDP) brought debt levels to around 100% of GDP, and debt levels are expected to exceed 100% of GDP by year-end 2016 due to foreign currency (FX) depreciation. The IMF expects debt levels of 112% of GDP by 2016;11 however, the government of Mozambique indicated that debt could reach 130% of GDP12 and that the country is in “debt distress,” breaching all thresholds of debt sustainability. As a result, the government has indicated that it intends to negotiate the terms of the controversial Ematum bonds, which were issued in April 2016 after the government offered a swap to bondholders.13 Weak Public Finances with Contingent Liabilities The combination of a sudden withdrawal of IMF and international donor community financing has prompted the government to make substantial cuts in public expenditures, which are now estimated to be 25.9% GDP in 2016, down from 28% in 2015, as there is limited scope to increase revenues in the short term. As a result of these measures, the fiscal deficit is expected to be -5.8% in 2016. In addition to the limited capacity for fiscal adjustments, further downside risks stem from: (i) continued depreciation of the currency, as most debt is external, (ii) the weak financial position of SOEs, in particular: MCel, Mozambique Cellular; LAM, Mozambique Airlines; Petro Mozambique; and EDM, Electricidade de Moçambique, (iii) further delays in implementing fuel subsidy reforms; and (iv) weakness in the domestic banking sector that may entail government intervention.14 External Sector Mozambique’s external imbalances are larger than its fiscal imbalances. Mozambique has historically had a high current account deficit in the 40% of GDP range, reflecting competitiveness and structural problems. Like most African countries, Mozambique imports most of the products it consumes, and the country’s savings rate is relatively low. The IMF forecasts that the current account deficit will reach 146% of GDP by 2021 and average 91% in the period 2017–2021,15 reflecting the large import needs to develop LNG projects, as most of the financing of the current account deficit will be from FDI. 742 Mozambique Limited Infrastructure One of the main growth constraints is Mozambique’s poor infrastructure, especially roads, railroads, and ports. Most of the important mega-projects are in the northern part of the country, where there is essentially no infrastructure. This means that foreign companies developing the mega-projects are also investing large sums in infrastructure, including railways. For instance, Mozambique’s current rail capacity can move only 6 million mpta of coal, compared to the expected 41.8 million mpta expected to be produced by 2017, creating a major bottleneck in economic growth. The all-important Nacala corridor is expected to be operational in 2017 and will increase transportation capacity in 2018.16 Extensive Poverty Despite its economic success, Mozambique is one of the poorest countries in the world. GDP per capita before the debt crisis was US$626, among the lowest of emerging markets countries Lazard follows.17 After the economic crisis and the contraction in nominal GDP, GDP per capita is now even lower at US$387.18 Social indicators are also among the worst in the world, and on the 2015 Human Development Index, Mozambique ranks 180th out of 188 countries.19 This is a major concern as it could result in political instability. It also represents a major source of pressure on the fiscal accounts given the high demand for social spending, part of the reason the government will have a difficult time reducing the fiscal deficit. Economic Base The economy is not very diversified as agriculture represents about one-third of GDP and employs over half the population. Most agricultural production is used for personal consumption. Thus, like other African countries, Mozambique is vulnerable to weather conditions, and it experienced a drought in 2016. The expected recurrence of El Niño, which in the case of Mozambique results in drought during the rainy season of January to March, poses a risk to the country’s crops and may destabilize the food supply.20 The government is aware of the need to diversify and is working on a plan for a new Industrial Development Strategy21 while taking steps to improve the ease of doing business, which currently ranks 137th out of 190 in the 2015 Doing Business Index.22 Risk of Civil War Tension between the ruling Frelimo party and the opposition party, Renamo, decreased after a new peace agreement was signed in mid-August 2014.23 This ended a two-year conflict after sporadic fighting between Renamo and the army.24 Both Frelimo and Renamo fought during the civil war from 1976 to 1992, when a peace agreement was signed. Since then, the influence and popularity of Renamo has declined substantially. The risk of a new civil war is generally considered minimal as people want to avoid another civil war. Additionally, Renamo does not have international support. Renamo has shifted its agenda toward autonomy in six mineral rich provinces: Manica, Nampula, Niassa, Sofala, Tete, and Zambezia.25 The latest incidents of targeted killings and abductions among the major parties are unlikely to result in an escalation on the same scale as experienced in 2013–2014.26 743 Lazard Emerging Markets Debt Country Background Size 799,380 KM2 (35th) Capital Maputo Population 25.9 Million Ethnic Groups African 99.66% Religion Roman Catholic 28.4%, Muslim 17.9%, Protestant 12.2% Median Age 17.1 Years Literacy Rate 58.8% Government Republic Chief of State, President Filipe Jacinto Nyusi Head of Government Prime Minister Alberto Clementino Vaquina Elections 2019 Legislative Branch 250 Seats (Frelimo 144, Renamo 89) Economy Agriculture 25.5%, Industry 20.1%, Service 54.4% Labor Force Agriculture 81%, Industry 6%, Service 13% Merchandise Exports Aluminum and Prawns Export Partners South Africa 24.9%, China 10.2%, Italy 8.9%, India 8.9%, Belgium 7.9%, Spain 4.4% Currency Meticais (MZM) As of November 2016 Source: CIA 744 Mozambique Country Timeline 1932 Portugal breaks up trading companies and imposes direct rule over colony. 1950s60s Colonial economy thrives, attracting thousands of new Portuguese settlers to Mozambique. 1962 Exiled activists opposed to Portuguese colonial power meet in Tanzania to form Mozambique Liberation Front - Frelimo - headed by Eduardo Mondlane. 1964 Frelimo forces begin war of independence. Guerrilla tactics frustrate Portuguese and Frelimo take control of much of north. 1974 Military coup in Portugal. New government supports autonomy for colonies; start of departure of 250,000 Portuguese inhabitants. 1974 Portugal and Frelimo sign Lusaka Accord; transitional government is established. 1975 Mozambique becomes independent. Frelimo rules under single-party system with leader Samora Machel as president. 1976 Lourenco Marques is renamed Maputo. 1976 Renamo - an anti-Frelimo resistance group - is set up by white Rhodesian officers as clashes with Frelimo forces escalate and Mozambique imposes economic sanctions against Rhodesia. 1977 Frelimo adopts Marxist-Leninist doctrine. Multi-party politics 1990 Government amends the constitution to allow a multi-party political system. Initial talks take place between government and Renamo. 1992 President Chissano and Renamo leader Afonso Dhaklama sign peace deal in Rome. 1995 Mozambique becomes Commonwealth member. 1999 December—Chissano defeats Renamo's Dhlakama in presidential elections. 2000 February—Devastating floods sweep through south of country, forcing tens of thousands to flee and leaving trail of destruction. 2000 November—More then 40 people killed in rioting at Renamo protests against 1999 elections. Renamo claims poll was rigged; international observers say election was free and fair. 2000 November—82 inmates die at prison in north, many of them Renamo supporters rounded up after election riots. Preliminary report suggests asphyxiation owing to overcrowding as cause. 2001 March—Flooding in Zambezi Valley displaces around 70,000 people. Two upstream dams forced to open flood gates, releasing huge volumes of water into river. 2002 June—Frelimo chooses independence struggle veteran Armando Guebuza as candidate for 2004 presidential elections; Chissano had declined to run for third term. 2002 November—Two defendants in murder trial allege that son of President Chissano is linked to 2000 killing of journalist Carlos Cardoso. Nymphine Chissano denies knowledge of murder. 2003 November—Brazil promises to build plant in Mozambique to produce anti-retroviral drugs for HIV-Aids sufferers.Guebuza as president 2005 February—Frelimo's Armando Guebuza inaugurated as president after defeating his main rival, Afonso Dhlakama of Renamo, in November's presidential poll. 2005 October—Work starts on a long-planned "Unity Bridge" over the Ruvuma river, intended to link Mozambique and neighbouring Tanzania. 2006 July—The World Bank cancels most of Mozambique's debt under a plan promoted by the G8 nations. 2007 February—Chinese President Hu Jintao visits, promises interest-free loans for agriculture, health and education. 2007 March—Three days of mourning are declared after nearly 100 people are killed in an explosion at an arms depot in the capital. 745 Lazard Emerging Markets Debt 2008 January—More than 50,000 people displaced by flooding along the Zambezi valley. 2008 May—Government begins voluntary repatriation of citizens in the wake of xenophobic violence in South Africa targeting African migrants. Thousands of Mozambican legal workers in South Africa are said to have fled the country. 2009 January—UN says 350,000 people in Mozambique are in need of food aid as a result of poor harvests caused by poor rainfall. 2009 October—The government announces a $500M loan from the European Union and Danish and Dutch governments to build a railway line to link the coal-rich northern Moatize mines to the port of Nacala by 2015. President Guebuza wins re-election with more than 75% of the vote. Main opposition Renamo party alleges widespread fraud, while monitors accuse election commission of lacking independence. 2010 February—Former minister Antonio Munguambe sentenced to 20 years in prison for embezzling $1.7M in state funds, in the highest-level corruption conviction since 1975. 2010 September—Food price protests. Several people killed when police open fire. 2010 October—Diplomatic row with Malawi over new waterway connecting land-locked Malawi with Mozambican coast. Mozambique impounds first barge to use new route. 2010 December—Mozambique has become a leading drug trafficking centre, with senior figures turning a blind eye, according to classified US documents released on WikiLeaks. 2011 October—Italian energy company Eni says it's made a giant gas discovery off the coast. 2012 February—South Africa deploys troops along the border to combat rhino poaching. 2012 March—Police raid a camp housing 300 supporters of the opposition Renamo movement who had allegedly been waiting for orders to stage anti-government protests. 2012 February—South Africa deploys troops along the border to combat rhino poaching. 2012 March—Police raid a camp housing 300 supporters of the opposition Renamo movement who had allegedly been waiting for orders to stage anti-government protests. 2012 April—Portugal agrees to give up its remaining stake in the Cahora Bassa hydro-electric scheme, ending a long-running dispute. 2013 June—Tension flares between authorities and opposition Renamo, prompting fears of a return to civil war. 2013 February—Campaign group Environmental Investigation Agency says half of Mozambican timber exports to China come from illegal logging. 2013 October—Renamo says it is pulling out of the 1992 peace deal after the army seizes a base belonging to the opposition movement's leader, Afonso Dhlakama. 2013 November—Protesters in Maputo, Beira and Quelimane demonstrate against kidnappings, and against clashes involving government troops and members of Renamo. 2013 January—Hundreds flee fighting between government forces and Renamo rebels in the south district of Homoine. 2013 April—South Africa and Mozambique sign an agreement aimed at saving the endangered rhino. 2013 May—A judge investigating a wave of kidnappings is shot dead. 2013 September—Renamo leader Afonso Dhlakama emerges from hiding to sign a peace agreement with President Guebuza, ending a two-year insurgency. Mr Dhlakama says he is running for president. 2013 October—The ruling Frelimo party and its candidate Filipe Nyusi win presidential and legislative elections. 2014 January—Renamo boycotts opening of parliament in protest at last October's election results and threatens to form a parallel government. 2016 April—IMF as well as several donors suspend funding after it was discovered the government had failed to disclose debts of more than a billion dollars. Source: BBC 746 Mozambique Notes 1 As of December 2016. 2 “IMF WEO Outlook October 2016 data. 3 “Mining: Mozambique,” KPMG, Country Mining Guide, 2013, accessed on October 23, 2015, https:// www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/mining-country-guides/Documents/ Mozambique-mining-country-guide.pdf. 4 Mucari, Manuel, “Mozambique sees $30 bln investment for 2018 LNG exports startup,” Reuters, August 21, 2014, accessed on October 22, 2015, http://www.reuters.com/article/2014/08/21/mozambique-gasidUSL5N0QR49C20140821. 5 “Anadarko says pushing ahead with Mozambique LNG plans,” Hellenic Shipping News Worldwide, October 22, 2105, accessed on October 22, 2015, http://www.hellenicshippingnews.com/anadarko-says-pushingahead-with-mozambique-lng-plans/. 6 Eni Will Likely Make Decision On Mozambique LNG Project In 2016, http://www.epmag.com/eni-will-likelymake-decision-mozambique-lng-project-2016-1405656, accessed November 27, 2016. 7 “Mozambique Projected Investment In Oil And Gas Deals Hit $31b,” Footprint to Africa, October 23, 2015, accessed on October 23, 2015, http://footprint2africa.com/mozambique-projected-investment-in-oil-and-gasdeals-hit-31b/. 8 Manning, Carrie, “Conflict Fears Fade in Mozambique, but Renamo’s Demands Do Not,” World Politics Review, May 26, 2015, accessed on October 23, 2015, http://www.worldpoliticsreview.com/articles/15846/ conflict-fears-fade-in-mozambique-but-renamo-s-demands-do-not. 9 http://www.reuters.com/article/us-mozambique-renamo-talks-idUSKCN12J294, accessed November 27, 2016. 10https://www.ft.com/content/5e08b9b2-0dec-11e6-b41f-0beb7e589515, accessed November 27, 2016. 11“IMF WEO Outlook, October 2016 data. 12Government of Mozambique – Presentation to Creditors, October 2016. 13Mozambique Readies Eurobond as Tuna Investors Agree to Swap, April 2016 http://www.bloomberg.com/ news/articles/2016-04-01/mozambique-to-issue-sovereign-bond-as-tuna-investors-accept-swap, accessed November 27, 2016. 14Government of Mozambique – Presentation to Creditors, October 2016. 15IMF WEO Outlook October 2016 data. 16http://allafrica.com/stories/201609100385.html, accessed November 27, 2016. 17As of November 27, 2016. 18IMF WEO Outlook Data, October 2016. 19“Human Development Report,” United Nations, 2014, accessed on October 23, 2015, http://hdr.undp.org/ en/statistics/data/. 20“Mozambique: Substantial El Nino Predicted,” All Africa, May 12, 2015, accessed on October 23, 2015, http://allafrica.com/stories/201505130133.html. 21“Mozambique Industrialisation strategy to be launched,” Infrastructure Development Management Ltd, June 26, 2015, accessed on October 23, 2015. http://infra-ltd.blogspot.com/2015/06/mozambique-industrialisation-strategy.html. 22“28 top priorities to improve the ease of doing business in Mozambique,” TRALAC.org, August 14, 2015, accessed on October 23, 2015, http://www.tralac.org/news/article/7895-28-top-priorities-to-improve-theease-of-doing-business-in-mozambique.html. “Economy Rankings,” World Bank, accessed on November 27, 2016, http://www.doingbusiness.org/rankings. 23“Mozambique’s Government and Renamo Sign Truce,” Al Jazeera, August 25, 2014, accessed on October 1, 2014, http://www.aljazeera.com/news/africa/2014/08/mozambique-rebels-government-signtruce-201482563950966537.html. 24“Mozambique election campaign kicks off after ceasefire,” Business Day, August 31, 2014, accessed on October 1, 2014, http://www.bdlive.co.za/africa/africannews/2014/08/31/mozambique-election-campaignkicks-off-after-ceasefire? 25Besseling, Robert, “Mozambique rejects autonomy bill, final deal with opposition likely in 2015,” HIS Jane, May 4, 2015, accessed on October 23, 2015, http://www.janes.com/article/51146/mozambique-rejectsautonomy-bill-final-deal-with-opposition-likely-in-2015. 26“http://www.janes.com/article/65549/targeted-killings-likely-to-delay-mozambican-peace-negotiations-byover-six-months-but-deal-likely-eventually, accessed November 27, 2016. 747 Lazard Emerging Markets Debt 748 Namibia Summary Moody’s Baa3 / S&P NR / Fitch BBB-1 Economy: Agriculture 6%, Industry 29%, Services 65% Namibia benefits from strong fundamentals and growth potential, but faces major social problems and a lack of skilled labor. While the economic outlook remains positive, Namibia continues to face social problems similar to South Africa, with a legacy of apartheid. GDP could grow at approximately 4.7% per year in the medium term given the large number of mining, energy and construction projects in the pipeline. However, Namibia has a very high unemployment rate and the world's third-worst income distribution.2 Namibia is also dependent on transfers from South Africa through the South African Communications Union (SACU), which could pose a fiscal risk as South Africa’s conditions deteriorate. Additionally, drought continues to negatively impact the agricultural sector. Economic Indicators Population (Millions) GDP per Capita (USD) Nominal GDP (USD Billions) 2012 2013 2014 2015 2016F 2.2 2.2 2.2 2.3 2.3 2017F 2.3 6,040 5,792 5,748 5,040 4,427 4,702 13.0 12.7 12.9 11.5 10.2 10.9 Real GDP (%) 5.1 5.7 6.5 5.3 4.2 5.3 Year-End CPI (%) 6.4 4.9 4.6 3.7 7.3 6.0 Fiscal Balance (% of GDP) -2.3 -3.2 -5.9 -8.1 -9.2 -8.3 Interest (% of Revenues) 4.3 4.2 4.1 4.8 8.9 10.5 FC Debt/Public Debt (%) 33.8 32.2 33.3 35.1 36.4 36.0 Government Debt (% of GDP) 23.4 23.2 23.6 33.7 42.0 46.9 Government Debt (% of Revenue) 74.2 72.0 69.5 98.6 137.1 153.9 Current Account (% of GDP) -5.7 -4.0 -10.7 -12.9 -12.5 -6.9 FDI (% of GDP) 8.8 6.4 4.7 6.7 11.3 8.3 External Debt (% of GDP) 35.6 38.4 40.4 47.2 48.6 49.0 Foreign Reserves/External Debt (%) 38.3 31.2 23.5 19.9 21.1 20.7 Foreign Reserves (Mo. of Imports) 2.8 2.2 1.8 1.5 1.5 1.6 13.6 12.0 9.5 9.4 10.3 10.1 Foreign Reserves (% of GDP) As of November 2016 Forecasted or predicted data is not a promise or guarantee of actual results and is subject to change. Source: IMF, Ministry of Finance, Bank of Namibia, Haver Analytics, Lazard 749 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BBB BBB BBB- BBB- BB+ 2000 2008 Moody’s 2016 BB+ 2000 2008 Moody's Fitch 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 1000 800 600 400 200 0 2008 Namibia 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 750 Namibia Strengths Economic Growth/Natural Resources Namibia’s economy benefits from a relatively high grow rate, averaging 5.4% in 2010–2016, and the economy is expected to grow at an average rate of 4.7% in 2017–2021.3 The mining, tourism, and financial sectors will remain the backbone of the economy, and oil could also become an important source of growth; Namibia could become the fifth-largest oil producer in Africa after Egypt, Nigeria, Algeria, and Angola. Namibia has many geographic similarities to the Brazilian coastal shelf, leading private sector analysts to believe that there are large oil reserves. Major international oil companies such as Repsol and Petrobras are in the exploration phase, although these firms have had limited success so far.4 Additionally, important uranium, gold, zinc, gas, and oil projects should help sustain growth in the medium term. For example, uranium production is expected to triple by 2017 as the most important uranium project, Husab, reaches its full capacity in 2017; the mine is expected to produce 15 million pounds per annum,5 generating the equivalent of 20% of total exports, or 5% of GDP,6 and would make Namibia the world’s third-largest uranium producer. The primary problems with these projects are that most of them are energy intensive and require large amounts of water; the country faces shortages of both these resources. The government is working to resolve both problems, but this may take years due to execution challenges. As a result, some mining mega-projects might be delayed. To reduce energy dependency on neighboring countries, the government plans to exploit offshore gas reserves to generate electricity. To deal with water shortages, Namibia is building a desalinization plant to supply water to mining companies as most of the country is desert. Infrastructure Namibia’s infrastructure is among the best in Sub-Saharan Africa, with good roads, ports, trains, and airports—unlike most Sub-Saharan countries. South Africa, for example, relies on Namibia’s ports to export some of its products. The government is expanding the current port, as well as improving and/or building highways and railroads. In addition, the government is embarking on a plan to build 185,000 units of much-needed subsidized public housing between 2015 and 2030 that is expected to cost $45 billion Namibian dollars, the largest-ever project of its type,7 although the scope of the project has since been reduced. The government is also upgrading infrastructure to improve trade with Angola and Zimbabwe. As mentioned above, Namibia faces a shortage of electricity and water and needs major improvements in these areas as they are a bottleneck for the economy. As a temporary measure, the government has considered using barges with power plants to help reduce the electricity shortfall, which may reach as much as 300 megawatts.8 Political Stability with Policy Continuity Namibia maintains political stability and policy continuity, which is another area of strength for the country. The South West Africa People’s Organization (SWAPO) has ruled since independence in 1990, and in the last election held in November 2014, SWAPO candidate Hage Geingob won the elections with nearly 87% of the votes,9 the largest margin of victory in Namibian history. SWAPO controls two-thirds of the 96 seat-legislature. SWAPO is similar to the African National Congress (ANC) in South Africa. Both parties’ economic policies are a balance of orthodox economic policies and large state companies. The major difference is that unlike ANC, SWAPO does not seem to be as deeply divided between those in favor of orthodox policies and those against. In his inaugural speech, Mr. Geingbo indicated that 751 Lazard Emerging Markets Debt he will focus on fighting poverty and reducing income inequality. The next presidential and parliamentary elections are scheduled for 2019. Macro-Stability from Membership in a Common Monetary Area Namibia gained independence from South Africa in 1990, but given its historically strong economic relationship with South Africa, it opted to remain a member of the common monetary area (CMA), whereby South Africa sets monetary and exchange-rate policies. This formal agreement involves: (i) a commitment by the Bank of Namibia to exchange the Namibian dollar at a fixed exchange rate of 1-to-1 to the South African rand and (ii) an explicit requirement that at least a major proportion of the Bank of Namibia’s liabilities are backed by reserve currency or other reserve assets. Over the years, this CMA arrangement has provided not only macro-stability, but also credibility for fiscal prudence in Namibia. In return for subordinating monetary policy and the exchange rate as macroeconomic tools, Namibia has benefited from price stability as its inflation rate tends to mirror that of South Africa, which currently has a target band of 3% to 6%. While this arrangement provides structural strength, we note that the economic weakness of South Africa also has negative spillover effects on Namibia. Good Institutions For a country that is barely 26 years old, Namibia has made significant progress creating effective national institutions and establishing rule of law, transparency, and good governance. A combination of sound economic management and expenses constrained by its ability to earn hard currency (the rand) has led to a more prudent and conservative approach to fiscal management. For instance, the country has targets and limits, such as an expenditure-to-GDP of less than 40%, and a debt-to-GDP of less than 35%, although continued adherence to these limits and Namibia’s “true” fiscal discipline will be better tested as the country approaches those limits. Namibia also ranks quite high in Transparency International’s 2015 Corruption Perception Index at 45th out of 168 countries. Weaknesses Social, Health, and Demographic Limitations on Economic Development From an economic development perspective, Namibia still faces challenges that constrain economic growth potential. It is an arid country that is the least densely populated in Africa (and second in the world after Mongolia), with a small population of only 2.3 million people. Despite having the second-largest per capita health expenditure after South Africa and health indicators that are much better than other Sub-Saharan African countries, a significant proportion of the population is exposed to HIV/AIDS, which is the leading cause of death in the country. Tuberculosis is also a serious health problem. On the economic front, poverty levels remain elevated, with 28% of the population living below the poverty line,10 and an unemployment rate of 28% in 2014, the latest figure available.11 Finally, as a result of the apartheid system, income inequality is among the highest in the world, with a Gini coefficient of 63.9, and generally whites are better-off economically than blacks. Whites still control close to 50% of the land, even though they make up less than 10% of the population.12 Blacks tend to live in remote areas, which limits access to education and employment. The government has been spending heavily on social programs, but with little success. Despite poor social conditions and high income inequality, the country has not experienced political or ethnic violence like 752 Namibia other countries. Namibia only briefly faced problems in the Caprivi region, which wanted independence in the late 1990s. Taken in the aggregate, these long-term structural challenges hinder Namibia’s ability to make substantial economic progress and implement the social transformation that the government aspires to. In early 2016, President Hage Geingob announced a major reform under the New Equitable Economic Empowerment Framework (NEEF) that was intended to make society more inclusive, but the program has had mixed results; for instance, it seeks in its draft form that white businesses sell a mandatory 25% share to the black population, a decision that has been strongly opposed13 and has caused unease and uncertainty in the business community. Dual Economy Susceptible to Climate Risk While the country has experienced high economic growth, there is a sharp contrast between the prosperity of the mining sector and the level of poverty among the population at large. The mining sector is a productive, capital-intensive, export-oriented industry that requires few laborers, in sharp contrast to the labor-intensive agricultural sector. It is estimated that 80% of Namibia’s rural population (about 51% of the total population) engages in subsistence farming, which accounts for only 4%–5% of GDP. Namibia is highly vulnerable to weather shocks (floods and droughts) and because it is one of the driest countries in SubSaharan Africa, the livelihood of a large number of Namibians depends on favorable weather conditions. As such, the country is best viewed as a dual economy: one sector that is externally focused and depends on world markets, and another that is a less productive domestic economy vulnerable to weather conditions. In 2016, Namibia experienced its worst drought in over 25 years, negatively impacting the agriculture and livestock sector. Lack of Diversification The country needs to diversify in terms of products and markets to expand its economy. Namibia is heavily dependent on the mining industry, making it vulnerable to commodity price fluctuations, especially uranium. Additionally, mining is not a labor-intensive sector either, which limits employment opportunities. Namibia also is heavily dependent on South Africa, its main trade partner, accounting for 60% of imports and 18% of exports.14 753 Lazard Emerging Markets Debt Country Background Size 824,292 KM2 (34th) Capital Windhoek Population 2.4 Million Ethnic Groups Black 87.5% White 6.0%, Mixed 6.5% Religion Christian 80%–90% Median Age 21 Years Literacy Rate 81.9% Independence March 21, 1990 Political System Republic Presidents Hage Geingob Presidential Election 2019 Legislative Branch Bicameral Legislature, National Council 26 Seats, National Assembly 72 Seat Economy Agriculture 5.9%, Industry 29.0%, Service 65.1% Labor Force Agriculture 16.3%, Industry 22.4%, Service 61.3% Merchandise Exports Diamonds, Copper, Gold, Zinc, Lead, Uranium, Cattle Export Partners N/A Currency Namibian Dollars (NAD) As of November 2016 Source: CIA 754 Namibia Country Timeline Independence 1990 March—Namibia becomes independent, with Sam Nujoma as first president. 1994 South African exclave of Walvis Bay turned over to Namibia. 1994 Nujoma and Swapo re-elected. 1998 Hundreds of residents of the Caprivi Strip flee to Botswana, alleging persecution by the Namibian government. 1998 August—Namibia, Angola and Zimbabwe send troops to the Democratic Republic of Congo to support President Laurent Kabila against rebels. 1999 August—Emergency declared in Caprivi Strip following series of attacks by separatists. 1999 December—Nujoma wins third presidential term. 1999 December—World Court rules in favour of Botswana in territorial dispute with Namibia over the tiny Chobe River island of Sedudu—known as Kasikili by Namibians. 2001 November—President Nujoma says he will not stand for a fourth term when his presidency expires in 2004. 2002 August—New prime minister, Theo-Ben Gurirab, says land reform is a priority. President Nujoma says white farmers must embrace the reform programme. 2003 November—Union representing black farmworkers calls off plans to invade 15 white-owned farms after reaching agreement with white farmers' group. Government says illegal land occupations will not be allowed. 2004 May—Road bridge across Zambezi river between Namibia, Zambia opens amid hopes for boost to regional trade. 2004 August—Germany offers formal apology for colonial-era killings of tens of thousands of ethnic Hereros, but rules out compensation for victims' descendants. 2004 November—Hifikepunye Pohamba, President Nujoma's nominee, wins presidential elections. He is inaugurated in March 2005. 2005 September—Government begins the expropriation of white-owned farms as part of a landreform programme. 2005 November—Two mass graves are found near a former South African military base in the north. They are thought to date back to the apartheid-era independence struggle. 2006 June—National anti-polio vaccination campaign is launched following the death of at least 12 people from the disease. 2007 February—Chinese President Hu Jintao visits, signs aid and economic co-operation agreements. 2007 July—Controversy as a local rights group asks the International Criminal Court (ICC) to investigate ex-president Sam Nujoma over the death of thousands during the independence struggle. 2007 August—Ten men are found guilty of treason for leading a secessionist rebellion in the Caprivi region and are given long prison terms. 2009 November—Presidential and parliamentary polls. President Pohamba and his ruling Swapo party re-elected. 2011 February—High Court dismisses legal challenge by nine opposition parties claiming irregularities in the 2009 parliamentary election. 2011 July—Mines and Energy Minister Isak Katali says Nambia has found an estimated 11bn barrels of offshore oil reserves. 755 Lazard Emerging Markets Debt Independence 2011 October—Skulls of 20 Herero and Nama people repatriated from a museum in Germany to a welcome from hundreds of descendants. 2014 August—A protester is shot and killed by police during a rare occurrence of political violence. 2014 November—A Mozambican Airlines plane crashes in Namibia, killing 33 people on board. Investigators believe the pilot intentionally caused the crash. 2015 March—Namibia’s outgoing president, Hifikepunye Pohamba, is awarded the five million dollar Mo Ibrahim prize for African leadership. The award is given to an elected leader who governs well, raises living standards and then leaves office. Source: BBC Notes 1 2 3 4 As of December 2016. http://hdr.undp.org/en/content/income-gini-coefficient, accessed on September 23, 2015. “IMF WEO Data, October 2016. “Repsol in Namibia,” Repsol, accessed on September 23, 2015, http://www.repsol.com/es_en/corporacion/ conocer-repsol/repsol-en-el-mundo/namibia.aspx. 5 “Namibia’s new uranium mine to triple country’s output by 2017,” http://www.mining.com/namibias-newuranium-mine-triple-countrys-output-2017/, accessed November 26, 2016. 6 “Namibia: Husab Could Contribute Up to N$1.7 Billion Yearly to State Revenue,” All Africa, August 31, 2015, accessed on September 22, 2015, http://allafrica.com/stories/201508311530.html. 7 “Namibia Launces Massive Housing Scheme,” News24, December 5, 2015, accessed on September 23, 2015, http://www.news24.com/Africa/News/Namibia-launches-massive-housing-scheme-20141205. 8 Seria, Nasreen, “Namibia Exploring Barge Option to Plug Electricity Deficit,” Bloomberg Business, June 8, 2015, accessed on September 23, 2015, http://www.bloomberg.com/news/articles/2015-06-08/namibiaexploring-barge-option-to-plug-power-gap-minister-says. 9 “Namibia Prime Minister Hage Geingob is New President,” DW.com, December 1, 2014, accessed on September on 22, 2015, http://www.dw.com/en/namibia-prime-minister-hage-geingob-is-newpresident/a-18104730. 10http://data.worldbank.org/country/namibia. 11Namibia Statistics Agency, 2015. Namibia Labour Force Survey 2014 Report. Namibia Statistics Agency, Windhoek, http://www.ilo.org/wcmsp5/groups/public/---africa/---ro-addis_ababa/---ilo-pretoria/documents/ publication/wcms_368595.pdf. 12“Namibia’s Land Issue,” Seen Environmental Learning, accessed on December 7, 2013, http://www. nied.edu.na/divisions/projects/SEEN/SEEN%20Publications/Environmental%20Information%20Sheets/ Society%20and%20Governance/5.%20Namibia’s%20Land%20Issue.pdf. 13“Namibia: 25 Percent Neeef Clause Rethink,” http://allafrica.com/stories/201611110529.html, accessed November 26, 2016. 14Bank of Namibia Quarterly Bulleting – September 2016 https://www.bon.com.na/CMSTemplates/Bon/Files/ bon.com.na/e1/e1020419-0265-4b90-9b5e-a105c5ebd605.pdf, accessed November 26, 2016. 756 Nigeria Summary Moody’s B1 / S&P B / Fitch B+1 Economy: Agriculture 21%, Industry 20%, Services 59% Nigeria is the largest country in Africa by population, and its large and resilient economy generates significant domestic demand. Oil is an important driver of economic activity given the sector’s importance to Nigeria’s external and fiscal accounts. However, the services and agriculture sectors have also been key drivers of growth. Nigeria’s debt dynamics are among the best in emerging markets, with low public debt stock, historically moderate fiscal deficits, and fast economic growth. Notwithstanding poor transparency and corruption, macroeconomic policies have improved in recent years. However, since mid-2014, the government has been struggling to deal with the collapse in global oil prices, which has weighed on the country’s economic activity, fiscal balance, and external balance. President Muhammadu Buhari, who took office in May 2015, has been struggling to manage the economic pressures resulting from the decline in oil prices, as well as ongoing attacks on Nigeria’s oil infrastructure by a militant group demanding the creation of an independent state in the Niger Delta region. Economic Indicators 2012 2013 2014 2015 2016F 2017F Population (Millions) 164.8 169.3 173.9 178.7 183.6 188.7 GDP per Capita (USD) 2,740 2,971 3,100 2,664 2,236 1,867 Nominal GDP (USD Billions) 451.5 503.0 539.1 476.2 410.6 352.4 4.2 5.5 6.2 2.8 -1.1 2.5 Year-End CPI (%) 12.0 8.0 8.0 9.6 15.6 12.6 Fiscal Balance (% of GDP) -0.2 -2.0 -1.2 -3.8 -3.2 -2.7 Interest (% of Revenues) 7.0 8.9 9.4 16.6 13.9 13.4 FC Debt/Public Debt (%) 11.3 13.8 14.6 16.8 19.6 19.4 Government Debt (% of GDP) 12.7 12.6 12.6 13.4 15.1 15.5 Government Debt (% of Revenue) 90.4 111.6 121.0 206.4 264.7 218.7 Current Account (% of GDP) 4.2 4.0 0.2 -3.2 -3.2 -2.3 FDI (% of GDP) 1.2 0.9 0.6 0.3 0.9 1.4 External Debt (% of GDP) 7.1 6.5 7.9 10.0 10.5 10.3 Foreign Reserves/External Debt (%) 136.7 Real GDP (%) 131.1 80.4 59.4 55.6 53.4 Foreign Reserves (Mo. of Imports) 6.8 7.0 4.8 4.7 5.1 3.9 Foreign Reserves (% of GDP) 9.7 8.5 6.4 5.9 5.8 5.5 As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: Central Bank of Nigeria, IMF, Haver Analytics, Lazard 757 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB BB+ BB BBBBB+ B+ B 2000 2008 Moody’s 2016 S&P Fitch B 2000 2008 Moody’s S&P 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 1000 800 600 400 200 0 2008 Nigeria 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 758 Nigeria Strengths Large and Resilient Economy with Domestic Support After a rebasing of its national accounts in April 2014, Nigeria is the largest economy in Africa and among the 30 largest in the world.2 The economy has consistently delivered annual growth of about 5%, even during the global financial crisis and the subsequent collapse of global oil prices, because Nigeria’s economy is also driven by its sizable non-oil agriculture and services sectors. Nigeria’s high growth rates have improved the country’s debt dynamics, with public debt-to-GDP amounting to about 15% despite fiscal deterioration in recent years. Growth slowed to less than 3% in 2015 and is projected to contract slightly in 2016 due the sharp decline in oil prices, but economic activity is expected to gradually recover over the forecast horizon, fueled by domestic demand.3 Nigeria is still a relatively closed economy with exports and imports totaling only about 25% of GDP,4 but the country’s population is the largest in Africa, totaling nearly 190 million with an average age of 18 years, boosting the potential for middle-income growth. Significant Oil Sector Nigeria is rich in natural resources, especially oil and gas. The country is the biggest oil producer in Africa, with output of around 2.4 million barrels per day (bpd), and has among the largest reserves on the continent, with 37.1 billion barrels of proven oil reserves.5 Nigeria also has the ninth-largest stock of natural gas reserves in the world, although a large share of gas production is flared, which results in a significant loss of revenues.6 The government is currently reforming the state oil company, Nigerian National Petroleum Corporation, which could help to improve efficiencies in the medium term. More immediately, however, oil theft is a growing problem, with estimates of at least 400,000 barrels lost each day.7 In addition, Nigeria’s oil infrastructure has come under attack by various militant groups in recent years, including Boko Haram and the separatist group Niger Delta Avengers. Pipeline attacks, piracy, and theft have caused oil output to fall below budgeted levels in recent years. High Degree of Solvency Nigeria has one of the lowest public debt burdens in the world. Public debt-to-GDP is expected to amount to about 15% of GDP at year-end 2016, and only about 20% of this amount will be denominated in foreign currencies. Taking into account the government’s savings of roughly US$1.0 billion in its three sovereign wealth funds, net public debt is even lower. Prior to the fiscal deterioration that intensified in 2015, nominal growth rates of about 12%, average interest rates of around 3%, and small fiscal deficits resulted in favorable debt dynamics and enhanced Nigeria’s ability to service its debt despite widespread corruption. The fiscal deficit has increased in recent years but has not exceeded 4% of GDP, owing to the government’s commitment to fiscal discipline within the parameters of Nigeria’s weak institutions, corruption, and complex fiscal accounting. 759 Lazard Emerging Markets Debt Weaknesses Lack of Transparency Nigeria’s weaknesses in terms of governance and institutional quality are notorious and manifest themselves in both the fiscal and external accounts. On the fiscal side, the government only reliably and frequently reports data at the federal level, which only accounts for some 40% of revenues.8 Data for local governments and various extra-budgetary funds are not available and, by some accounts, even the finance ministry lacks a full grasp of the country’s fiscal accounts. Moreover, extra-budgetary funds are subject to conflicts between the federal and local governments as well as special interest groups. On the external side, errors and omissions are larger than the current account deficit.9 Security Issues Nigeria faces two main security problems. The first affects oil output in the Niger Delta, where various militant groups have laid siege to the country’s oil infrastructure since the early 2000s. In 2009, the government extended amnesty to 30,000 militants in the region, and President Buhari extended the amnesty after taking office in May 2015. Nevertheless, pipeline attacks and oil theft have continued and, in fact, intensified in 2016 with the rise of the separatist Niger Delta Avengers. Ongoing attacks have forced some international oil companies to declare force majeure in recent years and have brought oil output to 30-year lows.10 Widespread unemployment and poverty have contributed to the growth of lucrative oil-theft activities in Nigeria. The other security issue is the increasing presence and activity of Boko Haram, an Islamist fundamentalist group that operates mostly in the north of the country. Although combating Boko Haram is at the top of the government’s agenda, increasing violence from this group has disrupted agricultural and trade activity. Exposure to Oil Although Nigeria’s economy is reasonably diversified for a major oil producer, it is also among the emerging markets most exposed to oil in terms of exports (92%) and fiscal revenues (47%).11 Given Nigeria’s heavily managed exchange-rate regime and a commitment to fiscal consolidation, this oil dependence leaves the authorities with less room for adjustment than in the past. The country will remain vulnerable to oil price shocks without a structural improvement in output. The last oil shock in 2009 was met with a maxi-devaluation (with the Nigerian naira depreciation peaking at 33%), a full depletion of the oil fund (US$20 billion), a 16% of GDP deterioration in the fiscal position, and the halving of the current account surplus.12 Low oil prices since mid-2014 have also resulted in major economic pressures, particularly in the external accounts, that forced the government to devalue the naira again in June 2016. Despite the currency adjustment, the government has been reluctant to allow the naira to trade freely, with capital controls and intervention maintaining the currency at an artificially high level. 760 Nigeria High External Liquidity Nigeria’s external position is no longer as strong as in the past—the decline in oil prices has resulted in a deterioration of the current account from large surpluses equal to more than 4% of GDP to deficits of more than 3% in 2015 and 2016. The government had difficulty financing the deficit but resisted an exchange-rate adjustment, which caused foreign exchange reserves to fall to US$26.4 billion by the time of the naira devaluation in June 2016 from US$43.6 billion at the end of 2013. As of October 2016, reserves had fallen below US$24 billion, owing to the central bank’s continued intervention. Still, reserves amount to about half of the country’s total stock of public and private external debt and are equal to about six months of imports.13 The government has adopted capital controls in an attempt to prevent further loss of foreign reserves, but these measures are adding to Nigeria’s economic distortions. Lack of Infrastructure Nigeria’s poor infrastructure is another weakness, with roads, railways, ports, airports, and electricity facilities in need of major investment. The government is attempting to address this weakness but with little success. Electricity generation is the primary focus of the government, since about half the population does not have access to power. Frequent power shortages force many companies to operate their own power generators. According to a World Bank study, Nigeria experiences power outages during an average 46 days per year.14 The government recently privatized the power generation sector, but further progress is needed to improve the sector’s capacity. 761 Lazard Emerging Markets Debt Country Background Size 923,768 KM2 (32nd) Capital Abuja Population 186.1 Million Ethnic Groups Fulani 29%, Hausa 21%, Yoruba 21%, LGBO 18%, Other 32% Religion Muslim 50%, Christian 40%, Other 10% Median Age 18.3 Years Literacy Rate 59.6% Independence October 1960 Political System Federal Republic Presidents Muhammadu Buhari (CPC) Legislative Elections 2019 Legislative Branch 360 seats (Largest Parties: APC 225, PDP 125) Economy Agriculture 20.9%, Industry 20.4% Service 58.8% Labor Force Agriculture 70%, Industry 10%, Service 20% Merchandise Exports Crude Oil, Cocoa, Rubber Export Partners India 18.2%, Netherlands 8.5%, Brazil 8.2%, Spain 8.2%, South Africa 7.8%, France 5.2%, Japan 4.5%, Côte d’Ivoire 4.2%, Ghana 4% Currency Naira (NGN) As of November 2016 Source: CIA 762 Nigeria Country Timeline Obasanjo re-elected 2003 April—First civilian-run presidential elections since end of military rule. Olusegun Obasanjo elected for second term with more than 60% of vote. Opposition parties reject result. EU poll observers cite "serious irregularities". 2003 July—Nationwide general strike called off after nine days after government agrees to lower recently-increased fuel prices. 2003 August—Inter-communal violence in the Niger Delta town of Warri kills about 100 people, injures 1,000. 2003 September—Nigeria's first satellite, NigeriaSat-1, launched by Russian rocket. 2004 January—UN brokers talks between Nigeria and Cameroon about disputed border. Both sides agree to joint security patrols. 2004 May—State of emergency is declared in the central Plateau State after more than 200 Muslims are killed in Yelwa in attacks by Christian militia; revenge attacks are launched by Muslim youths in Kano. Trouble in the south 2004 August-September—Deadly clashes between gangs in oil city of Port Harcourt prompts strong crackdown by troops. Rights group Amnesty International cites death toll of 500, authorities say about 20 died. 2005 July—Paris Club of rich lenders agrees to write off two-thirds of Nigeria's $30B foreign debt. 2006 January onwards—Militants in the Niger Delta attack pipelines and other oil facilities and kidnap foreign oil workers. The rebels demand more control over the region's oil wealth. 2006 February—More than 100 people are killed when religious violence flares in mainly-Muslim towns in the north and in the southern city of Onitsha. 2006 April—Helped by record oil prices, Nigeria becomes the first African nation to pay off its debt to the Paris Club of rich lenders. 2006 May—The Senate rejects proposed changes to the constitution which would have allowed President Obasanjo to stand for a third term in 2007. Bakassi deal 2006 August—Nigeria cedes sovereignty over the disputed Bakassi peninsula to neighbouring Cameroon under the terms of a 2002 International Court of Justice ruling. A special transitional arrangement for the Nigerian civilian administration will be in place for five years. 2006 October—Spiritual leader of Nigeria's millions of Muslims, the Sultan of Sokoto, is killed in a plane crash, the country's third major civilian air disaster in a year. 2007 April—Umaru Yar'Adua of the ruling People's Democratic Party is proclaimed winner of the presidential election. 2007 September—The rebel Movement for the Emancipation of the Niger Delta (Mend) threatens to end a self-imposed ceasefire and to launch fresh attacks on oil facilities and abductions of foreign workers. 2007 November—Suspected Nigerian militants kill 21 Cameroon soldiers in Bakassi peninsula. Nigerian senate rejects Nigeria-Cameroon agreement for hand-over of Bakassi peninsula to Cameroon. 2007 December—Anti-corruption chief Nuhu Ribadu is sidelined, but a high-profile graftrelated arrest follows soon after. 763 Lazard Emerging Markets Debt Oil prices soar 2008 January—Oil trades at $100 a barrel for the first time, with violence in oil producing countries such as Nigeria and Algeria helping to drive up prices. 2008 February—Mend leaders Henry Okah and Edward Atata extradited from Angola on suspicion of involvement in attacks on oil companies. Report that Okah was subsequently killed in custody proved to be untrue. Tribunal upholds election of Umaru Yar'Adua as president following challenge by rivals who wanted the vote annulled because of vote rigging. 2008 April—Two former health ministers and a daughter of President Olusegun Obasanjo are among 12 top health officials charged with embezzling around 470m naira (4m dollars) of public health funds. Oil production cut by about half as a result of strike action and attacks on pipelines by militants; problems in Nigeria help keep world oil prices at record highs. 2008 August—Following agreement reached in March, Nigeria finally hands over the Bakassi peninsula to Cameroon, ending a long-standing dispute. Iran agrees to share nuclear technology with Nigeria to help it increase its generation of electricity. 2008 September—Militants in the Niger Delta step up their attacks on oil installations, in response to what they describe as unprovoked attacks by the military on their bases. Oil prices fall 2008 October—The government announces major budget cuts following steep falls in the price of oil. 2008 November—At least 200 people are killed during clashes between Christians and Muslims in the central Nigerian town of Jos. 2009 January—The main militant group in Niger Delta, Mend, calls off four-month cease-fire after army attacks camp of an allied group. 2009 March—Nineteen opposition parties unite to form a "mega-party" to compete against the governing People's Democratic Party in elections due in 2011. 2009 May—Niger Delta militant group Mend rejects government offer of amnesty and declares offensive against Nigerian military. 2009 July—Hundreds die in northeastern Nigeria after the Boko Haram Islamist movement launches a campaign of violence in a bid to have Sharia law imposed on the entire country. Security forces storm Boko Haram's stronghold and kill the movement's leader. Government frees the leader of the Niger Delta militant group Mend, Henry Okah, after he accepts an amnesty offer. 2009 August—Two-month offer of a government amnesty for Niger Delta militants comes into force. 2009 November—President Yar'Adua travels to Saudi Arabia to be treated for a heart condition. His extended absence triggers a constitutional crisis and leads to calls for him to step down. Jos clashes 2010 January—At least 149 people are killed during two days of violence between Christian and Muslim gangs in the central city of Jos. 2010 March—More than 120 people are killed in clashes between Muslims and Christians in the flashpoint city of Jos. 2010 May—President Umaru Yar'Adua dies after a long illness. Vice-president Goodluck Jonathan, already acting in Yar'Adua's stead, succeeds him. 2010 October—Nigeria marks 50 years of independence. Celebrations in Abuja marred by deadly bomb blasts. 2010 November—Nigeria intercepts arms shipment from Iran, reports find to UN Security Council. Christmas Day attacks 2011 764 December—Nearly 70 people are killed in days of fighting between security forces and Boko Haram militants in north-eastern states of Yobe and Borno. Christmas Day bomb attacks kill about 40 people. Boko Haram claims responsibility. President Jonathan declares state of emergency to contain violence by Boko Haram. Nigeria 2012 January—Fuel price strike causes major disruption. Unions suspend action when government reverses decision to drop fuel subsidies. More than 100 killed in single day of co-ordinated bombings and shootings in Kano, shortly after Boko Haram tells Christians to quit the north. 2012 April—Chadian President Idriss Deby calls on countries neighbouring northern Nigeria to set up a joint military force to tackle Boko Haram militants as they continue their attacks. He warns of the danger of the Islamist group destabilising the whole Lake Chad basin area. 2012 June—Boko Haram claims responsibility for attacks on two churches in Jos city and Borno state, in which one person died and dozens of others were injured. An angry crowd kills six Muslims in Jos in retaliation. 2012 July—Nigeria signs a preliminary $4.5B deal with US-based Vulcan Petroleum to build six oil refineries. Nigeria lacks refinery capacity and has to import most of its fuel needs, despite being a major oil producer. 2012 August—The army kills 20 Boko Haram fighters in a shootout in the northeastern city of Maiduguri. The government says it has started informal talks through "backroom channels" with Boko Haram to try to end attacks. Boko Haram ruled out peace talks shortly beforehand. Maiduguri clashes 2012 October—Boko Haram bomb army bases in the northern city of Maiduguri, the Islamists' stronghold. The army says it kills 24 Boko Haram fighters in subsequent clashes, and arrested Boko Haram senior commander Shuaibu Muhammed Bama. 2012 November—At least 100 people are charged with treason after a march supporting independence for Biafra in The army says it has killed a senior Boko Haram commander, Ibn Saleh Ibrahim, in a major military operation in Maiduguri. The army says it has killed a senior Boko Haram commander, Ibn Saleh Ibrahim, in a major military operation in Maiduguri. 2013 December—A French engineer is abducted in northern Katsina state. The Islamist group Ansaru claims responsibility. At least 20 Christians are killed in attacks by suspected Islamist militants in the northern states of Yobe and Borno over the Christmas/New Year period. 2013 May—Government declares state of emergency in three northern states of Yobe, Borno and Adamawa and sends in troops to combat the Boko Haram Islamist militants. 2013 July—Secondary schools close in Yobe state after a massacre of 22 pupils at a boarding school, which the government attributes to Boko Haram. The Islamist group has burned down several schools since 2010. 2013 September—Boko Haram Islamists murder more than 150 people in roadside attacks in the northeast. Separately, security forces fight Boko Haram armed insurgents in the capital Abuja. 2013 November—Six state governors defect from the governing People's Democratic Party (PDP) and merge with main opposition All Progressives Congress, leaving the PDP with fewer governors supporting it than the opposition. 2014 April—Boko Haram kidnaps more than 200 girls from a boarding school. The US and Britain sends planes to help search for them and West African leaders agree to co-operate to fight the Islamists. 2014 May—Nigerian cities are hit by a series of fatal bomb blasts blamed on Boko Haram. 2014 July—Nigeria and neighbours agree to form a joint military force to combat the growing regional threat posed by Boko Haram. 2014 August—Boko Haram proclaims a caliphate—an Islamic state—in the territory it controls in the northeast, a declaration dismissed by the government. Re-opening of schools for the new academic year is postponed because of the ebola outbreak in the region. Five people have died in Nigeria. 2014 October—Nigeria's military says it has agreed a ceasefire with Islamist militants Boko Haram, and that the schoolgirls the group abducted will be released. The group denies it has agreed a ceasefire and says the girls have been married off. President Goodluck Jonathan confirms he will seek a second term in office in elections set for February 2015. 2014 November—More than 100 die in attack on the central mosque in Kano, at a time of numerous high-profile assaults by Boko Haram. 765 Lazard Emerging Markets Debt 2014 November—Boko Haram launches a series of attacks in northeastern Nigeria, capturing several towns near Lake Chad and running raids into neighbouring Chad and Cameroon in early 2015. Hundreds of people in the north-east are killed and thousands more displaced. Nigerian army captures Gwoza, which it believes is Boko Haram's main stronghold, in late March, leaving the armed group with only two towns under its control. 2015 Feburary-March—Nigeria, Chad, Cameroon and Niger form military coalition against Boko Haram, claim successes in pushing it back in all these countries. Nigerian army captures Gwoza, which it believes is Boko Haram's main stronghold, in late March, leaving the armed group with only two towns under its control. 2015 March—Muhammadu Buhari wins the presidential election, becoming the first opposition candidate to so in Nigeria's history. 2015 June—Nigeria assumes command of a regional military force to counter Boku Haram, to include troops from Chad, Cameroon, Niger and Benin. Source: BBC Notes 1 As of November 2016. 2 “Africa’s New Number One: Nigeria’s suddenly supersized economy is indeed a wonder but so are its still-huge problems,” The Economist, April 12, 2014, http://www.economist.com/news/leaders/21600685nigerias-suddenly-supersized-economy-indeed-wonder-so-are-its-still-huge. 3 As of November 2016. Sources: International Monetary Fund, Haver Analytics, and Lazard. 4 As of November 2016. Sources: International Monetary Fund and Haver Analytics. 5 As of year-end 2015. Source: “Statistical Review of World Energy, 2016,” BP, June 2016, https://www. bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2016/bp-statistical-review-of-world-energy2016-full-report.pdf. 6 “Nigeria Overview,” U.S. Energy Information Administration, May 6, 2016, https://www.eia.gov/beta/international/country.cfm?iso=NGA. 7 ”Massive Oil Theft by Pirates Costs Nigeria $1.5 Billion Every Month,” Irina Slav, Oilprice.com, April 27, 2016, http://oilprice.com/Energy/Energy-General/Massive-Oil-Theft-By-Pirates-Costs-Nigeria-15-Billion-EveryMonth.html. 8 As of December 2015. Source: “Nigeria: 2016 Article IV Consultation,” International Monetary Fund, IMF Country Report No. 16/101, April 2016, https://www.imf.org/external/pubs/ft/scr/2016/cr16101.pdf. 9 As of December 2015. Source: Haver Analytics. 10As of June 2016. Source: Haver Analytics. 11As of December 2015. Source: “Nigeria: 2016 Article IV Consultation,” International Monetary Fund, IMF Country Report No. 16/101, April 2016, https://www.imf.org/external/pubs/ft/scr/2016/cr16101.pdf. 12As of December 2014. Source: International Monetary Fund. 13As of October 2016. Source: Haver Analytics. 14“Not Darkest Africa, but Darkest Nigeria - 120 Million Without Electricity,” OilPrice.com, June 24, 2013, accessed on December 12, 2013, http://oilprice.com/Energy/Energy-General/Not-Darkest-Africa-butDarkest-Nigeria-120-Million-Without-Electricity.html. 766 Republic of Congo Summary Moody’s Ba3 / S&P B / Fitch B+1 Economy: Agriculture 3%, Industry 76%, Services 20% The Republic of Congo (Congo) is a small, middle-income, Central African oil economy with reserves that are relatively large by African standards, considering the small economy. Oil accounts for 55% of GDP, 80% of exports, and 22% of government revenues. As a result of its dependence on oil exports and the decline in oil prices in 2014–2015, the fiscal deficit has deteriorated significantly, going from a surplus of 16% of GDP in 2010 to a deficit of -12.6% of GDP in 2016. Previous years of running a primary surplus has allowed Congo to accumulate substantial reserves, which it has also been drawing down to finance its deficit. China is an important ally that has financed many infrastructure projects, and is the single-largest external creditor. Despite being rich in resources, the country has very poor infrastructure with a deficient domestic energy sector. Corruption and large wealth disparity are developmental issues that must be addressed as well. Congo is a politically stable country, and President Denis Sassou Nguesso was reelected for a third term in 2016 after changing the constitution to allow him to do so. Legislative elections are scheduled for 2017. Economic Indicators Population (Millions) GDP per Capita (USD) Nominal GDP (USD Billions) 2012 2013 2014 2015 2016F 4.1 4.2 4.3 4.4 4.5 2017F 4.6 3,343 3,223 3,171 2,024 1,981 2,255 13.7 13.5 13.6 8.8 8.8 10.3 Real GDP (%) 3.8 3.3 6.8 2.3 1.7 2.0 Year-End CPI (%) 7.5 2.1 0.5 2.2 4.6 3.5 Fiscal Balance (% of GDP) 7.5 -1.8 -7.9 -18.3 -12.6 -6.0 Interest (% of Revenues) 0.0 0.6 0.5 1.1 1.2 1.4 FC Debt/Public Debt (%) 75.4 3.0 89.4 93.5 96.2 98.6 Government Debt (% of GDP) 34.1 38.2 47.5 65.2 74.8 63.4 Government Debt (% of Revenue) 80.1 81.4 112.2 234.2 238.6 194.7 -10.8 Current Account (% of GDP) -2.4 -4.5 -9.4 -14.2 -23.1 FDI (% of GDP) 16.4 18.7 19.6 12.5 7.6 6.8 External Debt (% of GDP) 25.7 32.0 36.4 48.5 58.1 46.7 Foreign Reserves/External Debt (%) 157.9 34.4 Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) 121.6 99.9 51.8 34.1 6.2 5.5 5.0 3.0 2.1 1.7 40.6 38.9 36.3 25.1 19.8 16.1 As of November 2016 Forecasted or predicted data is not a promise or guarantee of actual results and is subject to change. Source: IMF, Haver, Lazard 767 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB BB BB- BB- B+ B+ B 2000 2008 Moody’s 2016 S&P Fitch B 2000 2008 Moody’s S&P 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 1400 1050 700 350 0 2008 Congo 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 768 Republic of Congo Strengths Energy Sector The country’s primary strength is its oil reserves. According to the BP Statistical Review 2016, Congo’s oil output totaled 277,000 barrels per day (bpd) in 2015.2 This may seem like a low level of output by international standards, but it is significant for such a small country. Congo currently has 1.6 billion barrels of proven reserves; it consumes around 12,000 bpd domestically, and exports the rest, mainly to the United States and China.3 The IMF expects oil output to increase as major oil projects are expected to be completed in 2017. Several companies are seeking to invest more than US$10 billion in multiple oil fields. The Moho Nord project, for example, is expected to start production in early 20174 and have a production capacity of 140,000 bpd.5 By the end of 2018, Congo is expected to have production of 300,000 bpd. The country also has an abundance of natural gas with 3.2 trillion cubic feet in reserves, but only a small portion is merchandised as most is either reinjected or flared.6 Mining Sector Potential The country has many mineral resources, but they remain largely unexploited because of poor infrastructure and weak institutions. This is starting to change as foreign firms are investing billions in the mining sector. One reason is the improvement in Congo’s economic management and, to a lesser extent, the strengthening of the rule of law. Among the mining products available in Congo are diamonds, gold, iron ore, and phosphate rock. The government approved two important projects that will give a boost to economic growth, revenues, and export growth in the medium term. One iron ore project was granted to the South African firm DMC-Exxaro, which is expected to produce up to 7 million metric tons by 2017, according to IMF projections.7 A project was also granted to the Australian company Sundance Resources in the high-grade Nabeba mine, which was initially expected to produce 35 million tons a year by 2015. However, a decline in iron ore demand and difficult financing conditions have delayed the project,8 which included the construction and upgrading of the railways and the construction of a new port and power plants. In light of the deteriorating conditions, the project has been modified with the rail and port contruction transferred to the government of Cameroon (the project is on the border of these two countries), and China’s Export-Import Bank may also be involved. Despite delays and setbacks, such as a postponement in 2016 by a Chinese commercial partner in charge of building a port and rail infrastructure,9 the project is still in the pipeline. Growth Potential Congo’s economic growth has traditionally been strong albeit somewhat volatile, with growth averaging 5.2% in 2010–2014. Growth is expected to decline to 2% for 2015–2017 due to the decline in oil prices, although the IMF expects the average growth rate to rebound, aided by new oil fields. Growth could be much higher if the country exploits all of its natural resources. Progress needs to be made to attract private investors as public companies are highly inefficient and represent a drag on growth. The state controls very important sectors of the economy, including the oil, water, electricity, and banking sectors. A key factor will be improving business conditions, including infrastructure, especially in transportation and electricity, which are currently among the worst in the world. On the World Bank’s 2016 Ease of Doing Business Index, Congo ranks 177th out of 190 countries,10 highlighting the challenging operating environment. Major hurdles to realizing potential growth include taxes, trading across borders, starting a business, enforcement of contracts, and registering property. 769 Lazard Emerging Markets Debt Chinese Support Congo enjoys the support of China, and in 2013, Chinese President Xi Jinping visited and pledged that China would increase bilateral cooperation and remain an “all-weather” friend.11 More recently, China indicated it would help accelerate Congo’s industrialization and diversification away from the oil process.12 The IMF highlights that China is Congo’s most important development partner as well as an important trade partner. China’s financial assistance has increased significantly since 2006, when the two countries reached a strategic agreement. Concessional Chinese loans are US$2.6 billion13, accounting for over half of Congo’s estimated US$5 billion in external debt. These are typically amortizing loans with a 20-year maturity and a five-year grace period and China has been flexible in rolling over principal payments.14 Banque des Etats de l’Afrique Central Congo, along with Cameroon, Central African Republic, Chad, Equatorial Guinea, and Gabon, is a member of the Banque des Etats de l’Afrique Central (BEAC). The BEAC was created to promote economic and trade integration. The members share a common exchange rate, the CFA (African Financial Community) franc, which was pegged to the French franc, and now the euro. These countries have used the CFA franc since they were French colonies. The full convertibility of the CFA Franc is guaranteed by the French Treasury, where Congo keeps half of its foreign reserves. This substantially reduces the risk of an unfavorable balance of payments and contributes to the country’s economic stability. Political Stability Political stability is one of the country’s strengths, although checks and balances within the government are nonexistent. Sassou Nguesso has been in power since taking office through military force in 1997. Since the end of the civil war in 2003, the president has consolidated his power by intimidation and used the law against any contender. He is in sole control of all the government institutions and has integrated the main opposition figures into his government. He won the 2009 presidential election by a landslide with 78.6% of the votes, although only about 10% of the population voted in the elections and the opposition boycotted the elections.15 In the 2016 elections, he won again with 60% of the vote after he amended the constitution to allow him to govern a third term.16 Sassou Nguesso has strong control over his party, the Congolese Party of Labour (PCT), which has a majority in Congress. His party won the last legislative elections in July 2012–August 2012 and has 89 of the 139 seats in Congress.17 His son and daughter participated in and won congressional elections, and in our opinion, one of them will most likely replace Sassou Nguesso when he eventually steps down. Legislative elections scheduled for 2017. Weaknesses Oil Dependency Congo’s high dependency on oil and vulnerability to fluctuation in oil prices is illustrated by the sudden increase in its fiscal deficit to 18.5% GDP in 2015, a level that is more than double compared to 2014, and in the deterioration of the current account.18 Oil accounts for 55% GDP, 80% of exports, and 22% of government revenues. Thus, when oil prices decline, Congo faces major economic pressures. This vulnerability is partially compensated by the fact that Congo has accumulated significant levels of foreign reserves due to years of high primary surpluses, and the country has been drawing on these reserves as part of its adjustment. 770 Republic of Congo Accumulating Arrears The rating agency Fitch points out that the government arrears amount to 11% of GDP, which are part of the debt. About half of arrears are owed to pensions and wages, although they are expected to be paid going forward. The remaining arrears are mainly owed to suppliers that were not paid in the 1990s. The government is under negotiation to pay the external arrears, but that could take a couple of years.19 These types of arrears are very common in African countries, although in many cases they go unreported. Several other countries, including Angola and Nigeria, have run domestic arrears in the past and also have external arrears that continue to be disputed. As the country gets richer, there is a risk that some suppliers that are owed money will file a lawsuit. Infrastructure Gap Despite some progress, there is still a large infrastructure gap in Congo that hinders the economy. The country has the potential to develop its hydroelectric capacity, but it does not currently produce enough electricity for local consumption and instead needs to import energy from the Democratic Republic of Congo. In the capital of Brazzaville, the transportation and distribution networks of the local utility company Société Nationale d’Électricité are very old—there has not been a day without a power outage in years, even as electricity is rationed. The road network is also underdeveloped. Of the 17,300 kilometer-long road network, only 1,235 kilometers is paved.20 Corruption Congo is one of the most corrupt countries in the world. In the Corruption Perceptions Index 2015, Congo ranks 146th out of 167 countries.21 The international press has reported that the president and his family have stolen millions.22 Several international entities have filed suits to investigate the origins of his wealth. He owns mansions and cars in different parts of the world, including France, where he has been under investigation in the past, which caused a deterioration in the two countries’ relationship. The high level of corruption is a major problem and constraint for growth, and it is unlikely to improve in the short term, at least substantially. The country has faced international lawsuits in the past, such as in the early 2000s by vulture funds that claimed the government had not repaid money owed to them because of corruption and not because of poverty. The government has either settled or won most of these cases.23 771 Lazard Emerging Markets Debt Country Background Size 342,000 KM2 (64th) Capital Brazzaville Population 4.9 Million Ethnic Groups Kongo 48%, Sangha 20%, M’bochi 12%, Teke 17% Religion Catholic 33.1%, Christians 42.2% Median Age 19.7 Years Literacy Rate 79.3% Independence August 15, 1960 Political System Presidential Republic Presidents Denis Sassou-Nguesso since October 1997 Presidential Election 2021 Legislative Elections Senate 2020, National Assembly 2017 Legislative Branch Bicameral Parliament Economy Agriculture 4.9%, Industry 69.3%, Service 25.8% Merchandise Exports Petroleum, Lumber, Sugar Export Partners China 42.1%, Italy 16.9%, US 4.9%, India 4.7%, Portugal 4.2% Currency Central African CFA franc (XAF) As of November 2016 Source: CIA 772 Republic of Congo Country Timeline 1960 Congo becomes independent with Fulbert Youlou as president. 1963 Youlou forced to resign following workers' unrest; Alphonse Massamba-Debat becomes president and Pascal Lissouba prime minister. 1964 Massamba-Debat sets up the National Revolutionary Movement as the sole party and proclaims a non-capitalist path of economic development. 1968 Massamba-Debat ousted in a coup led by Marien Ngouabi, who continues his predecessor's commitment to socialism but sets up his own party, the Congolese Workers Party (PCT). 1970 Ngouabi proclaims Congo a Marxist People's Republic with the PCT as the sole legitimate party. 1977 Ngouabi is assassinated. Massamba-Debat and the Archbishop of Brazzaville, Emile Cardinal Biayenda, are killed shortly afterwards. Joachim Yhombi-Opango becomes president. 1979 Yhombi-Opango hands over the presidency to the PCT, which chooses Denis SassouNguesso as his successor. 1981 Congo signs treaty of friendship and cooperation with the Soviet Union. 1990 The PCT abandons Marxism. 1992 Voters approve a constitution which establishes a multi-party system. Pascal Lissouba becomes president in Congo's first democratic election. Civil strife 1993 Bloody fighting between government and opposition forces over disputed parliamentary elections. 1994-95 Ceasefire between government and opposition established; opposition given government posts. 1997 Full-scale civil war breaks out; pro-Sassou Nguesso forces, aided by Angolan troops, capture Brazzaville, forcing Lissouba to flee. 1999 Government and rebels sign a peace deal in Zambia providing for a national dialogue, demilitarisation of political parties and the re-admission of rebel units into the security forces. 2001 April—Peace conference ends by adopting a new constitution, paving the way for presidential and parliamentary elections. 2001 September—Transitional parliament adopts a draft constitution. Some 15,000 militia disarm in a cash-for-weapons scheme. IMF starts clearing Congo's $4B debt. 2001 December—Former president, Pascal Lissouba, convicted in absentia on treason and corruption charges, and sentenced to 30 years' hard labour by the high court in Brazzaville. 2002 January—About 80% of voters in constitutional referendum approve amendments aimed at consolidating presidential powers. 2002 March—Denis Sassou Nguesso wins presidential elections unopposed after his main rivals are barred from the contest. Clashes with rebels 2002 March—Intense fighting between government and "Ninja" rebels drives many thousands of civilians from their homes in Pool region. The rebels, loyal to former PM Bernard Kolelas and led by renegade priest Pastor Ntumi, name themselves after the famous Japanese warriors. 2002 June—Government troops battle Ninja rebels in Brazzaville. About 100 people are killed. 2003 March—Government signs deals with Ninja rebels aimed at ending fighting in Pool region. Ninja leader Pastor Ntumi agrees to end hostilities and allow the return of the rule of law. 2004 June—World diamond trade watchdog removes Congo from list of countries recognised as dealing legitimately in diamonds. 2005 April—Government says a group of army officers, arrested in January over an arms theft, had been planning a coup. 773 Lazard Emerging Markets Debt 2006 January—Congo is chosen to lead the African Union in 2006 after disagreements within the body about Sudan's leadership bid. President Sassou Nguesso accuses France of interfering in his country's affairs, following a decision by a French Appeal court to reopen an investigation into the disappearance of more than 350 refugees in 1999. 2007 June—Former "Ninja" rebels led by renegade Pastor Frederic Ntumi ceremoniously burn their weapons to demonstrate their commitment to peace. 2007 June-August—Parliamentary elections, boycotted by some 40 parties. Ruling party wins 90 percent of seats. Debt cancelled 2007 November—London Club of private sector creditors cancels 80 percent of Congo's debt. 2009 May—French magistrate opens probe into alleged embezzlement by President Sassou Nguesso and two other African leaders following lawsuit by an anti-corruption group. 2009 July—President Denis Sassou Nguesso gains another seven years in power following elections boycotted by the opposition. 2010 March—Paris Club of creditor countries and Brazil agree to cancel all the debt owed to them by Congo—about $2.4B. 2010 August—Congo marks 50 years of independence from France. 2010 November—Polio epidemic kills 100. 2010 November—French appeal court gives go-ahead for probe into corruption charges against three African leaders, including President Denis Sassou Nguesso. UN Special Rapporteur on Indigenous Peoples urges government to protect rights of Pygmy people, saying they are subject to discrimination. 2012 March—Explosions at a munitions depot in a residential area of Brazzaville kills around 200 people and makes thousands homeless. February—President dissolves his cabinet following a corruption scandal which forced the premier and two ministers to resign. 2012 October—Former defence minister Charles Zacharie Bowao is charged with responsibility for an accident that blew up an ammunition stockpile in Brazzaville in March, killing about 240 people and injuring more than 2,300 others. He was dismissed in September, and accuses the government of using him as a scapegoat. 2013 February—Congo declared to be compliant with standards set by the Extractive Industries Transparency Initiative for the disclosure of revenues from oil. 2013 May—Brazil says it will cancel or restructure 900 million dollars worth of debt with Africa, including Congo, which has the highest debt with Brazil. 2013 October—Border incident involving alleged incursion by Angolan troops, apparently in pursuit of separatists from Cabina, and the detention of 40 Congolese troops sent to investigate. 2014 May—UN says repatriation of 130,000 DR Congo nationals from Republic of Congo over past month has caused a humanitarian crisis. Constitution referendum 2015 October—Voters in referendum approve constitutional changes allowing the president to run for a third term. The opposition boycotts the vote and says the result is fraudulent. 2016 March—President Denis Sassou Nguesso gains another term following an election described as fraudulent by the opposition. 2016 April—Government buildings in Brazzaville are attacked in post-election unrest. Source: BBC 774 Republic of Congo Notes 1 As of December 2016. 2 “BP Statistical Review of World Energy, 2015,” BP, June 2015, accessed on October 26, 2015, http://www. bp.com/content/dam/bp/pdf/energy-economics/statistical-review-2015/bp-statistical-review-of-world-energy2015-full-report.pdf. 3 “Congo,” U.S. Energy Information Administration,” January 29, 2014, accessed on October 6, 2014, http:// www.eia.gov/countries/cab.cfm?fips=cf. 4 “Total Expects 100,000 Bpd From Congo’s Moho Nord In Early 2017,” http://www.rigzone.com/news/oil_ gas/a/147242/Total_Expects_100000_Bpd_From_Congos_Moho_Nord_In_Early_2017, accessed November 25, 2016. 5 “Moho Nord, an Industrial and Human Challenge in the Congo,” Total, accessed on October 21, 2015, http:// www.total.com/en/energies-expertise/oil-gas/exploration-production/projects-achievements/deep-offshoreprojects/moho-nord-industrial-and-human-challenge-congo. 6 “Congo,” U.S. Energy Information Administration,” accessed on December 11, 2013, http://www.eia.gov/ countries/analysisbriefs/Congo_Brazzaville/congo.pdf. 7 “Republic of Congo,” IMF Country Report No. 12/282, September 2014, http://www.imf.org/external/pubs/ ft/scr/2013/cr13282.pdf. 8 Ingram, Tess, “Sundance resources offloads infrastructure piece of $US4.6bn project,” Sydney Morning Herald, July 1, 2015, accessed on October 21, 2015, http://www.smh.com.au/business/mining-andresources/sundance-resources-offloads-infrastrucure-piece-of-us46bn-project-20150701-gi29yi.html. 9 Sundance Resources postpones Mbalam-Nabeba iron ore project in Cameroon http://www.mining-technology.com/news/newssundance-resources-postpones-mbalam-nabeba-iron-ore-project-cameroon-4783728, accessed November 25, 2016. 10“Economy Rankings,” Doing Business 2016, accessed on November 24, 2016, http://www.doingbusiness. org/rankings. 11“Chinese president pledges to enhance cooperation with Republic of Congo,” Africa March 2013, http:// news.xinhuanet.com/english/china/2013-03/30/c_124522284.htm, accessed November 25, 2016. 12“Congo-Brazzaville: China to Help Republic of Congo Diversify Economy,” http://allafrica.com/stories/201607120738.html, accessed November 25, 2016. 13Republic of Congo IMF Article IV, September 2014, Country Report 14/272. http://www.imf.org/external/ pubs/ft/scr/2014/cr14272.pdf. 14Republic of Congo Trip Report, Arif Joshi (internal Lazard report), October 16, 2016. 15“Congo presidential vote contested,” Al Jazeera, July 19, 2009, accessed on December 11, 2013, http:// www.aljazeera.com/news/africa/2009/07/200971365416871371.html, and “Congo leader wins disputed poll,” BBC, July 15, 2009, accessed on December 11, 2013, http://news.bbc.co.uk/2/hi/8152820.stm. 16“Congo President Denis Sassou Nguesso wins landslide third term,” March 2016, http://www.bbc.com/ news/world-africa-35890047, accessed November 25, 2016. 17“Elections in Congo Brazzaville,” African Elections Database, accessed on December 11, 2013, http://africanelections.tripod.com/cg.html. 18“IMF WEO Economic Data, October 2016. 19“RPT-Fitch Rates Republic of Congo at ‘B+,” Reuters, October 11, 2013, accessed on December 11, 2013, http://www.reuters.com/article/2013/10/11/idUSL1N0I110F20131011, and December 11, 2013, Lazard Asset Management. 20Faller, Koua Stephen and Pr Yang Shue Wang, accessed on October 21, 2015,” The Major Environmental Problems in Congo Brazzaville: Case of Brazzaville,” Science and Education Publishing, http://pubs.sciepub. com/jfa/3/1/1/. 21“Corruption Percpetions Index 2105,” Transparency International, accessed on November 25, 2016, https:// www.transparency.org/cpi2015/. 22“Congo Republic,”Freedom House, accessed on December 12, 2013, http://www.freedomhouse.org/ report/freedom-world/2013/congo-republic-brazzaville, and “French Investigators no right to probe wealth says Congo’s Sassou Nguesso,” RFI April 8, 2013, accessed on December 12, 2013, http://www.english.rfi. fr/france/20130408-french-investigators-no-right-probe-wealth-says-congos-sassou-nguesso. 23Cans, Charlotte, “Court backs creditors on Congo Brazzaville debts,” Financial Times, April 19, 2006, accessed on December 11, 2013, http://www.ft.com/intl/cms/s/0/acaa3c46-cfca-11da-80fb-0000779e2340. html and Palast, Greg, Maggie O’Kane and Chaval Madlena, “Vulture funds await Jersey decision on poor countries’ debts,” The Guardian, November 15, 2011, accessed on December 11, 2013, http://www.theguardian.com/global-development/2011/nov/15/vulture-funds-jersey-decision. 775 Lazard Emerging Markets Debt 776 Rwanda Summary Moody’s B2 / S&P B / Fitch B+1 Economy: Agriculture 35%, Industry 15%, Services 50% Rwanda has one of the highest economic growth rates in East Africa and a reputation for being one of the most business-friendly countries in the region. Rwanda’s economic management is also solid, and the government remains committed to structural reforms. Tourism is an important sector for the economy. Unfortunately, Rwanda is located in one of the most unstable regions in the world where ethnic tensions remain high. Despite recent improvements, a large portion of the population depends on subsistence agriculture and lives in poverty. The country has been under the presidency of Paul Kagame since 2000, and he is expected to seek reelection in 2017 after a recent referendum allowing him to run for a third term. Economic Indicators 2012 2013 2014 2015 2016F 2017F Population (Millions) 10.5 10.7 11.0 11.3 11.5 11.8 GDP per Capita (USD) 688 700 719 718 723 725 Nominal GDP (USD Billions) 7.2 7.5 7.9 8.1 8.3 8.6 Real GDP (%) 8.8 4.7 7.0 6.9 6.0 6.0 Year-End CPI (%) 3.9 3.6 2.1 4.5 4.7 5.0 Fiscal Balance (% of GDP) -1.6 -2.5 -3.6 -3.2 -3.0 -1.6 Interest (% of Revenues) 2.3 2.9 3.2 3.5 3.9 4.1 FC Debt/Public Debt (%) 80.5 80.9 82.6 76.5 67.9 68.7 Government Debt (% of GDP) 20.1 26.5 28.9 35.3 42.1 44.4 Government Debt (% of Revenue) 83.1 105.5 120.3 141.3 177.3 191.1 Current Account (% of GDP) -11.4 -7.4 -10.5 -13.5 -16.6 -12.0 2.2 2.0 2.0 3.1 3.5 4.1 External Debt (% of GDP) 21.4 26.6 28.0 32.8 41.5 45.1 Foreign Reserves/External Debt (%) 54.6 56.7 48.1 38.7 28.9 28.5 4.1 5.1 4.2 3.6 3.1 3.0 11.7 15.1 13.5 12.7 12.0 12.9 FDI (% of GDP) Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subect to change. Source: IMF, Ministry of Finance, Haver Analytics, Lazard 777 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB- BB- B+ B+ B B B- B- CCC+ 2000 2008 S&P 2016 CCC+ 2000 S&P Fitch 2008 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, JPMorgan Bond Spreads 1000 800 600 400 200 0 2008 Rwanda 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 778 Rwanda Strengths Economic Growth Outpacing Peers Rwanda has posted the fastest economic growth in the region, averaging 7.7% since 2000, placing it ahead of similar countries in the region, such as Tanzania and Kenya.2 The service sector, which includes trade, tourism, and finance have led the economic expansion. One of the key factors behind the strong growth has been favorable macroeconomic policies, effective use of foreign aid, promotion of the private sector, and business-friendly conditions. The government wants to increase the economic growth by continuing to improve the productivity of the agricultural sector and to develop an efficient and competitive private, especially in information technology (IT) and tourism, and eventually lead Rwanda to middle-income status by 2020.3 The government’s target is ambitious as it would require the economy to grow by 11.5% per year yet the International Monetary Fund expects an average growth rate of 7% in 2017–2021.4 In order to achieve higher growth, the government will need to improve areas such as transportation and electricity supply, two major growth constraints. Electricity costs are double those of Tanzania, which are already among the highest in Africa.5 The government is investing in key areas such as roads, rails, and energy necessary to reduce bottlenecks. Ease of Doing Business Some consider Rwanda the Singapore of East Africa because of its business-friendly conditions, something the government has been pushing for more than a decade. On the World Bank’s 2016 Ease of Doing Business Index, Rwanda ranks 56th in the world out of 190 countries, and second in Africa.6 Rwanda has made significant progress improving business conditions, particularly in terms of starting a business, getting credit, paying taxes, and enforcing contracts. In the World Economic Forum Global Competitiveness Report 2016– 2017, Rwanda ranks as the third-most competitive country of those with economic freedom in the Sub-Saharan region and 52nd worldwide.7 This business-friendly environment has also been supported by the government’s focus on fighting corruption in order to improve the country’s international image, promote private investment, and control the different players within the economy. The government’s commitment to fighting corruption has yielded very positive results, as Rwanda is one of the least corrupt countries in Africa; in the Corruption Perception Index 2015 it ranks 44th out of 167 countries.8 Market-Friendly Reforms and IMF Support The government has an excellent reputation and track record of approving key reforms, and ranks among the top reformers in the world, according to the World Bank.9 Since the current government came into power in 2000, it has pushed for economic policies to promote economic liberalization and modernization, which has contributed to the country’s ease of doing business. The World Bank ranked Rwanda as the top economic reformer in the world in 2010. The international community is pleased with progress on macroeconomic policies, financial transparency, and governance. The government tends to promote property rights, currency convertibility, the removal of bureaucratic barriers, anti-monopoly policies, liberalization of trade, and promotion of private investment. Other reforms that Rwanda is undertaking include adjustments that promote export diversification and import substitution, reducing imports by 15% in 2016–2017. Rwanda has had a Policy Support Instrument with the IMF since December 2013, and in 2016 also obtained a stand-by credit facility.10 779 Lazard Emerging Markets Debt Tourism Tourism is one of Rwanda’s best performing sectors. In 2015 it generated more than US$300 million, compared to US$26 million in 2005,11 and it is the most important source of foreign currency inflows to the country.12 Rwanda is considered one of the safest tourist destinations in Africa to visit and is world-renowned because of its gorilla tourism. It is one of only two countries where it is possible to visit mountain gorillas. In 2014, a total of 1.22 million people visited Rwanda, 8% higher than the year before.13 The success of the tourism sector is attributable to the government’s policies to support private-sector investment in the sector. Tourism’s direct contribution to GDP amounts to about 3%, while the overall contribution from the sector amounts to 9.8% of GDP; directly and indirectly, the sector employs about 9.5% of the working population and accounts for about 4.3% of total investment.14 The government is trying to diversify its tourism sector to make Rwanda a regional conference destination, and in July 2016 it inaugurated the Kigali Convention Center, which includes the center, a hotel, and an IT office park. Other ongoing projects to attract tourism include a new cable car to Mount Karisimbi, the fourth highest peak in Africa.15 Grants Rwanda is a darling of the donor countries, as it is considered one of the countries that use grants most efficiently. Also, some donor countries have been impressed by the country’s progress on economic reforms and poverty reduction since the genocide in 1994. As a result, Rwanda has received among the most donations of countries in Sub-Saharan Africa. In the past couple of years, donations have totaled more than 10% of GDP, financing about half of the budget.16 Donations are very important as they help to finance a large part of the current account and fiscal deficits and help to sustain high economic growth. A large share of donations goes to the poorest segments of society. However, donations have sometimes slowed for political reasons. The international community has ignored democratic problems, although it has paid attention to Rwanda’s involvement with its neighbor Democratic Republic of Congo. For example, in late 2012 and early 2013, some countries temporarily suspended donations after Rwanda was accused of financing some of the guerrilla groups (the M23) in the Democratic Republic of Congo. The grant suspension put pressure on growth as well as fiscal and current account financing. However, in the second half of 2013, donations started to pick up once again. The Democratic Republic of Congo army defeated the M23, thus regional conflicts are likely to decline. In 2014, donations were much higher than in 2013 as relations with the international community improved. Going forward, donor fluctuation will likely decline as most of the donor money is going to specific projects instead of general government budget purposes. Grants are expected to decrease over time from 7.4% GDP in 2014 to 4.9% GDP in 2017–2018.17 Weaknesses Ethnic Tension Since its independence, the country’s main ethnic groups, the Tutsis and the Hutus, have had a contentious and violent relationship. The problems started when the former colonies gave preference to the elites that were governed by the Tutsis at the expense of the Hutus. The ethnic tension was exacerbated three years before the country’s independence in 1959 when the Hutus removed the ruling Tutsi king from power. The fighting escalated into a major civil war in the 1990s, and ethnic tension peaked in 1994 when the army killed about 1 million Tutsis. That same year, the Tutsi rebel groups defeated the government and took 780 Rwanda control of the country. A large number of Hutus left the country, as they were afraid that the Tutsis would retaliate. While most returned the following year, radical Hutu groups continue to operate outside the country. Today, tension still exists between the Hutus and Tutsis, although the government has worked to reduce ethnic tension, banning ethnic discrimination, and severely punishing violations. Still, the bulk of the important government positions are in the hands of the Tutsis. Tension with Larger Neighbors Rwanda’s neighbor, the Democratic Republic of Congo (DRC), is a major source of instability for the region and for Rwanda. In the past, the government of Rwanda has been accused of supporting guerrilla groups, which are fighting for the independence of eastern DRC. Rwandan support aims to terminate the radical Hutus that still operate in east DRC and to claim some of the mineral-rich part of eastern Congo. Government involvement has been very costly, especially since the international community tends to disapprove of the government’s actions. For example, the international community recently suspended donations when Rwanda was accused of giving financing to one of the guerrilla groups, the M23. The government denies the claims and argues that Rwanda wants a peaceful eastern Congo given the positive economic and social spillover effects for Rwanda. Burundi is also a potential source of tension as the diplomatic relationship between the two countries has deteriorated.18 Land-Locked Country Rwanda is a land-locked country, which makes the economy less competitive. Transportation costs tend to be high as all imports and exports must go through other countries. As a result, Rwanda is dependent on neighbor countries, which account for an important share of total exports. Railroads are nonexistent, and roads are in poor condition, as most are not paved. Rwanda has plans to access to the Indian Ocean by developing a rail link that will go through Tanzania as part of the US$5.2 billion Dar es Salaam-Isaka-Kigali/Keza-Musongati (DIKKM) rail project, which is expected to be finished by 2018.19 Impoverished Population Despite a huge improvement in the last decade, the country remains very poor with a 2017 GDP per capita of only US$725. It is estimated that 45% of the population lives in poverty, though this is lower than the 57% recorded in 2005.20 Living conditions are poor as most of the population does not have access to basic goods.21 Moreover, 85% of the population does not have access to a social safety net. In the 2015 Human Development Index, Rwanda ranks 163rd out of 188 countries. Rwanda also faces a population that is growing too fast, resulting in one of the higher population densities in Africa. The population has grown from 2 million prior to independence to 11.8 million today.22 The large population has made it challenging to reduce poverty, and it has also contributed to land degradation as most of the energy consumed comes from wood, peat, and charcoal. Meanwhile, the income distribution is a major problem despite recent improvement in the Gini coefficient. Low income levels and poor social conditions are likely to contribute to the tension within the country. External Imbalances Like other East African countries, Rwanda has a relatively large current account deficit, averaging 10.6% in the period 2010–2016,23 and in the next five years the average current account deficit is expected to remain at a similar level of 10.8%. The current account deficit is a reflection of the country’s low savings rate and lack of competitiveness. The current account deficit remains high as the country tends to import a large share of the products it consumes, 781 Lazard Emerging Markets Debt especially oil, resulting in large trade balance deficits. The current account is financed with foreign direct investment, loans, and donations. However, the free-floating exchange rate partially compensates for external imbalances, and the IMF considers foreign-currency adjustment the major adjustment tool, supported by fiscal and monetary adjustments.24 Still, foreign reserves are relatively high for this small economy, totaling an estimated US$1 billion as of July 2016,25 equivalent to almost three months of imports. Agriculture The economy and the population are highly dependent on the agricultural sector. Among the most important agricultural products are tea and coffee, accounting for one-fifth of total exports. Both products are considered top quality and are sold at a premium in international markets. Agriculture accounts for about one-third of GDP, about 50% of exports, and employs about 88% of the population.26 Agriculture also generates 90% of all food consumed in the country. Moreover, 66% of the production is for subsistence.27 Thus, economic performance tends to be very closely tied to agriculture. Bad weather conditions can cause the economy to contract, income levels to decline substantially, and inflation to increase. Weak Democracy and Authoritarian Government The country is ruled and run by one person, President Paul Kagame, who has been in power since 2000. He controls all institutions, including the army and the police, while his party, the Rwandan Patriotic Front (RPF), has a majority in Congress. Moreover, the opposition appears to be constantly intimidated, and freedom of the press is very limited. The elections do not appear to be fair. In the last elections in 2010, none of the opposition candidates were allowed to participate. Moreover, party members and coalition members are tightly supervised. Finally, the ruling party indirectly controls an investment arm that controls over US$500 million, which in the past has been used to finance political events.28 President Kagame has confirmed that he will be running for a third term in the 2017 elections after a referendum approved a constitutional change allowing him to run for a third 7-year term and as well as two additional 5-year terms.29 Informal Sector The country’s informal economy is estimated at 65% of GDP, which has negative implications for the economy by keeping the tax revenues relatively low. Also, the large size of the informal sector makes it difficult to monitor and analyze the country’s economic performance and, thus, may lead to undesirable economic policies. A large share of the informal sector operates in wholesale and retail trade. 782 Rwanda Country Background Size 26,338 KM2 (149th) Capital Kigali Population 13.0 Million Ethnic Groups Hutu 84%, Tutsi 15% Religion Roman Catholic 49.5%, Protestants 39.4%, Adventist 11.1%, Muslims 1.8% Median Age 19 Years Literacy Rate 70.5% Independence July 1, 1960 Political System Republic Presidents Paul Kagame Executive Election 2017 Legislative Branch Bicameral Parliament Economy Agriculture 34.6%, Industry 15.1%, Service 50.3% Labor Force Agriculture 90%, Industry, Service 10% Merchandise Exports Coffee, Tea, Hides, Tin Ore Export Partners DRC 19.8%, US 10.8%, China 10.3%, Swaziland 7.9%, Malaysia 7%, Pakistan 6.2%, Germany 5.9%, Thailand 5.5% Currency Rwanda Francs (RWF) As of November 2016 Source: CIA 783 Lazard Emerging Markets Debt Country Timeline Independence 1957 Hutus issue manifesto calling for a change in Rwanda's power structure to give them a voice commensurate with their numbers; Hutu political parties formed. 1959 Tutsi King Kigeri V, together with tens of thousands of Tutsis, forced into exile in Uganda following inter-ethnic violence. 1961 Rwanda proclaimed a republic. 1962 Rwanda becomes independent with a Hutu, Gregoire Kayibanda, as president; many Tutsis leave the country. 1963 Some 20,000 Tutsis killed following an incursion by Tutsi rebels based in Burundi. 1973 President Gregoire Kayibanda ousted in military coup led by Juvenal Habyarimana. 1978 New constitution ratified; Habyarimana elected president. 1988 Some 50,000 Hutu refugees flee to Rwanda from Burundi following ethnic violence there. 1990 Forces of the rebel, mainly Tutsi, Rwandan Patriotic Front (RPF) invade Rwanda from Uganda. 1991 New multi-party constitution promulgated. Genocide 1993 President Habyarimana signs a power-sharing agreement with the Tutsis in the Tanzanian town of Arusha, ostensibly signalling the end of civil war; UN mission sent to monitor the peace agreement. 1994 April—Habyarimana and the Burundian president are killed after their plane is shot down over Kigali; RPF launches a major offensive; extremist Hutu militia and elements of the Rwandan military begin the systematic massacre of Tutsis. Within 100 days around 800,000 Tutsis and moderate Hutus are killed; Hutu militias flee to Zaire, taking with them around 2 million Hutu refugees. 1994-96 Refugee camps in Zaire fall under the control of the Hutu militias responsible for the genocide in Rwanda. 1995 Extremist Hutu militias and Zairean government forces attack local Zairean Banyamulenge Tutsis; Zaire attempts to force refugees back into Rwanda. 1995 UN-appointed international tribunal begins charging and sentencing a number of people responsible for the Hutu-Tutsi atrocities. Intervention in DR Congo 1996 Rwandan troops invade and attack Hutu militia-dominated camps in Zaire in order to drive home the refugees. 1997 Rwandan-and Ugandan-backed rebels depose President Mobutu Sese Seko of Zaire; Laurent Kabila becomes president of Zaire, which is renamed the Democratic Republic of Congo. 1998 Rwanda switches allegiance to support rebel forces trying to depose Kabila in the wake of the Congolese president's failure to expel extremist Hutu militias. 2000 March—Rwandan President Pasteur Bizimungu, a Hutu, resigns over differences regarding the composition of a new cabinet and after accusing parliament of targeting Hutu politicians in anti-corruption investigations. 2000 April—Ministers and members of parliament elect Vice-President Paul Kagame as Rwanda's new president. 2001 October—Voting to elect members of traditional "gacaca" courts begins. The courts—in which ordinary Rwandans judge their peers—aim to clear the backlog of 1994 genocide cases. 2001 December—A new flag and national anthem are unveiled to try to promote national unity and reconciliation. 784 Rwanda 2002 April—Former president Pasteur Bizimungu is arrested and faces trial on charges of illegal political activity and threats to state security. 2002 July—Rwanda, DR Congo sign peace deal under which Rwanda will pull troops out of DR Congo and DR Congo will help disarm Rwandan Hutu gunmen blamed for killing Tutsi minority in 1994 genocide. DR Congo pullout 2002 October—Rwanda says it has pulled the last of its troops out of DR Congo, four years after they went in to support Congolese rebels against the Kabila government. 2003 May—Voters back a draft constitution which bans the incitement of ethnic hatred. 2003 August—Paul Kagame wins the first presidential elections since the 1994 genocide. 2003 October—First multi-party parliamentary elections; President Kagame's Rwandan Patriotic Front wins absolute majority. EU observers say poll was marred by irregularities and fraud. 2003 December—Three former media directors found guilty of inciting Hutus to kill Tutsis during 1994 genocide and receive lengthy jail sentences. 2004 March—President Kagame rejects French report which says he ordered 1994 attack on president's plane, which sparked genocide. 2004 June—Former president, Pasteur Bizimungu, is sentenced to 15 years in jail for embezzlement, inciting violence and associating with criminals. 2005 March—Main Hutu rebel group, FDLR, says it is ending its armed struggle. FDLR is one of several groups accused of creating instability in DR Congo; many of its members are accused of taking part in 1994 genocide. Mass prisoner release 2005 July—Government begins the mass release of 36,000 prisoners. Most of them have confessed to involvement in the 1994 genocide. It is the third phase of releases since 2003—part of an attempt to ease overcrowding. 2006 January—Rwanda's 12 provinces are replaced by a smaller number of regions with the aim of creating ethnically-diverse administrative areas. 2006 November—Rwanda breaks off diplomatic ties with France after a French judge issues an international arrest warrant for President Kagame, alleging he was involved in bringing down Habyarimana's plane. 2006 December—Father Athanase Seromba becomes the first Roman Catholic priest to be convicted for involvement in the 1994 genocide. The International Criminal Tribunal sentences him to life in prison. 2007 February—Some 8,000 prisoners accused of genocide are released. Some 60,000 suspects have been freed since 2003 to ease prison overcrowding. 2007 April—Former president, Pasteur Bizimungu, is released from jail three years into his 15-year sentence after receiving a presidential pardon. 2007 October—Inquiry launched into 1994 presidential plane crash that sparked genocide. 2007 November—Rwanda signs peace agreement with Democratic Republic of Congo. Under the deal DRC will hand over those suspected of involvement in the 1994 genocide to Kigali and to the International Criminal Tribunal for Rwanda. Arrests abroad 2008 January—French police arrest former Rwandan army officer Marcel Bivugabagabo who is on list of war criminals wanted for trial by the Rwandan government. 2008 February—A Spanish judge issues arrest warrants for 40 Rwandan army officers, accusing them of genocide, terrorism and crimes against humanity. 2008 April—President Paul Kagame says the Spanish judge who issued arrest warrants for Rwandan army officers can "go to hell". 785 Lazard Emerging Markets Debt 2008 May—A former cabinet minister, Callixte Kalimanzira, goes on trial at the International Criminal Tribunal for Rwanda, charged with taking part in the 1994 genocide. 2008 August—Rwanda accuses France of having played an active role in the genocide of 1994, and issues a report naming more than 30 senior French officials. 2008 France says the claims are unacceptable. 2008 September—President Paul Kagame's Rwanda Patriotic Front (RPF) wins large majority in parliamentary elections. 2008 September—Former deputy prosecutor Simeon Nshamihigo is sentenced to life imprisonment for role in genocide by the UN tribunal. He was working as a defence investigator at the tribunal under an assumed name when arrested in 2001. 2008 October—Rwanda decides all education will be taught in English instead of French, officially as a result of joining the English-speaking East African Community. 2008 November—Rwanda expels German ambassador and recalls own ambassador in row over detention in Germany of presidential aide Rose Kabuye in connection with the shooting down of President Habyarimana's plane. Genocide trials 2008 December—One of Rwanda's most famous singers, Simon Bikindi, is sentenced to 15 years in prison for inciting violence during the genocide. UN report accuses Rwanda and the Democratic Republic of Congo of directly helping Tutsi rebels fighting in eastern DR Congo. Rwanda denies supplying aid and child soldiers. Theoneste Bagosora sentenced to life imprisonment at UN tribunal for masterminding genocide. 2009 January—Former Justice Minister Agnes Ntamabyariro is jailed for life by a Kigali court for conspiracy to plan the genocide and speeches inciting people to take part. 2009 February—Rwandan troops leave the Democratic Republic of Congo five weeks after entering to attack Hutu rebels. UN war crimes court finds former army chaplain Emmanuel Rukundo guilty of genocide, sexual assault and kidnapping during genocide, sentences him to 25 years in jail. 2009 March—Rwandan MP and member of Tutsi-led governing party Beatrice Nirere found guilty of genocide and sentenced to life imprisonment in Rwandan gacaca traditional community court. Dutch court finds Rwandan Hutu Joseph Mpambara guilty of torture during the genocide but not of war crimes. 2009 November—Rwanda is admitted to the Commonwealth, as only the second country after Mozambique to become a member without a British colonial past or constitutional ties to the UK. France and Rwanda restore diplomatic relations, three years after they were severed over a row about responsibility for the 1990s genocide. 2009 December—Rwanda declared free of landmines—the first country to achieve this status. 2010 February—French President Nicolas Sarkozy visits to mark reconciliation after years of accusations over the genocide. Rwanda said France armed Hutu extremists, and a French judge accused President Kagame of involvement in the death of President Habyarimana. 2010 April—Opposition leader Victoire Ingabire, who planned to run against President Kagame in the August elections, is arrested. Her lawyer is later detained. 2010 June—Ex-army chief of staff Faustin Kayumba Nyamwasa, a former ally turned critic of President Kagame, is wounded in a shooting while in exile in South Africa. Kagame re-elected 2010 August—President Kagame wins new term in elections. 2010 October—UN report into 1993-2003 conflict in DR Congo says Rwandan forces took part in attacks on Hutu civilians which—if proven in court—could amount to genocide. 786 Rwanda 2010 December—Exiled military officers General Kayumba Nyamwasa and Colonel Patrick Karegeya form new political party—Rwanda National Congress. Members of the pygmy community—known as the Batwa—say authorities have destroyed hundreds of their homes as a part of a purge of traditional thatched houses. 2011 February—Opposition leader Bernard Ntaganda, accused of stoking ethnic tensions, is sentenced to four years in jail. Rights groups criticise the ruling. 2011 June—Former family minister Pauline Nyiramasuhuko becomes first woman to be found guilty of genocide by an international court. 2011 September—Former presidential candidate Victoire Ingabire goes on trial accused of genocide denial and working with a terrorist group. 2011 December—International Criminal Court (ICC) frees Hutu rebel leader Callixte Mbarushimana after ruling there is insufficient evidence to back up charges of war crimes and crimes against humanity. He is the first suspect brought to the court to be freed. 2012 June—Rwanda shuts down "gacaca" community courts that for 10 years tried those accused of involvement in the 1994 genocide. Human rights group say they fell short of international legal standards. Rwanda says about 65% of the nearly two million people tried were found guilty. 2012 July—The US, Britain and the Netherlands halt aid to Rwanda over UN accusations that it is fuelling a rebellion in the Democratic Republic of Congo by training rebel troops. Rwanda denies the charge. 2012 October—A Rwandan court sentences opposition leader Victoire Ingabire to eight years in jail on charges of threatening state security and "belittling" the 1994 genocide. 2012 December—The UN-backed International Criminal Tribunal for Rwanda (ICTR) convicts former government minister and key organiser of the 1994 genocide Augustin Ngirabatware to 35 years in prison. 2013 February—The ICTR overturns the 2011 genocide convictions of former ministers Justin Mugenzi and Prosper Mugiraneza, to the dismay of Rwandan prosecutors. 2013 August—Tension with DR Congo escalates, with Rwanda complaining of rocket attacks on its territory. 2013 September—French court frees former army deputy chief-of-staff Laurent Serubuga, turning down an extradition request on the grounds that genocide and crimes against humanity were not punishable by law in Rwanda in 1994. 2013 September—Parliamentary elections. Governing RPF party gains a resounding victory. 2014 January—Leading opposition figure Patrick Karegeya dies in exile in South Africa, which becomes embroiled in a diplomatic row with Rwanda. 2014 March—Former Rwandan intelligence officer Pascal Simbikangwa is becomes the first man to be convicted in France in connection with the 1994 genocide in Rwanda. 2014 April—Rwanda holds a week of official mourning to mark the 20th anniversary of the genocide in which an estimated 800,000 people were killed. 2014 October—Rwanda suspends BBC broadcasts in the Kinyarwanda language because of a film questioning official accounts of the 1994 genocide. 2015 February—An official inquiry in Rwanda calls for criminal and civil proceedings against the BBC over a documentary which questioned official accounts of the 1994 genocide. The BBC rejects the inquiry's findings. 2015 April—The International Criminal Tribunal for Rwanda holds its last hearings, 10 years after opening, and having convicted 93 individuals in connection with the 1994 genocide. 2016 January—President Kagame announces that he will stand for the presidency again in 2017, after winning a December referendum on constitutional changes allowing him to serve a third term. 2016 November—Rwanda opens an investigation into 20 French officials it says are suspected of involvement in the genocide of 1994. Source: BBC 787 Lazard Emerging Markets Debt Notes 1 As of December 2016. 2 IMF WEO Data, October 2016. 3 http://www.minecofin.gov.rw/fileadmin/templates/documents/NDPR/Vision_2020_.pdf, accessed November 27, 2016. 4 IMF WEO Data, October 2016. 5 Growth and projection plan: “RWANDA VISION 2020,” Rwanda Ministry of Finance, July 2000, accessed on December 12, 2013, http://www.sida.se/Global/Countries%20and%20regions/Africa/Rwanda/D402331A. pdf. Electricity costs: “Getting Electricity,” Doing Business, accessed on December 12, 2013, http://www. doingbusiness.org/data/exploretopics/getting-electricity. 6 “Economy Rankings,” Doing Business 2016, accessed on November 27, 2016, http://www.doingbusiness. org/rankings. 7 “The Global Competitiveness Index 2016–17,” World Economic Forum, accessed on November 27, 2016, http://www3.weforum.org/docs/GCR2016-2017/05FullReport/TheGlobalCompetitivenessReport2016-2017_ FINAL.pdf. 8 “Corruption Perceptions Index 2015,” Transparency.org, accessed on November 27, 2016, http://www. transparency.org/cpi2015#downloads. 9 “Rwanda, Cote d’Ivore, Burundi Lead Sub-Sahara in Improving Business Regulations,” The World Bank, October 28, 2013, accessed on December 16, 2013, http://www.worldbank.org/en/news/pressrelease/2013/10/28/rwanda-cote-divoire-burundi-subsaharan-africa-improving-business-regulation. 10 https://www.imf.org/en/News/Articles/2016/11/02/PR16480-Rwanda-IMF-Staff-Conclude-Review-Visit, accessed on November 27, 2016. 11http://www.newtimes.co.rw/section/article/2016-11-25/205696/, accessed on November 27, 2016. 12As of October 2015, Source: Lazard, Haver. 13http://www.statistics.gov.rw/publication/transport-and-tourism-extracts-statistical-yearbook-2015, accessed on November 27, 2016. 14“Travel & Tourism Economic Impact 2016: Rwanda,” World Travel and Tourism Council, accessed on November 27 2016, http://www.wttc.org/-/media/files/reports/economic%20impact%20research/ regions%202016/world2016.pdf . 15http://ktpress.rw/2016/11/rwandas-38m-cable-car-project-hooks-italian-investor/, accessed November 27, 2016. 16“Rwanda,” IMF Country Report No. 13/177, June 2013, accessed on December 12, 2013, http://www.imf. org/external/pubs/ft/scr/2013/cr13177.pdf. 17Rwanda IMF Country Report 16/153. June 2016 https://www.imf.org/external/pubs/ft/scr/2016/cr16153.pdf. 18http://www.newsweek.com/burundi-and-rwanda-east-africas-bad-neighbors-460859, accessed on November 27, 2016. 19http://mgafrica.com/article/2016-05-16-first-uganda-opted-for-tanzania-pipeline-now-rwanda-abandonskenya-sgr-rail-route-picks-dar-es-salaam. 20https://www.weforum.org/agenda/2016/04/5-things-to-know-about-rwanda-s-economy/, accessed on November 27, 2016. 21“Human Development Reports,” United Nations Development Programme, accessed on October 22, 2015, http://hdr.undp.org/en/data. 22IMF WEO Outlook Data, October 2016. 23As of October 2015. Source: IMF, Lazard. 24Rwanda IMF Country Report 16/153. June 2016 https://www.imf.org/external/pubs/ft/scr/2016/cr16153.pdf 25Bloomberg data. 26Africa 2016 Statistical Handbook, African Development Bank, http://www.afdb.org/fileadmin/uploads/afdb/ Documents/Publications/African_Statistical_Yearbook_2016.pdf. 27Institute of Policy Analysis and Research- Rwanda. August 2009. 28Wallis, William, “Rwandan Patriotic Front: Party builds a formidable business group,” Financial Times, September 12, 2012, accessed on December 12, 2013, http://www.ft.com/intl/cms/s/0/7fcab78c-ff1b-11e1a4be-00144feabdc0.html. 29http://www.bbc.com/news/world-africa-35209186, accessed on November 27, 2016. 788 Senegal Summary Moody’s B1 / S&P B+ / Fitch NR1 Economy: Agriculture 16%, Industry 24%, Services 60% Senegal’s growth has lagged behind that of Sub-Saharan Africa peers. However, activity is beginning to pick up in response to a growth and poverty reduction program that aims to transform the country into a West African economic hub by implementing structural reforms, fostering human development, and improving governance. This development program has been aided by adherence to IMF guidelines for the past six years, as well as by multiple rounds of IMF technical assistance since 2008 aimed at strengthening debt management, national accounts, tax administration, public expenditures, and statistical capabilities. These market-friendly policies are further supported by a relatively stable political environment, with the current government enjoying a strong majority in the National Assembly, as well as by an absence of ethnic and social tensions in the country. Economic Indicators Population (Millions) GDP per Capita (USD) Nominal GDP (USD Billions) 2012 2013 2014 2015 2016F 2017F 13.7 14.1 14.5 15.0 15.4 15.9 1,031 1,044 1,047 904 902 937 14.1 14.8 15.2 13.5 13.9 14.9 6.8 Real GDP (%) 4.4 3.6 4.7 5.4 6.0 Year-End CPI (%) 1.1 -0.1 -0.8 0.4 1.4 1.7 Fiscal Balance (% of GDP) -5.8 -5.5 -5.1 -4.8 -4.2 -3.7 Interest (% of Revenues) 6.5 6.8 6.8 7.9 7.7 7.4 FC Debt/Public Debt (%) 71.0 69.0 68.8 70.7 72.7 71.7 Government Debt (% of GDP) 42.8 46.9 54.2 56.8 57.3 56.2 Government Debt (% of Revenue) 185.8 207.0 212.2 225.8 230.6 230.4 Current Account (% of GDP) -10.8 -10.4 -8.9 -7.6 -8.4 -8.2 1.6 1.9 2.5 2.3 2.4 2.5 External Debt (% of GDP) 61.6 65.4 69.6 70.0 71.2 71.5 Foreign Reserves/External Debt (%) 21.8 22.8 19.8 22.2 22.2 20.7 Foreign Reserves (Mo. of Imports) 3.3 3.6 3.2 4.0 4.2 4.0 13.4 14.9 13.8 15.5 15.8 14.8 FDI (% of GDP) Foreign Reserves (% of GDP) As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: BCEAO, National Statistics Agency, IMF, Bloomberg, Lazard 789 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB- BB- B+ B+ B 2000 2008 Moody’s 2016 S&P B 2000 2008 Moody’s 2016 S&P As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 1000 800 600 400 200 0 2008 Senegal 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 790 Senegal Strengths Political Stability Political stability is a key strength for Senegal, as it is one of the few African countries that has not experienced a coup d’état since its independence in 1960. In contrast to other African countries where the incumbent is often reluctant to relinquish power, President Macky Sall scheduled a referendum in March 2016 with a goal to “modernize the political regime, reinforce good governance, and consolidate the rule of law.” Prior to the referendum, however, the Constitutional Council rejected President Sall’s proposal to reduce the presidential term to five years from seven. Nevertheless, the reform was approved by 68% of Senegalese voters.2 Compared to the average Sub-Saharan African country, Senegal has a better rule of law, regulatory quality, and government effectiveness as measured by the World Bank’s 2015 Governance Indicators. Senegal ranks 61st of 167 countries in Transparency International’s 2015 Corruption Perception Index, which is a steady improvement from its 2013 rank of 77rd of 175 countries, and ahead of Côte d’Ivoire (107th), Nigeria (136th), and Kenya (139th). While business conditions have improved, Senegal still ranks poorly on the World Bank’s latest Doing Business Report at 147th of 190 countries. Plan Sénégal Emergent (PSE) In February 2014, President Sall launched the Plan Sénégal Emergent, a medium- and long-term economic and social program that aims to transform Senegal into an emerging market economy by 2035. The program is based on three pillars: a structural transformation of the economy to promote exports and attract investment, an improvement in social conditions (including a reduction in social and income inequality), and the reinforcement of security and consolidation of the rule of law.3 The PSE aims to increase annual growth to an average 7.1% from 2014 to 2018, reduce the current account deficit to less than 6% of GDP by 2018, and keep inflation below 3%. The government has identified agriculture, agro-business, mining, and tourism as key sectors for development. The PSE also envisions Senegal as a logistics, transportation, and industrial hub in West Africa. The action plan for the PSE from 2014 to 2018 consists of 17 major reforms and 27 infrastructure projects with an estimated cost of US$19 billion. As part of this infrastructure push and with the assistance of the Africa Development Bank, the government intends to build a new city about 40 kilometers from Dakar in an effort to ease population pressures in the capital.4 The IMF supports the PSE and in June 2015 renewed a three-year Policy Support Instrument (PSI) to facilitate its implementation.5 Low Risk of a Balance of Payments Crisis Senegal is a member of the West African Economic and Monetary Union (WAEMU), which was created to promote economic and trade integration between Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. WAEMU members share a common currency, the CFA (African Financial Community) franc, which was originally pegged to the French franc and is now pegged to the euro. The CFA franc has been the currency of these countries since they were French colonies, and full convertibility is guaranteed by the French Treasury, where the WAEMU keeps half of its foreign reserves. This pooling of resources, coupled with the backing of the French Treasury, minimizes the risk of a balance of payments crisis in Senegal or in other WAEMU countries. The only period during which WAMEU members faced a balance of payment crisis was in 1994 when the CFA franc was devalued 50%.6 At that time, economic and political conditions were much less favorable, with most WAEMU states registering large fiscal and current account deficits. Since that time, fiscal and external imbalances have improved, as have relations with multilateral orga791 Lazard Emerging Markets Debt nizations, which also provide support to combat balance-of-payments pressures. Senegal is projected to register relatively large current account deficits equal to 7–8% of GDP over the forecast horizon, owing to the import of capital goods related to the country’s infrastructure development program. These shortfalls are expected to be financed by public borrowing at both concessional and non-concessional rates, as well as by external private capital flows. Robust Services Sector Senegal has a dynamic services sector and serves as one of the principal business hubs for West Africa. Several international public and private sector entities, such as the IMF, World Bank, the US and British embassies, as well as some multinationals, use Senegal as a base for serving that country as well as Mali, Guinea, and Guinea-Bissau. Senegal’s status as a business hub has had positive spillover effects on the broader economy, with the construction of new hotels, shopping malls, and restaurants. An upgraded airport costing more than US$500 million is nearly complete, with a rail link connecting the airport to Dakar.7 In addition, a new road was recently opened near the coast in Dakar, making the area more attractive for tourists, which is one of Senegal’s major potential growth areas. Tourism remains relatively unexploited, despite the country’s attractive coast and favorable weather conditions year-round. Mining a Key Priority Sector The government has prioritized the development of the mining sector by approving a new mining code in October 2016 and investing in transportation infrastructure to support this initiative.8 Senegal has some of the largest gold deposits in Africa, with an estimated 2.24 million ounces in key areas. The country also has high-quality iron ore deposits, with estimated reserves of 750 million tons. However, the government has a checkered past with international mining companies operating in Senegal, settling a dispute with mining company ArcelorMittal for US$150 million in 2014. The recent approval of the mining code should help the government’s efforts to seek another long-term mining partner. Remittances Between 2010 and 2013, remittances in Senegal averaged 52 percent of exports of goods and services and 13 percent of GDP.9 In 2014, remittances amounted to 13.4% of GDP.10 These inflows represent an important source of foreign exchange, a steady source of income, and a major source of economic stimulus. About 80% of remittances fund consumption and have a positive spillover effect on economic activity, even though they do not improve the productivity of the economy. For example, major housing development projects around Dakar have been financed with family remittances. This construction activity has generated employment and income for thousands of people. Minimal Ethnic or Social Tension A homogeneous population and the absence of ethnic and religious tensions (compared to other African countries) have contributed to Senegal’s generally peaceful political environment. Senegal has avoided the regional, ethnic, and religious conflicts that have occurred in the region because 94% of the population is Muslim, and a minority is Christian. However, the country is still adversely affected by spillover effects from regional conflicts, such as ongoing tensions in Mali, which is a key trading partner. In addition, there is ethnic conflict in the Casamance region located in the southern part of Senegal, where the separatist Movement of Democratic Forces of Casamance (MFDC) has been fighting a low-grade war for independence since 1980. A peace accord was reached in 2004, which has helped to improve security 792 Senegal conditions.11 Nevertheless, sporadic conflict between the MFDC and the military could potentially lead to greater violence. Weaknesses Weak but Improving Growth Senegal traditionally has had lower GDP growth than other Sub-Saharan countries. This remains a relative weakness, although economic activity is projected to improve after slowing since 2010. Senegal registered a real GDP growth of 5.4% in 2015, and the IMF expects GDP growth to accelerate to nearly 7% by 2017, fueled by public investment as the Plan Sénégal Emergent is put in place. Going forward, land tenure and high labor costs continue to constrain growth since ambiguities over land ownership discourage long-term investment. In addition, labor costs, which are patterned after the French model, tend to be high, undermining the competitiveness of the manufacturing sector. Electricity Production Electricity shortages and poor electrical production capacity are major problems for Senegal’s economy, with only 55% of the population having access to electricity.12 Power outages are common and are costly for the non-agricultural sectors of the economy as well as for the government, reducing economic growth by about 1% per year. Due to the poor production capacity, Senegal has had to rely on expensive temporary electricity imports. The government is trying to diversify the sources of energy production and has a goal of reducing its energy imports from 91% to 45% by 2017. The government’s energy development plan would substantially increase the use of coal, gas, and renewable energy. In addition, some of the new power plants in the pipeline can be converted to operate on natural gas or high efficiency heavy fuel oil.13 Government Balance Sheet Senegal’s fiscal deficit has gradually declined in recent years, but it remains high, which is increasing the country’s debt ratios. When the current government took office in 2012, it undertook a major fiscal consolidation effort to prevent the fiscal deficit from increasing to double-digit levels after the outgoing government’s increased spending during the election campaign. These efforts have paid off, with the fiscal shortfall projected to finish 2016 at about 4% of GDP, down from nearly 7% in 2011. The IMF projects further fiscal consolidation, with a deficit below 4% in 2017.14 Over the longer term, however, further fiscal consolidation will be difficult without stronger economic growth. In the meantime, Senegal’s debt levels continue to deteriorate, with public debt increasing to about 57% of GDP in 2016 from 36% of GDP in 2010.15 Limited Natural Resources Unlike most of its Sub-Saharan neighbors, Senegal is not rich in natural resources. The country is not an oil producer; mining activity is limited; and agricultural output is insufficient to meet the country’s needs. A large portion of the country is situated in the arid Sahel region, where droughts are frequent, living conditions are harsh, and hunger is widespread. Most of the land in northern Senegal is desert, where agricultural activity is limited and a large portion of the population relies on food imports. The most fertile region of Senegal is in southern Casamance, which is historically unstable, owing to the separatist movement in that area. Another fertile area is around the Senegal River on the northern border with Mauritania. The agricultural sector in Senegal is important because it employs more than 793 Lazard Emerging Markets Debt 50% of the population, but the sector is uncompetitive. In addition, productivity is low because farmers operate at a subsistence level, and agricultural output is dependent on favorable rainfall (only 4% of cultivated land is irrigated). Groundnuts, Senegal’s principal cash crop, account for nearly one-third of Senegal’s cultivated land, but exports of these products earn only about US$70 million annually. An Unstable Neighborhood Political unrest in Mali in 2012 adversely affected trade with Senegal, and ongoing turmoil will continue to have repercussions since Mali accounted for 16.8% of Senegal’s exports in 2014.16 Senegal is also vulnerable to potential unrest in Mauritania, where terrorist training camps have reportedly been established in sparsely populated regions of that country. 794 Senegal Country Background Size 196,723 KM2 (153rd) Capital Dakar Population 14.3 Million Ethnic Groups Wolof 43.3%, Pular 23.8%, Serer 14.7%, Jola 3.7% Religion Muslims 94%, Christians 5% Median Age 18.7 Years Literacy Rate 57.7% Independence June 20, 1960 President Macky Sall Presidential Election 2019 Legislative Branch 150 Seats (Benno Bokk Yakaar 119) Economy Agriculture 15.6%, Industry 23.8%, Service 60.6% Labor Force Agriculture 77.5%, Industry, Service 22.5% Merchandise Exports Fish, Groundnuts (Peanuts), Petroleum Products Export Partners Mali 12.8%, Switzerland 9.7%, India 5.9%, Côte d’Ivoire 5.3%, China 5.1%, UAE 4.1%, France 4.1% Currency West African CFA franc (XOF) As of November 2016 Source: CIA 795 Lazard Emerging Markets Debt Country Timeline Independence 1960 June—Senegal becomes independent, as part of Mali Federation. 1960 August—Senegal pulls out of Mali Federation, becomes separate republic with Leopold Senghor as president. 1962 Attempted coup led by Prime Minister Mamadou Dia. Dia is imprisoned until 1974. 1963 First constitution drawn-up. 1966 Senghor's Senegalese Progressive Union becomes country's sole political party. 1978 Three-party political system introduced. 1981 Leopold Senghor steps down; Abdou Diouf becomes president in 1981. 1982 Senegambian Confederation formed; Senegal and neighbouring Gambia aim to combine military and security forces. 1982 Separatists in southern province of Casamance form Casamance Movement of Democratic Forces (MFDC). 1988 Diouf re-elected. 1989 Senegambian Confederation dissolved. 1992 Diplomatic relations with Mauritania restored. 1993 Diouf re-elected for third term Political change 2000 March—Opposition leader Abdoulaye Wade wins second round of presidential elections, ending 40 years of Socialist Party rule. 2001 January—Voters back new constitution which shortens presidential term, limits holder to two terms, and gives president power to dissolve parliament. 2001 March—Government signs peace accord with separatist rebels in Casamance. But there is little follow-up as separatists go through splits and leadership changes. 2001 April—Abdoulaye Wade's Senegalese Democratic Party (PDS) wins an overwhelming majority in parliamentary elections. 2001 December—Leopold Senghor, founding father of Senegal, dies aged 95. 2002 September—Joola ferry disaster: 1,863 passengers are killed when the Senegalese vessel capsizes off the Gambian coast. 2002 November—President Wade sacks the prime minister and the rest of the government; the move is said to be linked to the handling of the Joola ferry disaster. 2004 December—Casamance Movement of Democratic Forces (MFDC) and government sign pact aimed at ending secessionist struggle in province of Casamance. 2005 July—Former PM Idrissa Seck is charged with undermining state security, sparking clashes between his supporters and police. He is jailed for a time, but is released in February 2006 after the charge is dropped. Tariff row 2005 796 October—Dispute with neighbouring Gambia over ferry tariffs on the border leads to a transport blockade. The economies of both countries suffer. Nigerian President Olusegun Obasanjo brokers talks to resolve the issue. Senegal 2006 August—The army launches an offensive against rebels from a faction of the Casamance Movement of Democratic Forces (MFDC). Senegal and Spain agree to jointly patrol the Senegalese coast to curb the exodus of illegal migrants heading for Europe. Senegal is a favourite starting point for migrants setting off in rickety boats. 2006 December—Spain and Senegal agree a series of measures to curb illegal migration to the Canary Islands. Spain is to give 4,000 Senegalese temporary work permits over the next two years. 2007 February—President Wade wins re-election. 2007 June—President Wade's ruling coalition increases its parliamentary majority in elections boycotted by the opposition. 2007 September—Spanish authorities launch a campaign on national television in Senegal to discourage illegal migration. 2007 December—President Abdoulaye Wade declares three days of mourning after Serigne Saliou Mbacke, leader of Senegal's richest and most powerful Islamic brotherhood, dies aged 92. Habre trial moves 2008 April—Senegal's national assembly amends the country's constitution to allow the trial of Chad's ex-leader Hissene Habre, who is accused of human rights abuses during his eight years in power. 2009 March—Opposition parties win control of several cities in local elections, including Dakar, formerly a stronghold of President Wade. 2009 April—Belgium starts proceedings at the International Court of Justice in The Hague to try to force Senegal to bring former Chadian President Hissene Habre to trial for alleged human rights abuses during his time in power. Prime Minister Cheikh Hajibou Soumare steps down after governing coalition suffers losses in local council polls. The president's son Karim is included in the new cabinet. 2009 May—A UN court accepts Senegal's pledge to keep in the country ex-Chad dictator Hissene Habre, 2009 September-October—Clashes between troops and rebels in the province of Casamance. 2010 April—Senegal marks 50 years of independence. France gives up its military bases in the country. 2011 December—Several people killed in attack on a military base in the Casamance region. 2012 January, February—Unrest in run-up to February presidential poll, with police clashing with protesting against President Wade's candidacy. 2012 March—Macky Sall wins presidential elections. 2012 July—President Sall's coalition wins parliamentary elections. 2012 September—MPs abolish the upper house, the Senate, and the post of vice president in an effort to save money for flood relief. Critics say the aim is to weaken the opposition. 2013 April—Karim Wade, the son of former President Abdoulaye Wade, arrested and charged with corruption over a personal fortune he amassed during his father's rule, when he was a senior minister. He denies charges that he profited illegally from major infrastructure and energy projects. 2013 July—The Senegalese authorities arrest former Chadian President Hissene Habre in Dakar and put him on trial him for crimes against humanity committed in Chad under his rule. 2014 April—Rebel leader Salif Sadio, who has been fighting for the independence of the Casamance region, declares a unilateral ceasefire. 797 Lazard Emerging Markets Debt 2014 September—Ex-president Wade's son Karim is put on trial for corruption. Police use teargas to disperse hundreds of his supporters outside the court. 2015 January—Senegal expels leading Gambian opposition figure Cheikh Sidya Bayo to France, accusing him of being a threat to public order. 2015 February—Extraordinary African Chamber court orders former Chadian President Hissene Habre to stand trail in Senegal on charges of war crimes and crimes against humanity. 2015 March—Karim Wade, the son of former President Abdoulaye Wade, is jailed for six years for illicit enrichment while serving as a minister under his father, in what critics say is a politically motivated case. 2016 March—Voters in a referendum approve a proposal to reduce the presidential term from seven years to five. 2016 May—Former leader of Chad Hissene Habre is found guilty of crimes against humanity and sentenced to life in prison by an African Union-backed court in Senegal. Source: BBC Notes 1 As of November 2016. 2 Kelly, Catherine L., “Here’s Everything You Need to Know About Senegal’s Recent Referendum,” The Washington Post, April 3, 2016, https://www.washingtonpost.com/news/monkey-cage/wp/2016/04/03/ heres-everything-you-need-to-know-about-senegals-recent-referendum/. 3 ”Plan Sénégal Emergent,” Republic of Senegal, February 2014, www.gouv.sn/IMG/pdf/PSE.pdf. 4 “Senegal to get $120m smart city in Diamniadio,” Africa Property News, March 2, 2015, http://www.africapropertynews.com/west-africa/3092-senegal-to-get-us-120-million-digital-park.html. 5 The PSI is an instrument of the IMF designed for countries that may not need, or want, IMF financial assistance, but still seek IMF advice, monitoring and endorsement of their policies. Source: “Senegal: Request for a Three-Year Policy Support Instrument,” International Monetary Fund, IMF Country Report No. 15/273, September 2015, http://www.imf.org/external/pubs/ft/scr/2015/cr15273.pdf. 6 “A Brief History of the CFA Franc,” African Business magazine, February 19, 2012, http://africanbusinessmagazine.com/uncategorised/a-brief-history-of-the-cfa-franc/. 7 Barrow, Keith, “Senegal launches Dakar airport rail link tender,” International Railway Journal, August 3, 2015, http://www.railjournal.com/index.php/africa/senegal-launches-dakar-airport-rail-link-tender. html?channel=538. 8 “Senegal Passes New Mining Code,” law office of Geni & Kebe, October 31, 2016, http://www.gsklaw.sn/ news/243-senegal-passes-new-mining-code. 9 “Senegal: 2014 Article IV Consultation and Eighth Review Under the Policy Support Instrument,” International Monetary Fund, IMF Country Report No. 15/2, January 2015, http://www.imf.org/external/pubs/ ft/scr/2015/cr1502.pdf. 10“Senegal: Request for a Three-Year Policy Support Instrument,” International Monetary Fund, IMF Country Report No. 15/273, September 2015, http://www.imf.org/external/pubs/ft/scr/2015/cr15273.pdf. 11“Peace Accord Matrix,” Kroc Institute for International Peace Studies, University of Notre Dame, https:// peaceaccords.nd.edu/accord/general-peace-agreement-between-government-republic-senegal-and-mfdc. 12“Senegal Energy Sector Overview,” USAID, September 20, 2016, https://www.usaid.gov/powerafrica/senegal. 13“Powering Senegal: World Bank Group Supports Government Effort to Meet Increasing Electricity Demand,” The World Bank, August 14,2015, http://www.worldbank.org/en/news/press-release/2015/08/14/ powering-senegal-world-bank-group-government-effort-electricity-demand. 14 “Senegal: Second Review Under the Policy Support Instrument and Request for Modification of Assessment Criterion,” International Monetary Fund, IMF Country Report No. 16/144, June 2016, https://www.imf.org/ external/pubs/ft/scr/2016/cr16144.pdf. 15“World Economic Outlook,” International Monetary Fund, October 2016. 16“Senegal Trade at a Glance,” World Integrated Trade Solution, http://wits.worldbank.org/countrysnapshot/ SEN/textview. 798 South Africa Summary Moody’s Baa2 / S&P BBB- / Fitch BBB1 Economy: Agriculture 2%, Industry 29%, Services 69% South Africa is much more advanced than most Sub-Saharan African countries: its economy is more diversified and it has solid economic pillars in the central bank, the treasury, and the banking system. However, economic growth has slowed as a result of issues which include a political crisis and structural weaknesses which President Jacob Zuma does not seem to have the vision or willingness to address. The African National Congress (ANC) is deeply divided, and its popularity is on a downward trajectory. The ANC will hold its internal elections in 2017, and a change in leadership or policy response would be positive as it would likely give greater clarity on the medium-term outlook for South Africa. Economic Indicators 2012 2013 2014 2015 2016F 52.3 53.0 53.7 54.4 55.1 55.8 GDP per Capita (USD) 7,602 6,912 6,491 5,738 5,196 5,127 Nominal GDP (USD Billions) Population (Millions) 2017F 397.4 366.2 348.5 312.3 286.3 286.1 Real GDP (%) 2.2 2.2 1.5 1.3 0.4 1.1 Year-End CPI (%) 5.7 5.4 6.1 4.8 6.3 5.7 Fiscal Balance (% of GDP) -5.1 -4.6 -4.7 -4.5 -3.5 -3.1 Interest (% of Revenues) 10.7 11.1 11.9 11.8 11.7 11.9 FC Debt/Public Debt (%) 9.2 10.0 8.5 9.0 9.0 9.0 38.8 40.6 42.6 45.2 46.5 47.1 Government Debt (% of GDP) Government Debt (% of Revenue) 148.8 157.1 176.2 176.5 176.5 176.5 Current Account (% of GDP) -5.1 -5.9 -5.3 -4.4 -3.9 -4.1 FDI (% of GDP) 0.4 0.5 -0.5 -1.1 -0.7 0.2 External Debt (% of GDP) 35.7 37.3 41.6 39.7 46.7 48.5 Foreign Reserves/External Debt (%) 35.8 36.3 33.8 36.9 35.4 35.2 Foreign Reserves (Mo. of Imports) 4.9 4.9 5.1 5.5 6.7 6.8 12.8 13.5 14.1 14.7 16.5 17.1 Foreign Reserves (% of GDP) As ofNovember 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IMF, Haver Analytics, Lazard 799 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency A AA- A- A+ BBB+ A BBB A- BBB- BBB+ BB+ BBB BB BB- 2000 2008 Moody’s 2016 S&P BBB- 2000 2008 Moody’s Fitch 2016 S&P Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads Local Yield 1000 12 11 800 10 600 9 8 400 7 200 6 0 2008 2010 South Africa 2012 EMBIGD 2014 2016 5 2008 2010 South Africa 2012 2014 2016 GBI-EM Global Div As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 800 South Africa Strengths Economic Policies and Rule of Law South Africa’s economic management remains relatively solid and predictable, although it seems to be gradually changing for the worse. The treasury, the reserve bank, and the banking supervision authority are considered the three pillars of the economy. They are sound, transparent institutions run by capable technocrats. Business conditions are currently friendly as South Africa ranks 74th out of 190 countries on the World Bank’s Ease of Doing Business Index. 2 Wealth, Infrastructure, and Resources Within Sub-Saharan Africa, South Africa is one of the wealthiest countries and has the strongest institutions and best infrastructure. GDP per capita was triple the average of the region as of the end of 2016.3 The country’s infrastructure is by far the best in the region but is still in need of significant improvement. South Africa is also rich in natural resources with mining reserves and production among the top in the world.4 Location South Africa benefits from its location and trade flows with high growth Sub-Saharan countries. According to the International Monetary Fund’s World Economic Outlook, Sub-Saharan Africa is the second-fastest growing region in the world after Asia.5 Many international companies, including a number of firms in the retail, manufacturing and banking sectors, are expanding in the region and have set up regional headquarters in South Africa. As a result, exports to the Sub-Saharan region are growing in importance, totaling close to 30% of total exports as of mid-2015.6 Weaknesses Low Growth Persistently low economic growth is one of South Africa’s main weaknesses. Since 2010, the economy has grown at an average rate of 2.0%, well below the average of emerging markets countries.7 This has been driven by a number of structural factors, including low and declining levels of investment and a shortage of skilled labor due to the low quality of education. Meanwhile, the labor costs are high as unions hold significant power and continue to demand wage increases that exceed inflation and productivity gains. Poor Social Conditions South Africa’s social conditions and income distribution have only improved marginally over the past 15 years. The ANC, which came into power in the 1990s, has tried to solve these issues but with little success, in part due to internal divisions within the ANC itself. Unemployment is very high at roughly 25%. Public discontent has affected economic growth as evidenced by recent strikes in the mining sector. South Africa also suffers from social inequality and disparate income distribution, which are some of the worst in the world. South Africa ranks 118th out of 187 countries, below other Sub-Saharan countries such as Botswana and Gabon, on the Human Development Index,8 and ranks 135th out of 136 countries on the Gini Index, which is a measure of income distribution. 9 801 Lazard Emerging Markets Debt ANC Internal Dispute President Jacob Zuma does not seem to have the vision or willingness to tackle structural economic problems, focusing instead on remaining in power. Meanwhile, the ANC tripartite alliance is deeply divided, with one camp supporting Zuma and the status quo, and the other supporting Finance Minister Gordhan and economic reform. Meanwhile, a lack of social progress is affecting the popularity of the ANC, which suffered disappointing results in local elections in 2016, losing key municipalities and regions. The ANC will hold its internal elections in 2017, and a change in leadership or policy response would be positive as it would give greater clarity on the medium-term outlook for South Africa. High Fiscal Deficit and Growing Public Debt The government’s balance sheet is not as strong as it was five years ago, leaving less room for the government to adjust to an external or domestic shock with fiscal policy. The government continues to increase spending on social programs and wages, leaving less room to increase the investment needed improve economic growth. However, the government is making some progress in reducing the fiscal deficit via higher revenues. It is aiming to reduce the fiscal deficit to 2.5% of GDP between 2017–2020 from a peak of 5.2% of GDP in fiscal year 2012–2013. Achieving a deficit of 2.5% of GDP will be challenging to meet, given the weaker economic growth and social pressure to increase expenditures. However, the downward fiscal trend should continue, thus helping the debt ratios stabilize at around 50% of GDP. The main risk would be further wage increases or absorbing potential contingent liabilities of the public companies—such as the public utility Eskom—which have a weak balance sheet.10 Wide Current Account Deficits Export competitiveness issues, low national savings, and a deterioration in the terms of trade have resulted in a persistently high current account deficit (CAD) of almost 5% of GDP, although the economic slowdown has contributed to a marginal improvement. Foreign direct investment (FDI) inflows remain limited; thus, the financing of the current account is more dependent on portfolio flows. Additionally, foreign reserves are relatively low compared to external funding needs. While external debt is still moderate at 47% of GDP, it has been rising steadily from less than 30% of GDP at the end of 2011. Monetary and Exchange-Rate Policy Inflation and Monetary Policy: The South African Reserve Bank (SARB) has operated under an inflation-targeting regime since February 2000. The central bank targets headline CPI within the 3%–6% range over a 12-month period. As a secondary objective, the SARB aims to support growth and promote financial stability. Monetary-policy implementation: The SARB uses cash reserve requirements and a weekly 7-day repurchase, or repo (at the policy-rate level), to manage banking system structural liquidity. In addition to the latter, the central bank also provides overnight liquidity to banks through supplementary repos and through an automatic standing facility that lends/borrows 100 bps above/below the policy rate. Finally, a range of open-market operations are also conducted to give effect to the SARB’s monetary policy stance. The 12-month headline inflation printed close to the upper bound of SARB’s tolerance range between 2013–2015. As of September 2016, it was slightly above the 6% limit at 6.12%. The 802 South Africa recent spike has been driven by the rebound in food prices (15% of the inflation basket) and transport prices (16% of the basket). Despite low growth and high unemployment, inflation is unlikely to move toward the center of the target, unless the South African rand (ZAR) appreciates over the next 12 months. Inflation expectations are very entrenched at 6%— union expectations in particular—which makes it hard for SARB to break inflation inertia. Following a massive 30% depreciation of the rand in 2015, the currency must provide some relief this year and allow for headline CPI to move within the range by the end of 2016. Over the medium term, we expect inflation in the 5%–6% range as labor reform and energy supply remain binding constraints for a sustainable disinflation trend. The SARB has kept its policy rate unchanged at 7.0% since March 2016. In real terms (policy rate deflated by the 12-month CPI), the policy rate is at 0.90%, slightly above its 10-year average. If the ZAR stabilizes and December 2017 CPI expectations move closer to 5%, the central bank may have room for a small fine-tuning and could bring the repo rate to 6.5% by midyear. Exchange-Rate Policy and Outlook The ZAR is a convertible, freely floating currency. SARB has intervened in the past with the goal to accumulate reserves. Since 2010—a period marked by ZAR depreciation—SARB has refrained from intervening in the foreign-exchange market. South Africa’s international reserves in September 2016 stood at US$42 billion. South Africa’s CAD has been steady at 4%-plus of GDP. The 12-month CAD through June 2016 was 4.5% of GDP versus 4.5% in June 2015. The trade deficit has narrowed since the oil shock of 2014. The 12-month deficit through June 2016 was 0.6% of GDP versus a 1.1% average deficit from June 2011 to Jun 2015. Most of the improvement came from the oil balance as the import bill was down to 2.2% of GDP versus 3.95% on average between June 2011 to June 2015. Given South Africa’s exposure to commodity exports, the lower oil bill helped, but it was somewhat offset by lower exports. The primary income deficit has widened, and the basic balance deficit has expanded to 5.2% of GDP versus a 4.1% average deficit from June 2011 to June 2015. FDI has been declining since 2014. As of June 2016, FDI outflows reached 0.7% of GDP versus inflows of 0.4% of GDP in the period between June 2011–June 2015. Accordingly, the balance-of-payments source remains vulnerable as it is heavily dependent on portfolio flows (0.6% of GDP) and other investments (3.4%). The EU represents 19% of South Africa trade; China 19%; US 12%; Japan 8%. Following the global financial crisis, the USD-ZAR exchange rate reached a high of 16.87 in January 2016. Over the past 12 months, it has traded in a wide 13.17–16.87 range. The ZAR real effective exchange rate (REER) is currently 19% below its 15-year historical average. Adjusted by its volatility, that gap represents a -1.6 standard deviation from the mean. While the REER looks undervalued, the structurally wide CAD should keep ZAR REER below its historical average. 803 Lazard Emerging Markets Debt Inflation USD/ZAR 16 7 6 12 5 8 4 3 4 2000 2008 Inflation 2016 Reference Rate As of December 2016 Source: Bloomberg REER 150 125 100 75 50 2000 2008 2016 REER Median since Dec 2000 Median last 5 yrs Median last 10 yrs As of December 2016 Source: JP Morgan, Lazard 804 2000 2008 2016 South Africa Country Background Size 1,219,090 KM2 (25th) Capital Pretoria Population 54.3 Million Ethnic Groups Black 80%, Coloured 9%, White 8%, Indian/Asian 2.5% Religion Protestants 36.6%, Christian 36%, Catholic 7.1%, Muslim 1.5% Median Age 26.8 Years Literacy Rate 94% Independence May 31, 1961 Political System Constitutional Parliamentary Republic Presidents Jacob Zuma Presidential Election 2019 Legislative Branch National Council of Provinces and National Assembly National Assembly 400 Seats (ANC 62%) Economy Agriculture 2.4%, Industry 28.9%, Service 68.7% Labor Force Agriculture 9%, Industry 26%, Service 65% Merchandise Exports Gold, Diamonds, Platinum, Other Metals, Machinery and Equipment Export Partners China 11.3%, US 7.3%, Germany 6%, Botswana 5.2%, Namibia 5.2%, Japan 4.7%, UK 4.3%, India 4.2% Currency Rand (ZAR) As of November 2016 Source: CIA 805 Lazard Emerging Markets Debt Country Timeline Apartheid set in law 1948 Policy of apartheid (separateness) adopted when National Party (NP) takes power. 1950 Population classified by race. Group Areas Act passed to segregate blacks and whites. Communist Party banned. ANC responds with campaign of civil disobedience, led by Nelson Mandela. 1960 Seventy black demonstrators killed at Sharpeville. ANC banned. 1961 South Africa declared a republic, leaves the Commonwealth. Mandela heads ANC's new military wing, which launches 1964 ANC leader Nelson Mandela sentenced to life imprisonment. 1966 September—Prime Minister Hendrik Verwoerd assassinated. 1970s More than 3 million people forcibly resettled in black 'homelands'. 1976 More than 600 killed in clashes between black protesters and security forces during uprising which starts in Soweto. 1976 Black anger boils over 1984-89 Township revolt, state of emergency. 1989 FW de Klerk replaces PW Botha as president, meets Mandela. Public facilities desegregated. Many ANC activists freed. 1990 ANC unbanned, Mandela released after 27 years in prison. Namibia becomes independent. 1991 Start of multi-party talks. De Klerk repeals remaining apartheid laws, international sanctions lifted. Major fighting between ANC and Zulu Inkatha movement. 1993 Agreement on interim constitution. 1994 April—ANC wins first non-racial elections. Mandela become president, Government of National Unity formed, Commonwealth membership restored, remaining sanctions lifted. South Africa takes seat in UN General Assembly after 20-year absence. Seeking truth 1996 Truth and Reconciliation Commission chaired by Archbishop Desmond Tutu begins hearings on human rights crimes committed by former government and liberation movements during apartheid era. 1996 Parliament adopts new constitution. National Party withdraws from coalition, saying it is being ignored. 1998 Truth and Reconciliation Commission report brands apartheid a crime against humanity and finds the ANC accountable for human rights abuses. 1999 ANC wins general elections, Thabo Mbeki takes over as president. 2000 December—ANC prevails in local elections. Recently-formed Democratic Alliance captures nearly a quarter of the votes. The Inkatha Freedom Party wins 9%. 2001 April—39 multi-national pharmaceutical companies halt a legal battle to stop South Africa importing generic Aids drugs. The decision is hailed as a victory for the world's poorest countries in their efforts to import cheaper drugs to combat the virus. 2001 May—An official panel considers allegations of corruption surrounding a 1999 arms deal involving British, French, German, Italian, Swedish and South African firms. In November the panel clears the government of unlawful conduct. 2001 September—Durban hosts UN race conference. 2001 December—High Court rules that pregnant women must be given Aids drugs to help prevent transmission of the virus to their babies. 2002 April—Court acquits Dr Wouter Basson—dubbed "Dr Death"—who ran apartheid-era germ warfare programme. Basson had faced charges of murder and conspiracy. ANC condemns verdict. 806 South Africa 2002 July—Constitutional court orders government to provide key anti-Aids drug at all public hospitals. Government had argued drug was too costly. 2002 October—Bomb explosions in Soweto and a blast near Pretoria are thought to be the work of right-wing extremists. Separately, police charge 17 right-wingers with plotting against the state. 2003 May—Walter Sisulu, a key figure in the anti-apartheid struggle, dies aged 91. Thousands gather to pay their last respects. 2003 November—Government approves major programme to treat and tackle HIV/Aids. It envisages network of drug-distribution centres and preventative programmes. Cabinet had previously refused to provide anti-Aids medicine via public health system. 2004 April—Ruling ANC wins landslide election victory, gaining nearly 70% of votes. Thabo Mbeki begins a second term as president. Inkatha Freedom Party leader Mangosuthu Buthelezi is dropped from the cabinet. 2005 March—Investigators exhume the first bodies in a Truth and Reconciliation Commission investigation into the fates of hundreds of people who disappeared in the apartheid era. 2005 May—Geographical names committee recommends that the culture minister should approve a name change for the capital from Pretoria to Tshwane. Zuma sacked 2005 June—President Mbeki sacks his deputy, Jacob Zuma, in the aftermath of a corruption case. 2005 August—Around 100,000 gold miners strike over pay, bringing the industry to a standstill. 2006 May—Former deputy president Jacob Zuma is acquitted of rape charges by the High Court in Johannesburg. He is reinstated as deputy leader of the governing African National Congress. 2006 June—Chinese Premier Wen Jiabao visits and promises to limit clothing exports to help South Africa's ailing textile industry. 2006 September—Corruption charges against former deputy president Zuma are dismissed, boosting his bid for the presidency. 2006 December—South Africa becomes the first African country, and the fifth in the world, to allow same-sex unions. 2007 April—President Mbeki, often accused of turning a blind eye to crime, urges South Africans to join forces to bring rapists, drug dealers and corrupt officials to justice. 2007 May—Cape Town mayor Helen Zille is elected as new leader of the main opposition Democratic Alliance (DA). Mass strike 2007 June—Hundreds of thousands of public-sector workers take part in the biggest strike since the end of apartheid. The strike lasts for four weeks and causes widespread disruption to schools, hospitals and public transport. 2007 December—Zuma is elected chairman of the ANC, placing him in a strong position to become the next president. Prosecutors bring new corruption charges against him. 2008 May—Wave of violence directed at foreigners hits townships across the country. Dozens of people die and thousands of Zimbabweans, Malawians and Mozambicans return home. 2008 September—A judge throws out a corruption case against ruling ANC party chief Jacob Zuma, opening the way for him to stand as the country's president in 2009. President Mbeki resigns over allegations that he interfered in the corruption case against Mr Zuma. ANC deputy leader Kgalema Motlanthe is chosen by parliament as president. 807 Lazard Emerging Markets Debt New party launched 2008 December—A new political party is launched in Bloemfontein, in the first real challenge to the governing ANC. The Congress of the People—or Cope—is made up largely of defectors from the ANC and is headed by former defence minister Mosiuoa Lekota. 2009 January—Appeals court rules that state prosecutors can resurrect their corruption case against ANC leader Jacob Zuma, opening the way for Mr Zuma's trial to be resumed, just months before general election. 2009 April—Public prosecutors drop corruption case against Jacob Zuma.ANC wins general election. 2009 May—Parliament elects Jacob Zuma as president.Economy goes into recession for first time in 17 years. 2009 July—Township residents complaining about poor living conditions mount violent protests. 2010 June—South Africa hosts the World Cup football tournament. 2010 August—Civil servants stage nation-wide strike. 2011 May—Local elections, with opposition Democratic Alliance nearly doubling its share of the vote since the last poll. President Zuma mediates in Libyan conflict. 2011 October—President Zuma sacks two ministers accused of corruption. Opposition Democratic Alliance picks a black woman—Lindiwe Mazibuko—as its leader in parliament. Trouble within ANC 2011 November—The ANC suspends its controversial and influential youth leader, Julius Malema, for five years for bringing the party into disrepute. National Assembly overwhelmingly approves information bill accused by critics of posing a threat to freedom of speech. The ANC says it is needed to safeguard national security. 2012 July—Member of white extremist group found guilty of plotting to kill Mandela and trying to overthrow government. 2012 August-October—Police open fire on workers at a platinum mine in Marikana, killing at least 34 people, and leaving at least 78 injured and arresting more than 200 others. Prosecutors drop murder charges in September against 270 miners after a public outcry, and the government sets up a judicial commission of inquiry in October. 2012 September—Former ANC youth leader Julius Malema is charged with money laundering over a government tender awarded to a company partly owned by his family trust. Mr Malema says the case is a politically motivated attempt to silence his campaign against President Zuma, in particular over the Marikana shootings. 2012 October—Platinum mine owner Amplats fires 12,000 striking miners as wave of wildcat strikes shows little sign of abating. 2012 December—President Zuma re-elected as leader of the ANC. 2013 June—Former president Nelson Mandela, aged 94, admitted to hospital for the fourth time in the past year. 2013 September—Nelson Mandela discharged after spending three months in hospital with a lung infection. Doctors say he remains in a stable but critical condition and will be treated at home. 2013 October—Members of a white supremacist group accused of bombings in Johannesburg's Soweto township in 2002, and of plotting to murder Nelson Mandela, are found guilty and given long sentences. 2013 December—Nelson Mandela dies, aged 95. Tributes to "the father of the nation" flood in from throughout the world. 2013 March—The anti-corruption ombudsman heavily criticises President Zuma for a twenty million dollar upgrade to his private home. 2014 May—Ruling ANC party wins a majority in general elections. 2014 October—Paralympics athlete Oscar Pistorius - nicknamed the ''Blade Runner'' because of his prosthetic limbs - is sentenced to five years in jail for killing his girlfriend. 808 South Africa 2015 February—President Zuma announces plans to limit farm sizes and ban foreign farmlandownership in an attempt to redistribute land to black farmers - a longstanding ANC pledge. Power utility Eskom rations electricity to prevent power cuts, blaming years of poor maintenance. 2015 March-April—A spate of anti-immigrant attacks leaves several people dead. 2015 June—Government receives unwelcome international attention over allegations of bribery to disgraced international footballing body FIFA to secure 2010 World Cup, and allowing Sudanese President Omar al-Bashir to visit despite International Criminal Court arrest warrant over genocide and war-crimes charges. Source: BBC Notes 1 As of December 2016. 2 “Economy Rankings,” Doing Business, accessed on November 10, 2015, http://www.doingbusiness.org/ rankings. 3 As of December 2015, Source: Haver Anaytics. 4 Yager, Thomas R., “Mineral Yearbook South Africa,” U.S. Geological Survey, July 2013, http://minerals.usgs. gov/minerals/pubs/country/2011/myb3-2011-sf.pdf. 5 “World Economic Outlook: Legacies, Clouds, Uncertainties,” International Monetary Fund, October 2014, accessed on December 6, 2014, http://www.imf.org/external/pubs/ft/weo/2014/02/. 6 As of October 2015. Source: Haver Analytics. 7 “World Economic Outlook Database” International Monetary Fund, accessed on October 8, 2015, http:// www.imf.org/external/pubs/ft/weo/2015/02/weodata/index.aspx. 8 “http://hdr.undp.org/en/content/table-1-human-development-index-and-its-components,” United Nations Development Programme, accessed on October 9, 2015, http://hdr.undp.org/en/data. 9 “World Development Indicators: Distribution of income or consumption,” The World Bank, accessed on October 9, 2015, http://wdi.worldbank.org/table/2.9. 10“South Africa sees slightly wider 2014/15 budget deficit of 4.1 pct of GDP,” Reuters, October 22, 2014, accessed on December 6, 2014, http://af.reuters.com/article/investingNews/idAFKCN0IB1D620141022. 809 Lazard Emerging Markets Debt 810 Tanzania Summary Moody’s NR / S&P NR / Fitch NR1 Economy: Agriculture 26%, Industry 27%, Services 47% Tanzania is the one of the poorest yet fastest growing economies in Sub-Saharan Africa, growing by an average of 6.5% from 2006 to 2016. The service sector is the main driver of the economy; however, Tanzania will likely also become an important producer of energy and gas. Similar to other East African countries, its fiscal and current account deficits are high, but debt levels are manageable at less than 40% of GDP. Tanzania is also one of the most politically stable countries in the region despite poor social conditions. Its government is less market friendly than other governments in the region, and it is more cautious about opening its economy; however, it has remained committed to the program agreed to with the International Monetary Fund in July 2014.2 The presidential and National Assembly elections of 2015 were among the most contested in recent history. However, the ruling party won, and no major economic policy changes are expected in the medium term. Economic Indicators 2012 2013 2014 2015 2016F Population (Millions) 44.9 45.8 46.7 47.7 48.6 49.6 GDP per Capita (USD) 870 969 1,032 957 960 1,018 Nominal GDP (USD Billions) 39.1 44.4 48.3 45.6 46.7 50.5 5.1 7.3 7.0 7.0 7.2 7.2 Year-End CPI (%) 12.1 5.6 4.8 6.8 5.0 5.0 Fiscal Balance (% of GDP) -4.1 -3.9 -3.0 -3.2 -4.0 -4.6 Real GDP (%) 2017F Interest (% of Revenues) 6.3 7.9 9.4 10.4 10.5 10.9 FC Debt/Public Debt (%) 74.8 75.7 79.2 81.1 81.0 82.0 Government Debt (% of GDP) 29.2 30.9 33.8 36.5 38.3 39.7 Government Debt (% of Revenue) 186.1 199.9 226.9 246.5 233.9 234.6 Current Account (% of GDP) -11.6 -10.6 -9.5 -8.8 -8.8 -8.8 5.0 4.7 4.2 4.5 4.4 4.4 External Debt (% of GDP) 24.5 26.5 27.0 28.6 30.6 32.4 Foreign Reserves/External Debt (%) 45.5 39.4 32.9 32.5 32.7 31.5 3.7 4.2 4.0 3.6 3.6 3.7 11.1 10.4 8.9 9.3 10.0 10.2 FDI (% of GDP) Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) As of December 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IMF, Haver, Lazard 811 Lazard Emerging Markets Debt Rating History Tanzania does not have rating history as the major agencies have not issued ratings for the country. We have also included the spread history for the country’s hard currency external debt against the JP Morgan Emerging Markets Bond Index – Global Diversified. Rating History Hard Currency Local Currency NOT AVAILABLE NOT AVAILABLE Bond Spreads 1000 800 600 400 200 0 2008 Tanzania 2010 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 812 Tanzania Strengths Rapid Investment-Led Growth Tanzania is one of the fastest-growing economies in East Africa, but remains the poorest. Tanzania’s economy grew at an average of 6.5% during the 2006–2016 period, and economic growth tends to independent of the global economic cycle given its limited exposure to the international financial system; for instance, growth increased during the financial crisis of 2008-2009. In the next five years, the IMF expects GDP growth of 6.7% per year,3 even as major emerging markets economies are expected to post a slowdown. Mega-projects including railways linking neighboring countries and the US$10 billion Bagamoyo Port project are also boosting investment growth, although work on the latter has been delayed in 2016. Proven Gas Reserves Tanzania continues to discover natural gas, and it is estimated that it now has 57 trillion cubic feet4 of recoverable natural gas reserves, which could make Tanzania a major energy producer in the East Africa region.5 The country currently produces 35 billion cubic feet of natural gas annually, but production could increase more than fivefold over the next five years.6 Several recent major gas discoveries could potentially make Tanzania a gas exporter. In 2015, Tanzania inaugurated a US$1.2 billion gas pipeline financed by China7 that will transport gas from one of the major natural gas fields in the southern region to Dar es Salaam, an economic center in the region. The pipeline should help to tackle the country’s energy deficit as well as reduce the cost of electricity, increasing productivity.8 Mining Tanzania is a major diamond producer and could become a leading producer of uranium and nickel. The company Mantra Tanzania Limited is very close to completing a major uranium mine. The project cost approximately US$1.0 billion, and the mine could generate an estimated US$250 million in annual revenues. The site has 36,000 metric tons of uranium deposits and with potential to extract 14,000 metric tons of the radioactive element, which would make Tanzania among the top five uranium producers in the world. The mine is expected to start initial production by 2018.9 Political Stability The ruling party Chama Cha Mapinduzi has been in power since Tanzania gained independence in 1961. Political stability can therefore be considered one of Tanzania’s strengths, but the lack of leadership change may reflect a weak democracy. The last presidential elections took place in October 2015, and Chama Cha won the elections as expected. The election was more competitive than the previous one: in the 2005 election, the ruling party won with 80% of the votes; in 2010 with 61%; and in 2015 with 55%. However, even as they have experienced some success at the polls, the opposition has experienced difficulty remaining united. 813 Lazard Emerging Markets Debt Weaknesses Current Account Tanzania’s high current account deficit remains a major vulnerability, especially if donations or relationships with multilaterals deteriorate. Similar to other the East African countries, Tanzania has a high current account deficit as a result of structural problems, including low savings levels, poor economic competitiveness, and the reliance on imports for consumer products, including oil and food. In addition, important infrastructure projects, largely financed with foreign direct investment, will continue to put pressure on the current account deficit. The IMF expects an average current account deficit of 8.4% of GDP in the period 2017–2021.10 Electricity Shortages Infrastructure is another major weakness overall, but electricity supply is the primary problem across the country. Tanzania’s chronic energy crisis has imposed major costs on the economy as it affects other sectors, such as manufacturing. The public energy company TANESCO, which runs the energy sector, is rife with inefficiencies. It tends to buy very expensive electricity to prevent major electricity crises, resulting in large losses. The government tends to cover these losses, but most of the time it is late to make such payments, leading to frequent power outages. In June 2016, the government announced that it plans to invest US$1.2 billion over the next 11 years to improve the operational capacity of TANESCO.11 814 Tanzania Country Background Size 947,300 KM2 (31st) Capital Dodoma Population 52.5 Million Ethnic Groups 99% African, 95% Bantu Religion Christian 61.4%, Muslim 35.2% Median Age 17.6 Years Literacy Rate 70.6% Independence April 26, 1964 Presidents Jakaya Kikwete (Since 2005) Presidential Election 2020 Legislative Branch Unicameral National Assembly Economy Agriculture 25.6%, Industry 26.5%, Service 47.4% Labor Force Agriculture 80%, Industry, Service 20% Merchandise Exports Gold, Coffee, Cashew Nuts, Manufacturers, Cotton Export Partners India 21%, China 9.9%, Japan 5.3%, Germany 4.7% Currency Shillings (TZS) As of November 2016 Source: CIA 815 Lazard Emerging Markets Debt Country Timeline British mandate over Tanganyika into a trusteeship 1954 Julius Nyerere and Oscar Kambona transform the Tanganyika African Association into the Tanganyika African National Union. Independence 1961 Tanganyika becomes independent with Julius Nyerere as prime minister. 1962 Tanganyika becomes a republic with Nyerere as president. 1963 Zanzibar becomes independent. 1964 Sultanate of Zanzibar overthrown by Afro-Shirazi Party in a violent, left-wing revolution; Tanganyika and Zanzibar merge to become Tanzania, with Nyerere as president and the head of the Zanzibar government and leader of the Afro-Shirazi Party, Abeid Amani Karume, as vice-president. 1967 Nyerere issues the Arusha Declaration, which calls for egalitarianism, socialism and selfreliance. 1977 The Tanganyika African National Union and Zanzibar's Afro-Shirazi Party merge to become the Party of the Revolution, which is proclaimed as the only legal party. 1978 Ugandans temporarily occupy a piece of Tanzanian territory. 1979 Tanzanian forces invade Uganda, occupying the capital, Kampala, and help to oust President Idi Amin. Multi-party politics 1985 Nyerere retires and is replaced by the president of Zanzibar, Ali Mwinyi. 1992 Constitution amended to allow multi-party politics. 1995 Benjamin Mkapa chosen as president in Tanzania's first multi-party election. 1998 August—Bomb attacks on US embassies in Tanzania and Kenya. 1999 October—Julius Nyerere dies. 2000 Mkapa elected for a second term, winning 72% of the vote. 2001 January 26—Tanzanian police shoot dead two people in Zanzibar while raiding the offices in Zanzibar town of the Civic United Front (CUF) party. CUF chairman Ibrahim Lipumba charged with unlawful assembly and disturbing the peace. Zanzibar violence 2001 January 27-28—At least 31 people are killed and another 100 arrested in Zanzibar in protests against the government's banning of opposition rallies calling for fresh elections; Tanzanian government sends in troop reinforcements. 2001 March—Governing Chama Cha Mapinduzi (CCM), and main opposition in Zanzibar, CUF, agree to form joint committee to restore calm and to encourage return of refugees from Kenya. 2001 April—Tens of thousands of opposition supporters march through the commercial capital, Dar es Salaam, in the first major joint demonstration by opposition parties in decades. 2001 July—Huge new gold mine, Bulyanhulu, opens near northern town of Mwanza, making Tanzania Africa's third largest producer of gold. 2001 November—Presidents of Tanzania, Uganda and Kenya launch regional parliament and court of justice in Arusha to legislate on matters of common interest such as trade and immigration. 2001 December—Britain approves controversial deal to sell military air traffic control system to Tanzania. Critics say it is a waste of money. 2002 June—Nearly 300 killed in Tanzania's worst train disaster after passenger train loses power and rolls into freight train at high speed. 816 Tanzania 2002 August—Opposition criticises president for ordering presidential jet costing $21M (£14M). 2005 March-April—Political violence in semi-autonomous Zanzibar ahead of voter registration for October poll. 2005 October—Governing CCM wins Zanzibar elections. Opposition CUF claims vote-rigging and announces an indefinite boycott of Zanzibar's parliament. Kikwete elected 2005 December—Jakaya Kikwete, foreign minister and ruling CCM candidate, wins presidential elections. He replaces Benjamin Mkapa, of Zanzibar's parliament. 2006 April—High Court outlaws traditional practice of entertaining candidates during elections. Critics of "Takrima"—the giving of tips—said it encouraged corruption. 2006 June—Visiting Chinese Prime Minister Wen Jiabao, on his seven-nation African tour to secure energy deals and strengthen economic ties, signs agreements to help Tanzania's health, transport and communications sectors. 2006 August—The African Development Bank announces the cancellation of more than $640M of debt owed by Tanzania, saying it was impressed with Tanzania's economic record and the level of accountability of public finance. 2007 January—Britain's Serious Fraud Office visits Tanzania to probe the controversial purchase of an air traffic control system in 2001. A British paper reports that the British defence company, BAE Systems, allegedly paid a Tanzanian middleman a commission of $12M to win the order. 2007 July—Former US president Bill Clinton launches a programme aimed at making subsidised malaria drugs available in a pilot scheme that could spread to the rest of Africa. 2008 January—Central Bank Governor Daudi Ballali is sacked after an international audit finds the bank made improper payments of more than $120M (£60M) to local companies. Scandal 2008 February—President dissolves his cabinet following a corruption scandal which forced the premier and two ministers to resign. 2009 November—Opposition party in Zanzibar, the CUF, ends boycott of the island's parliament ahead of upcoming elections. 2010 July—Tanzania joins its neighbours in forming a new East African Common Market, intended to integrate the region's economy. 2010 September—President Kikwete says construction of highway through Serengeti game reserve will go ahead, despite criticism from environmental experts. 2010 October—President Kikwete wins re-election. 2010 December—Britain's largest arms manufacturer, BAE Systems, is fined over a controversial contract to supply Tanzania with a radar system. 2011 January—Two killed as police try disperse demonstrators demanding release of Chadema opposition party leader Freeman Mbowe, detained ahead of a rally against government corruption. 2011 July—British arms and aircraft firm BAE Systems admits setting up sham compensation arrangements worth £8m for the sale of an overly-complex air-traffic control system to Tanzania in 1999, and agrees to pay Tanzania £30m in compensation. 2012 March—The Statoil and Exxon Mobil oil exploration companies make the biggest offshore discovery yet of gas reserves off the coast of Tanzania. The Zafarani field is close to the region off the coast of Mozambique where even larger deposits of gas are being developed by Anadarko and ENI. 2012 May—President Jakaya Kikwete sacks six ministers after the inspector of public finances notes the "rampant misuse of funds" in at least seven ministries. The ministers of finance, energy, tourism, trade, transport and health lose their jobs. 2012 August—Tanzania confirms 36 Iranian oil tankers have been using Tanzanian flags to evade US and EU economic sanctions on Iran's crude oil exports. The US warns Tanzania that it could face sanctions unless the flag operation stops. 817 Lazard Emerging Markets Debt 2012 October—Police arrest 126 people over attacks on five churches in Dar es Salaam. Muslims vandalised and torched the churches after a Christian boy had allegedly urinated on a copy of the Koran. 2013 March—New Chinese president Xi Jinping visits as part of a tour of Africa. 2013 May—A bomb attack on a new Roman Catholic church in Arusha kills two and injures dozens. 2013 July—US President Obama and ex-president George W Bush take part in a wreathlaying ceremony for victims of the US embassy bombing in Dar es Salaam. 2013 August—Pressure group Human Rights Watch reports that thousands of children work in small-scale Tanzanian gold mines, at great risk to their health. 2013 November—The authorities uncover a haul of more than seven hundred pieces of ivory at a house belonging to Chinese nationals in Dar es Salaam. 2013 December—Four cabinet ministers are sacked over allegations of human rights abuses during a campaign against ivory poaching. 2014 Tanzania marks the 50th anniversary of its creation through the union of Tanganyika and Zanzibar. 2014 May—Two witchdoctors are arrested after the killing of an albino. 2014 July—Eight people are injured in a bomb blast in a restaurant popular with tourists in Arusha 2014 October—Seven people accused of witchcraft are burned alive in western region of Kigoma. A local group says about 500 people suspected of witchcraft are killed annually. 2015 January—Government announces ban on witchdoctors, as part of efforts to end attacks on albinos. 2015 April—Referendum on a new constitution is postponed after delays in registering voters. 2015 November—Works Minister John Magufuli of the governing Chama Cha Mapinduzi wins presidential election by large margin over former prime minister Edward Lomassa. 2016 April—Tanzania and Uganda agree to build East Africa's first major oil pipeline. Source: BBC Notes 1 As of December 2016. 2 “IMF Executive Board Approves Three-Year Policy Support Instrument for Tanzania” IMF Press Release No. 14/350, July 16, 2014, accessed on October 6, 2014, http://www.imf.org/external/np/sec/pr/2014/pr14350. htm. 3 IMF WEO October 2016 Data. 4 http://www.reuters.com/article/tanzania-gas-idUSL8N16427G, accessed on November 26, 2016. 5 “Tanzania,” U.S. Energy Information Administration, accessed on December 14, 2013, http://www.eia.gov/ countries/country-data.cfm?fips=TZ. 6 Ng’wanakilala, Fumbuka, “Tanzania outlines new oil and gas production terms,” Reuters, November 4, 2013, accessed on December 14, 2013, http://www.reuters.com/article/2013/11/04/tanzania-energy-idUSL5N0IP37820131104; “Tanzania,” U.S. Energy Information Administration, accessed on October 26, 2015, http://www.eia.gov/countries/country-data.cfm?fips=tz. 7 http://english.gov.cn/news/top_news/2015/10/12/content_281475209865008.htm, accessed on November 26, 2016. 8 Ng’Wanakilala, Fumbuka, “Tanzania gas pipeline built, but not ready to start,” Reuters, March 31, 2015, accessed on October 26, 2015, http://www.reuters.com/article/2015/03/31/tanzania-natgas-idUSL2N0WX12I20150331. 9 http://allafrica.com/stories/201610200527.html, accessed on November 26, 2016. 10 IMF WEO Outlook Data, October 2016. 11 https://www.esi-africa.com/news/tanzania-ewura-to-review-power-tariff-increase-application/ accessed on November 26, 2016. 818 Uganda Summary Moody’s B2 / S&P B / Fitch B+1 Economy: Agriculture 25%, Industry 21%, Services 54% Uganda is of one of the poorest countries in the world. However, it is rich in natural resources, especially oil—it has 1.7 billion of recoverable reserves and expects to start production in 2020. Agriculture, coffee, cotton, and tea comprise a significant share of the economy, so growth tends to be volatile and highly dependent on weather conditions. Uganda’s main weaknesses include an over-dependence on commodities, a large current account deficit, and a fiscal deficit. Despite these challenges, the government has done a good job at economic management and maintaining a good relationship with the International Monetary Fund (IMF), but has missed some performance targets. The country has maintained political stability; President Yoweri Museveni, who has been in power since 1986, was reelected in 2016 for another fiveyear term despite concerns of his increasingly autocratic style. Economic Indicators 2012 2013 2014 2015 2016F 2017F Population (Millions) 36.3 37.6 38.7 39.9 41.1 42.3 GDP per Capita (USD) 678 681 711 609 623 653 Nominal GDP (USD Billions) 24.6 25.6 27.5 24.3 25.6 27.6 Real GDP (%) 2.6 4.0 4.9 4.8 4.9 5.5 Year-End CPI (%) 4.5 5.5 2.2 8.5 5.2 5.1 Fiscal Balance (% of GDP) -3.0 -4.0 -3.5 -2.7 -4.7 -2.9 Interest (% of Revenues) 9.5 10.5 11.2 11.3 14.7 14.3 FC Debt/Public Debt (%) 53.8 53.4 54.7 59.2 64.2 69.1 Government Debt (% of GDP) 24.2 27.7 31.2 34.4 36.5 38.5 179.1 216.8 228.3 223.7 239.6 240.5 Current Account (% of GDP) -6.8 -7.1 -8.7 -9.4 -8.7 -8.9 FDI (% of GDP) 3.8 4.3 4.0 3.4 4.9 5.2 External Debt (% of GDP) 26.6 29.3 30.7 35.3 41.4 45.6 Foreign Reserves/External Debt (%) 44.5 45.3 35.3 30.8 28.3 24.4 4.6 5.1 4.5 3.6 3.8 4.1 11.8 13.3 10.8 10.9 11.7 11.1 Government Debt (% of Revenue) Foreign Reserves (Mo. of Imports) Foreign Reserves (% of GDP) As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IMF, Central Bank of Uganda, Haver Analytics, Lazard 819 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB- BB- B+ B+ B B B- B- CCC+ 2000 2008 Moody’s 2016 S&P Fitch CCC+ 2000 2008 Moody’s S&P 2016 Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, JPMorgan 820 Uganda Strengths Oil Sector The oil sector has the potential to be a key driver of future growth. Uganda discovered oil in 2006 and it is estimated to have reserves of 6.5 billion barrels,2 of which 1.7 billion is recoverable. Uganda has issued production licenses to three international companies—Tullow Oil, Total, and CNOOC—which are expected to invest US$8 billion and start producing up to 230,000 barrels per day by 2020.3 As part of Uganda’s efforts to develop the oil sector, the government has joined Tanzania in building a US$4 billion pipeline4 that would provide access to the Indian Ocean. Political Continuity President Yoweri Museveni has ruled Uganda for 30 years. In 2016, he was reelected for a fifth term, garnering more than 60% of votes5 while his party maintained control of parliament.6 However, popular discontent with the government is high, and protests have become more common, with some turning violent. The main complaints are the high living costs, corruption, and shortage of electricity. The government has total control of the police force and army; thus major protests are unlikely to get out of control. The opposition remains marginalized, and opposition leaders tend to get arrested. IMF Relationship In 2013, Uganda and the IMF reached a three-year Policy Support Instrument (PSI) that aims to maintain macroeconomic stability and reduce growth constraints. The IMF’s framework for PSIs is designed for low-income countries that may not need financing but still seek IMF advice, monitoring, and endorsement of their policies. While the government has made significant progress, such as keeping inflation on track and increasing its reserves level, the IMF noted in its seventh review in October 2016 that performance has been mixed mainly on account of missing fiscal targets due to higher-than-expected current expenditures.7 Uganda has requested an extension for another year of the PSI, and this will likely be granted. The government’s good relationship with the IMF and its commitment to the PSI should be viewed positively. Weaknesses Lack of Economic Diversification Uganda’s economy is highly dependent on agriculture, which accounts for 24% of the economy and employs more than 80% of the working population.8 Among the most important agricultural products are coffee, cotton, and tea.9 The country’s reliance on agriculture makes the economy highly vulnerable to weather factors, such as the drought experienced in 2016 which significantly impacted coffee production and was one the biggest risks undermining Uganda’s economic recovery.10 Unfavorable weather conditions create a major negative economic impact, because they affect the population’s income, result in food shortages and higher prices, and can reduce export earnings. Corruption Uganda faces rampant corruption, which indirectly impacts economic growth, the government balance sheet, and the balance of payments. The fiscal loss related to tax evasion is also very high yet difficult to measure. The tax base is narrow; with 30 of the largest taxpayers 821 Lazard Emerging Markets Debt accounting for more than 50% of the tax revenues.11 Corruption exists even at the top levels of government. In the past, several major cabinet members, including the prime minister and other public officials, were under investigation for corruption. This has caused the foreign donor countries to temporarily withhold disbursements, amounting to US$282 million in late 2012 and early 2013, after it was discovered that money had been misappropriated by government officials.12 However, some positive steps have also been taken, such as the recent crackdown of ghost workers on the government payroll. Additionally, fighting corruption in public institutions was an electoral promise of President Museveni.13 Neverthless, Uganda ranks 139th out of 167 in the Transparency International 2015 Corruption Perception Index.14 Current Account Deficit The current account deficit is fairly high and is projected at -8.9% GDP in 2017. Moreover, the IMF expects the current account deficit to continue deteriorating over the next five years. Financing will come mainly from foreign direct investment, public loans, and grants. The high current account deficit is a structural problem due to low saving levels, a lack of competitiveness, and high reliance on food and energy imports. Private transfers, including family remittances, amount to approximately US$1.0 billion, and tourism only partially compensates for this structural weakness. The encouraging news is that foreign reserves remain relatively high at US$3 billion, as of September 2016, covering close to four months’ worth of imports.15 Fiscal Deficit Uganda has a twin current account and fiscal deficits. The IMF expects the fiscal deficit to be 4.7% of GDP in 2016, but improve to -2.8% of GDP in 2017,16 due to higher tax revenues and lower expenditures.17 Meanwhile, the debt ratios remain at moderate levels with estimated debt-to-GDP of 38.5% for 2017,18 representing a gradual increase from 23% in 2010. Poor Infrastructure Uganda has deficient infrastructure. Uganda has an estimated 20,000 kilometers of road, only 3,264 kilometers is paved.19 The IMF notes that there is a need to upgrade the transportation network, and this is now Uganda’s top economic priority. Three-quarters of the population lives in rural areas, so an efficient network is important to foster trade and commerce.20 Regional Dependency Uganda is dependent on its neighbors, due to close trade links with them and the fact that Uganda is a land-locked country. Exports to the region, including Sudan, Kenya, and the Democratic Republic of Congo, account for about half of total exports. Uganda needs to transport its products through other countries and use the ports of its neighbors, especially Kenya. 822 Uganda Country Background Size 241,0.38 KM2 (81st) Capital Kampala Population 38.3 Million Ethnic Groups Baganda 16.5%, Banyakole 9.6% Basoga 8.8%, Bakiga 7.1%, Iteso 7.0% Religion Protestant 45.1%, Catholic 39.3%, Muslims 13.7% Median Age 15.7 Years Literacy Rate 78.4% Independence October 9, 1962 Presidents Yoweri Kaguta Museveni (Since 1986) Presidential Election 2021 Legislative Branch National Assembly 427 seats Economy Agriculture 25.3%, Industry 20.9%, Service 53.8% Labor Force Agriculture 82%, Industry 5%, Service 13% Merchandise Exports Coffee, Fish, Tea, Cotton Export Partners Rwanda 10.7%, UAE 9.9%, Democratic Republic of the Congo 9.8%, Kenya 9.7%, Italy 5.8%, Netherlands 4.8%, Germany 4.7%, China 4.1% Currency Shillings (UGX) As of November 2016 Source: CIA 823 Lazard Emerging Markets Debt Country Timeline 1958 Uganda given internal self-government. 1962 Uganda becomes independent with Milton Obote as prime minister and with Buganda enjoying considerable autonomy. 1963 Uganda becomes a republic with Buganda's King Mutesa as president. 1966 Milton Obote ends Buganda's autonomy and promotes himself to the presidency. 1967 New constitution vests considerable power in the president. Idi Amin years 1971 Milton Obote toppled in coup led by Army chief Idi Amin. 1972 Amin orders Asians who were not Ugandan citizens—around 60,000 people—to leave the country. 1972-73 Uganda engages in border clashes with Tanzania. 1976 Idi Amin declares himself president for life and claims parts of Kenya. 1978 Uganda invades Tanzania with a view to annexing Kagera region. 1979 Tanzania invades Uganda, unifying the various anti-Amin forces under the Uganda National Liberation Front and forcing Amin to flee. Voters in a referendum overwhelmingly back a return to multi-party politics. 1980 Binaisa overthrown by the army. Milton Obote becomes president after elections. 1985 Obote deposed in military coup and is replaced by Tito Okello. 1986 National Resistance Army rebels take Kampala and install Yoweri Museveni as president. Beginnings of recovery 1993 Museveni restores the traditional kings, including the king of Buganda, but without political power. 1995 New constitution legalises political parties but maintains the ban on political activity. 1996 Museveni returned to office in Uganda's first direct presidential election. 1997 Ugandan troops help depose Mobutu Sese Seko of Zaire, who is replaced by Laurent Kabila. 1998 Ugandan troops intervene in the Democratic Republic of Congo on the side of rebels seeking to overthrow Kabila. 2000 Ugandans vote to reject multi-party politics in favour of continuing Museveni's "no-party" system. 2001 January—East African Community (EAC) inaugurated in Arusha, Tanzania, laying groundwork for common East African passport, flag, economic and monetary integration. Members are Tanzania, Uganda and Kenya. 2001 March—Uganda classifies Rwanda, its former ally in the civil war in DR Congo, as a hostile nation because of fighting in 2000 between the two countries' armies in DR Congo. Museveni wins another term in office, beating his rival Kizza Besigye by 69% to 28%. Campaign against rebels 2002 March—Sudan, Uganda sign agreement aimed at containing Ugandan rebel group the Lord's Resistance Army (LRA), active along common border. 2002 October—Army evacuates more than 400,000 civilians caught up in fight against cult-like LRA which continues its brutal attacks on villages. 2002 December—Peace deal signed with Uganda National Rescue Front (UNRF) rebels after more than five years of negotiations. 824 Uganda 2003 May—Uganda pulls out last of its troops from eastern DR Congo. Tens of thousands of DR Congo civilians seek asylum in Uganda. 2004 February—LRA rebels slaughter more than 200 people at a camp for displaced people in the north. 2004 December—Government and LRA rebels hold their first face-to-face talks, but there is no breakthrough in ending the insurgency. 2005 April—Uganda rejects accusations made by DR Congo at the International Court in The Hague. DR Congo says Uganda invaded its territory in 1999, killing citizens and looting. Multi-party politics 2005 July—Parliament approves a constitutional amendment which scraps presidential term limits. Voters in a referendum overwhelmingly back a return to multi-party politics. 2005 October—International Criminal Court issues arrest warrants for five LRA commanders, including leader Joseph Kony. 2005 November—Main opposition leader Kizza Besigye is imprisoned shortly after returning from exile after a trial in a military court on various charges including treason and illegal possession of firearms. Supporters say the trial was politically motivated, and take to the streets. Mr Besigye is released on bail in January 2006, just ahead of presidential elections. 2005 December—International Court in The Hague rules that Uganda must compensate DR Congo for rights abuses and the plundering of resources in the five years leading to 2003. 2006 February—President Museveni wins multi-party elections, taking 59% of the vote against the 37% share of his rival, Kizza Besigye. Somalia role 2006 August—The government and the LRA sign a truce aimed at ending their long-running conflict. Subsequent peace talks are marred by regular walk-outs. 2006 November—Government rejects a United Nations report accusing the army of using indiscriminate and excessive force in its campaign to disarm tribal warriors in the lawless northeastern region of Karamoja. 2007 March—Ugandan peacekeepers deploy in Somalia as part of an African Union mission to help stabilise the country. The UN World Food Programme says it will have to halve food handouts to more than 1 million people displaced by war in the north. 2007 April—Protests over a rain forest explode into racial violence in Kampala, forcing police to protect Asian businesses and a Hindu temple. An Asian man and two other people are killed. 2007 July—Lord's Resistance Army says lack of funds for foreign travel and to reach commanders in remote hideouts will delay peace talks. 2007 August—Uganda and DRCongo agree to try defuse a border dispute. 2007 September—State of emergency imposed after severe floods cause widespread devastation. 2008 February—Government and the Lord's Resistance Army sign what is meant to be a permanent ceasefire at talks in Juba, Sudan. 2008 November—The leader of the Lord's Resistance Army, Joseph Kony, again fails to turn up for the signing of a peace agreement. Ugandan, South Sudanese and DR Congo armies launch offensive against LRA bases. 2009 January—Lord's Resistance Army appeals for ceasefire in face of continuing offensive by regional countries.The UK oil explorer Heritage Oil says it has made a major oil find in Uganda. 2009 March—Ugandan army begins to withdraw from DR Congo, where it had pursued Lord's Resistance Army rebels. 2009 October—Somali Islamists threaten to target Uganda and Burundi after action by African peacekeepers in Somalia kills several civilians. 2009 December—Parliament votes to ban female circumcision. Anyone convicted of the practice will face 10 years in jail or a life sentence if a victim dies. 825 Lazard Emerging Markets Debt 2010 January—President Museveni distances himself from the anti-homosexuality Bill, saying the ruling party MP who proposed the bill did so as an individual. The European Union and United States had condemned the bill. The Ugandan army says it killed Bok Abudema, a senior commander of the Lord's Resistance Army armed group, in the Central African Republic. 2010 February—Heritage Oil sells its assets in Uganda to the UK firm Tullow Oil after Italian energy company Eni dropped out of the bidding. 2010 June—Public prosecutor opens corruption investigation against Vice-President Gilbert Bukenya, Foreign Minister Sam Kutesa and several other ministers and officials over the alleged theft of $25M. 2010 June-August—Operation Rwenzori against ADF-NALU rebels striving for an Islamic state in Uganda prompts 90,000 to flee in North Kivu province of neighbouring DR Congo. Blasts 2010 July—Two bomb attacks on people watching World Cup final at a restaurant and a rugby club in Kampala kill at least 74 people. The Somali Islamist group Al-Shabab says it was behind the blasts. 2010 August—National Resistance Movement primary elections for parliamentary and local candidates suspended amid irregularities, violence. 2010 October—UN report into killing of Hutus in DR Congo between 1993 and 2003 says they may constitute "crimes of genocide". It implicates Rwanda, Uganda, Burundi, Zimbabwe and Angola. 2010 October—Constitutional Court quashes treason charges against opposition leader Kizza Besigye. 2011 February—Museveni wins his fourth presidential election. Challenger Kizza Besigye alleges vote-rigging and dismisses the result as a sham. 2011 April—Kizza Besigye arrested several times over ''walk-to-work'' protests against rising prices. 2011 July—US deploys special forces personnel to help Uganda combat LRA rebels. 2011 September—Court orders release of LRA commander Thomas Kwoyelo, saying he should be given the amnesty on offer from the government. 2012 May—Ugandan Army captures senior LRA commander Caesar Achellam in a clash in the Central African Republic, one of the nearby states in which the remaining band of LRA troops operates. Uganda says this is a major breakthrough, billing Achellam as a top LRA strategist. Tens of thousands of refugees cross into Uganda, fleeing fighting in DR Congo. 2012 July—UN accuses Uganda of seinding troops into DR Congo to fight alongside the M23 rebel movement, a charge Uganda denies. 2012 November—Uganda announces its intention to withdraw its forces from UN-backed international missions, in particular Somalia, the Central African Republic and DR Congo, in response to UN accusations that Uganda is arming Congolese rebels. 2013 February—Eleven countries, including Uganda, sign a UN-mediated agreement pledging not to interfere in DR Congo. 2013 March—Uganda is grouped among the worst offenders in the illegal ivory trade at a meeting of CITES, the body regulating wildlife trade. 2013 May—Government temporarily shuts two newspapers after they published a letter suggesting President Museveni was grooming his son for power. 2013 November—Kampala Council ousts opposition Democratic Party Mayor Erias Lukwago over allegations of incompetence and abuse of office. The Democratic Party accuses the government of engineering the ouster of the opposition's most prominent elected representative. 2013 December—Parliament passes controversial anti-gay bill that increases the punishment for homosexual acts to include life imprisonment. 2014 February—President Museveni signs tough new anti-gay bill into law, drawing criticism from around the world. The World Bank postpones a $90M (£54M) loan to Uganda over the move, and the US imposes sanctions. 2014 July—Nearly 100 people die in clashes involving rival communities and the army in the western Rwenzori region. 826 Uganda 2014 September—President Museveni sacks Prime Minister Amama Mbabazi. 2014 December—Renegade General David Sejusa, who fell out with President Museveni, unexpectedly returns from exile. More than 1000 former fighters of the DRCongo rebel group M23 seek asylum in Uganda after government tries to repatriate them. Two Muslim clerics killed by men on motorbikes. Police suspect the Islamist Allied Democratic Forces killed the two for discouraging people from joining the rebels. 2015 January—Dominic Ongwen becomes the first member of the Lord's Resistance Army to appear before the International Criminal Court. 2015 October—The head of Ugandan force in South Sudan says his troops will start withdrawing to make way for a regional force. 2016 February—President Museveni wins re-election against veteran candidate Kizza Besigye, amid opposition, Commonwealth, US and European Union concern about fairness and transparency. 2016 May—US delegation walks out of President Museveni's inauguration in protest at his disparaging comments about the International Criminal Court. 2016 July—Opposition leader Besigye is bailed after being held on treason charges for allegedly declaring himself president after elections. 2016 December—The first Lord's Resistance Army commander to appear before the International Criminal Court at The Hague goes on trial. Dominic Ongwen faces 70 counts of war crimes and crimes against humanity. Source: BBC 827 Lazard Emerging Markets Debt Notes 1 As of December 2016. 2 Musoke, Ronald, “Uganda’s oil reserves now estimated at 6.5 billion barrels,” The Independent, August 28, 2014, accessed on October 27, 2015, http://www.independent.co.ug/news/news/9276-ugandas-oilreserves-now-estimated-at-65-billion-barrels. 3https://www.bloomberg.com/news/articles/2016-08-30/uganda-government-issues-oil-production-permitsto-tullow-total, accessed on November 28, 2016. 4 “Tanzania, Uganda $4 Billion Oil-Pipeline Timetable Slips,” http://www.wsj.com/articles/tanzania-uganda4-billion-oil-pipeline-timetable-slips-1466434537, accessed on November 28, 2016. 5 “Uganda’s Museveni re-elected amid controversy,” http://www.aljazeera.com/news/2016/02/ugandamuseveni-elected-president-protests-160220130613164.html, accessed November 28, 2016. 6 http://www.ec.or.ug/sites/default/files/docs/Gazette%20List%20Elected%20MPs%202016.pdf, accessed on November 28, 2016. 7http://www.imf.org/en/News/Articles/2016/10/26/PR16462-Uganda-IMF-Staff-Completes-Review-Mission, accessed on November 28, 2016. 8 “The World Factbook,” Central Intelligence Agency, accessed on October 27, 2015, https://www.cia.gov/ library/publications/the-world-factbook/geos/ug.html. 9 “Imports: Commodities by Country – Uganda,” FAOSTAT, accessed on October 27, 2015, http://faostat.fao. org/desktopdefault.aspx?pageid=342&lang=en&country=226. 10http://allafrica.com/stories/201611020232.html, accessed on November 28, 2016. 11“Tax competition in East Africa: A race to the bottom? Tax incentives and revenue losses in Uganda,” Tax Justice Network-Africa & ActionAid International, April 2012, http://www.actionaidusa.org/sites/files/actionaid/uganda_report1.pdf. 12“Uganda: Govt to Raise Borrowing After Corruption Cuts Aid,” AllAfrica.com, February 14, 2013, accessed on December 14, 2013, http://allafrica.com/stories/201302141461.html. 13http://www.newsweek.com/uganda-wipes-out-5500-ghost-workers-corruption-crackdown-489748, accessed on November 28, 2016. 14“Corruption Percpetions Index,” Transparency International 2015, accessed on November 28, 2016, https:// www.transparency.org/cpi2015/#map-container. 15“Uganda,” International Monetary Fund, IMF Country Report No. 16/145, June 2016, accessed on November 28, 2016 http://www.imf.org/external/pubs/ft/scr/2016/cr16145.pdf. 16IMF WEO October 2016 data. 17http://www.imf.org/en/News/Articles/2016/10/26/PR16462-Uganda-IMF-Staff-Completes-Review-Mission, accessed on November 28, 2016 18IMF WEO October 2016 data 19“Country Comparison to the World: Roadways,” CIA World Factbook, accessed on October 27, 2015, https://www.cia.gov/library/publications/the-world-factbook/fields/2085.html. 20Coronel, Ana Lucia, “Uganda’s Ambitious Infrastructure Plan Set to Boost Economy,” IMF Survey Magazine, July 7, 2015, accessed on October 27, 2015, http://www.imf.org/external/pubs/ft/survey/so/2015/ CAR063015A.htm. 828 Zambia Summary Moody’s B3 / S&P B / Fitch B1 Economy: Agriculture 9%, Industry 30%, Services 61% Zambia is rich in natural resources, particularly copper and cobalt. Poor economic policies and the recent decline in copper prices have led to economic imbalances. The economy has slowed due to electricity shortages and lower copper prices while the fiscal deficit remains high government credibility surrounding economic policies is low after missing fiscal targets for two consecutive years. The country’s credibility suffered further after the government backtracked on its intention to make an agreement with the IMF, although it has resumed talks following the 2016 elections. On the positive side, Zambia’s institutions remain relatively strong by regional standards as reflected in the smooth transition of power after the recent deaths of two of its former presidents and the reelection of President Edgar Lungu. Zambia also has a strong relationship with China, and tourism and agriculture are two potential sectors that can help diversify the economy. Economic Indicators Population (Millions) GDP per Capita (USD) Nominal GDP (USD Billions) 2012 2013 2014 2015 2016F 14.8 15.2 15.7 16.2 16.7 2017F 17.2 1,725 1,840 1,726 1,352 1,231 1,213 25.5 28.0 27.1 21.9 20.6 20.9 Real GDP (%) 7.6 5.1 5.0 3.0 3.0 4.0 Year-End CPI (%) 7.3 7.1 7.9 21.1 9.5 8.7 Fiscal Balance (% of GDP) -2.8 -6.2 -5.9 -9.1 -8.9 -8.2 Interest (% of Revenues) 7.1 8.4 11.8 15.3 17.1 17.1 FC Debt/Public Debt (%) 55.4 50.7 54.8 56.3 58.0 60.0 Government Debt (% of GDP) 24.9 25.9 33.6 56.3 56.1 58.8 133.3 147.0 177.8 309.3 309.3 328.8 Current Account (% of GDP) 5.4 -0.6 2.1 -3.5 -4.5 -2.2 FDI (% of GDP) 9.5 6.0 9.2 7.5 8.8 9.6 External Debt (% of GDP) 17.2 20.1 23.9 32.4 37.1 40.1 Foreign Reserves/External Debt (%) 69.4 47.6 47.5 44.9 41.8 25.9 3.9 2.9 3.6 4.4 3.9 2.5 11.9 9.6 11.3 14.5 15.5 10.4 Government Debt (% of Revenue) Foreign Reserves (Mo. of imports) Foreign Reserves (% of GDP) As of November 2016 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: IMF, Haver Analytics, Barclays, Lazard 829 Lazard Emerging Markets Debt Rating History Below is a history of the country’s foreign and local currency ratings by the major agencies dating back to 2000. We have also included a chart of the country’s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BB- BB- B+ B+ B B B- 2000 2008 Moody’s 2016 S&P Fitch B- 2000 2008 Moody’s 2016 S&P Fitch As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg Bond Spreads 1500 1200 900 600 300 0 2008 2010 Zambia 2012 2014 2016 EMBIGD As of December 2016 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 830 Zambia Strengths Political Stability Zambia is known for its political stability, which is generally rare in this part of Africa. It is one of the few African countries thats not had a coup (although there were several attempts in the 1980s and early 1990s). It has had elections since the 1990s, and the last three were considered free and fair by international standards. The Movement for Multiparty Democracy (MMD), which ruled the country for more than 20 years, lost the 2011 election and accepted the result. Michael Chilufya Sata of the Patriotic Front (PF) won the elections. His party won 70 of the 160 seats in the National Assembly, which is short of a majority. Mr. Sata passed away while in power in October 2014, and there was a smooth transition of power to his vice president followed by a relatively smooth election. Edgar Chagwa Lungu, also from the PF, won the special election in January 2015 against Hakainde Hichilema of the United Party for National Development. General elections were held in August 2016, and President Lungu won with 50.35% of the votes, despite claims of electoral fraud by Hakainde Hichilema, who obtained 47.6% of votes.2 Mining Like other Sub-Saharan African countries, Zambia is rich in natural resources. Copper and cobalt are its main mining products. Zambia is the seventh-largest producer of copper in the world and the largest producer of cobalt in Africa.3 Large mining projects were expected to increase copper production from more than 800,000 tons in 2013 to 1.5 million by 2018.4 However, the opposite has taken place, with copper production declining to only 708,259 tons in 2015.5 Low copper prices, constantly changing mining taxes and royalties, and electricity supply shortages have all contributed to a decline in mining output. The country also produces gold, nickel, uranium, emeralds, zinc, lead, and coal.6 Trade and Investment from China Zambia has a strong relationship with China, which is its second-largest trade partner after South Africa. China has invested more than 10% of GDP in Zambia, with most of it going to infrastructure projects, such as electricity and natural resources.7 Zambia is among the top Chinese destinations for foreign direct investment in 2016 in Africa.8 However, the relationship between the countries has been tense at times, especially because of problems with Chinese mining companies. Labor conditions at Chinese mines were often bad, which resulted in major protests and the death of both mining workers and Chinese managers. Expanding Tourism Tourism remains underexploited, and it could be an important source of growth and foreign-currency earnings. Tourism currently generates about 3% of GDP and employs 94,000 people directly, about 1.7% of the labor force. The main tourist attraction is Victoria Falls, which is shared with Zimbabwe. Zambia has a vast amount of natural resources and many other tourist attractions, including 19 national parks and 34 game management areas. Zambia’s wildlife area amounts to about 40% of the country’s total land. The tourism industry is underdeveloped, and there are limited numbers of hotels. However, the World Travel Tourism council expects that in the next decade, Zambia’s tourist sector growth will be among the top 10 in the world.9 831 Lazard Emerging Markets Debt Agriculture Development The country also has the potential to become a major agricultural player as it has fertile land that remains underexploited. Zambia has abundant surface and underground water in addition to good soil and cheap labor. About one-half of the country’s land is ideal for agriculture. However, only 14% of the county’s land is currently utilized.10 The agriculture sector employs 85% of the population, although its productivity is very low and most of the agriculture is for personal consumption.11 The main product is maize, which was heavily subsidized by the government. Capitalizing on Hydroelectric Power Zambia may finally take advantage of its abundant rivers to tackle its electricity problems. It has installed capacity of 2,347 megawatts (MW), of which virtually all comes from hydropower,12 yet the country still has a power shortfall of 1,000 MW.13 Major electricity projects are in planning, including the US$3.5 billion Batoka Gorge Dam, which is expected to start construction in 2017.14 Once these projects are completed, Zambia could become a major electricity exporter in the region. The government is also working to increase electricity supply to the rural areas, as their power access rate is only 5% compared to 25% for the general population.15 Most of the current electricity is supplied to mining companies while more than three-quarters of the population does not have access to electricity.16 Weaknesses Deteriorating Fiscal Position The fiscal position used to be Zambia’s main strength as the government posted low fiscal deficits for a sustained period. From 2004 to 2012, the fiscal deficit never surpassed 3.0% of GDP, but this gradually changed in 2013 during the presidential election when President Sata granted major wage increases. In 2015, the fiscal deficit surpassed 6% of GDP, and 10% of GDP including arrears; the situation did not improve in 2016. The IMF notes that public finances are severely strained due to a combination of lower revenues than anticipated and spending overruns on fuel and electricity subsidies. Arrears are increasing from 5% of GDP in 2015 to an expected 9% of GDP by the end of 2016.17 As a result of the large deficit, debtto-GDP metrics have deteriorated considerably from 25.9% of GDP in 2013 to an estimated 58.8% of GDP in 2017.18 Balance of Payments and Low Level Reserves The balance-of-payment performance has mirrored the deterioration of the fiscal accounts. The current account shifted from a surplus of 7.1% of GDP in 2010 to a deficit estimated at 4.5% of GDP in 2016. The shift in the current account is explained to a large extent by the decline in copper prices, resulting in lower copper production. In addition, Zambia’s reserves have declined substantially, from a peak of US$3.9 billion in July 2015 following the Eurobond issuance to just over half that level at US$2.0 billion as of August 2016, providing less than three months of import coverage. Limited Diversification Zambia is highly dependent on copper, which amounts to 75% of exports, 25% of revenues, and 4% of GDP.19 This dependency makes the country vulnerable to copper prices, especially since it does not have a sovereign wealth fund that it can use to offset a potential decline in copper prices. It is important to point out that revenues from mining are much lower than 832 Zambia in comparable countries. This is because most of the mining companies operating in Zambia incurred losses during their first years of operation, which have served to reduce their tax and royalty payments. According to the IMF, it will take a couple of years for taxes and royalties to go up, thus mining fiscal revenues will not likely increase in the short term. Location Zambia is a land-locked country, which represents a significant economic cost for the country, especially in terms of import and export transportation costs. Zambia needs to transport its products through other countries and use neighboring countries’ ports to export and import products, therefore making them less competitive and less attractive to investors. Most copper is exported through Tanzania’s ports, while other products use South Africa’s ports. Pervasive Poverty High poverty levels and bad social conditions could become a major source of political and economic instability. Zambia is one of the poorest countries in the world with a GDP per capita of only US$1,213.20 More than two-thirds of the population lives with an income level of less than US$2 per month, according to the World Bank. Its social indicators are also among the worst in the world. In the Human Development Index, Zambia ranks 139th out of 188 countries.21 AIDS AIDS is also a major problem in Zambia and has a negative impact on the economy and society. Zambia has one of the highest levels of AIDS in the world, affecting 12.5% of the population between 18 and 49 years old (a total of nearly 1 million people). Thousands of people have died from this disease, which partly explains why the median life expectancy is only 49 years.22 The major economic impact of AIDS is visible in the labor force and social costs. According to a World Bank study, the cost of treating a patient with AIDS for one year is as much as educating 10 primary school students. Positively, the rate of new AIDS infections has been falling for the past few years. 833 Lazard Emerging Markets Debt Country Background Size 752,618 KM2 (39th) Capital Lusaka Population 15.5 Million Ethnic Groups African 99.5% Religion Protestant 75.3%, Catholic 20.2%, Other 2.7% Median Age 16.7 Years Literacy Rate 63.4% Independence October 24, 1964 Political System Constitutional Democracy Presidents Edgar Lingu Presidential Election 2021 Legislative Branch National Assembly 158 Seats (PF 80, MMD 58) Economy Agriculture 8.9%, Industry 30.0%, Service 61.1% Labor Force Agriculture 85%, Industry 6%, Service 9% Merchandise Exports Copper/Cobalt, Electricity Export Partners China 25.5%, Democratic Republic of the Congo 13%, South Africa 6.4%, South Korea 4.9%, India 4.3% Currency Kwacha (ZMK) As of November 2016 Source: CIA 834 Zambia Country Timeline 1889 Britain establishes control over Northern Rhodesia, administering the area using a system of indirect rule which leaves power in the hands of local rulers. Late 1920s Discovery of copper, which later encourages an influx of European technicians and administrators. 1953 Creation of the Federation of Rhodesia and Nyasaland, comprising Northern Rhodesia, Southern Rhodesia (now Zimbabwe) and Nyasaland (now Malawi). 1960 UNIP (United National Independence Party) formed by Kenneth Kaunda to campaign for independence and dissolution of federation dominated by white-ruled Southern Rhodesia. 1963 Federation dissolved. 1964 Independence, with Kaunda as president. Late 1960s70s Key enterprises nationalised. Private land nationalised in an unsuccessful agricultural improvement programme. 1972 Zambia becomes a one-party state, with UNIP as the only legal party. Help for rebels 1975 Tan-Zam railway opened, providing a link between the Copperbelt to the Tanzanian port of Dar es Salaam, reducing Zambian dependence on Rhodesia and South Africa for its exports. 1976 Zambia declares support for the independence struggle in Rhodesia. Zambian help proves crucial to the transition of Rhodesia to an independent Zimbabwe. 1990 Food riots. 1991 Multi-party constitution adopted. Movement for Multi-party Democracy (MMD) wins elections and its leader, Frederick Chiluba, becomes president. 1996 Change to constitution effectively barring Kaunda from future elections. Chiluba reelected. 1997 Attempted coup. 1999 A high court sentences 59 soldiers to death after they are found guilty of treason for the failed coup attempt in 1997. 2000 May—Fighting between Angolan forces and UNITA rebels spills over into Zambian territory. 2000 July—Environment Minister Ben Mwila expelled from the MMD and dropped from the cabinet after announcing his intention to run for president in 2001. 2000 December—UN officials estimate that up to 60,000 refugees fleeing fighting in the Democratic Republic of Congo move to Zambia in less than a week. Chiluba 2001 May—Setback for governing Movement for Multi-party Democracy as senior members hive off to create Forum for Democracy and Development. They're opposed to Chiluba's bid for a third term in office. 2001 July—Paul Tembo, former campaign manager for Chiluba who joined the opposition, is murdered shortly before he is due to testify against three ministers in a high-level corruption case. 2001 July—Zambia appeals for aid to feed some 2 million people after poor harvests caused by floods and drought. 2001 July—Final summit of the Organisation of African Unity (OAU), launch of the African Union. 835 Lazard Emerging Markets Debt 2002 January—Levy Mwanawasa is sworn in as president amid opposition protests over alleged fraud in December's presidential elections. 2002 July—Parliament votes to remove ex-president Frederick Chiluba's immunity from prosecution. 2002 October—Government says it will not accept genetically modified (GM) maize to help alleviate the severe food shortages facing three million people. 2003 February onwards—Former president Frederick Chiluba is arrested and charged with corruption. Subsequent long-running trials are dogged by adjournments and procedural problems. 2003 December—Supreme Court confirms death sentences on 44 soldiers for their role in 1997's failed coup; sentences are later commuted by President Mwanawasa. 2004 September—Many charges of corruption against former president Frederick Chiluba are dropped, but within hours he is re-arrested on six new charges. 2005 February—Supreme Court rejects opposition challenge to President Mwanawasa's 2001 election victory, but says ballot had flaws. Debt relief 2007 February—Chinese President Hu Jintao inaugurates a huge mining investment zone at the end of a two-day visit. His itinerary is cut short due to planned protests against the alleged exploitation of local workers by Chinese firms. 2007 May—The High Court in Britain rules that former president Frederick Chiluba and four of his aides conspired to rob Zambia of about $46M. 2008 January—Zambia declares floods which have killed more than 40 people "a national disaster". 2008 August—President Levy Mwanawasa dies, 59, in a Paris hospital, where he was being treated for the effects of a stroke in June. 2008 November—Vice-President Rupiah Banda sworn in as president after a narrow election win over the main opposition candidate, Michael Sata, who alleged fraud. 2009 August—Ex-President Chiluba is cleared of corruption after a six-year trial. The head of the anti-corruption task force is sacked after initiating an appeal against Chiluba's acquittal. 2010 February—Zambia and China sign mining cooperation agreement and deal to set up joint economic zone. Tanzanian Supreme Court dismisses application by ex-President Chiluba aimed at preventing government from applying British High Court judgment convicting him of defrauding Tanzania of $46M dollars. 2010 August—Zambia, China agree to build a second hydroelectic power plant on the Kafue River. 2010 October—Chinese mine managers charged with attempted murder following a multiple shooting at a mine where workers were demonstrating against conditions. 2010 November—UN updates its Human Development Index, which suggests Zambia is now worse off than in 1970, partly due to AIDS. 2011 January—Deadly clashes between police and demonstrators agitating for secession of western Zambia, known as Barotseland. 2011 June—Former president Frederick Chiluba dies. 2011 September—Michael Sata becomes president. 2012 August—Chinese mine manager killed during pay protest. 2013 February—The government takes over the Chinese-owned Collum Coal mine after revoking its licence because of safety lapses. 2013 March—Former president Rupiah Banda is charged with abuse of power shortly after being stripped of immunity. 836 Zambia 2014 January—Opposition politician Frank Bwalya is charged with defamation after comparing President Sata to a potato in a radio interview. 2014 June—President Sata goes to Israeli on a ''working holiday" amid rumours about his health. 2014 October—President Sata dies. 2015 January—Edgar Lungu becomes president winning election. 2015 March—President Lungu has surgery in South Africa. He collapsed at an event the month before. 2016 April—Rioting and looting following accusations that Rwandans who have fled to Zambia have been involved in ritual killings. President Lungu speaks of his country's collective shame over mob attacks on foreigners. Source: BBC Notes 1 As of December 2016. 2 http://www.bbc.com/news/world-africa-37086365, accessed on November 27, 2016. 3 “Zambia Mining Sector Profile,” Zambia Development Agency, July 2015 http://www.zda.org. zm/?q=download/file/fid/167, accessed on November 27, 2016. 4 “Global Focus 2014: Rising East, Emerging West,” Standard Chartered, December 3, 2013. 5 As of October 2015, Source: Haver Analytics. 6 “Zambia Mining Sector Profile,” Zambia Development Agency, July 2015 http://www.zda.org. zm/?q=download/file/fid/167, accessed on November 27, 2016. 7 Wonacott, Peter, “China Investment Brings Jobs, Conflict to Zambia Mines,” Wall Street Journal, September 5, 2012, accessed on December 14, 2013, http://online.wsj.com/news/articles/SB10000872396 390444082904577609161447720808. 8http://www.zambiainvest.com/economy/trade/zambia-named-by-italy-and-china-as-main-destination-inafrica-for-trade-and-investment, accessed on November 27, 2016. 9 “Travel & Tourism Economic Impact 2016: Zambia,” World Travel and Tourism Council, accessed on November 27, 2016, http://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2016/ zambia2016.pdf. 10“Country profile: Zambia” New Agriculturist, accessed on October 27, 2015, http://www.new-ag.info/en/ country/profile.php?a=2621. 11Aregheore, Eroarome Martin, “Country Pasture/Forage Resource Profiles,” United Nation’s Food and Agriculture Organization, 2009, accessed on December 14, 2013, http://www.fao.org/ag/agp/AGPC/doc/ Counprof/PDF%20files/Zambia.pdf. 12http://www.zambiainvest.com/energy, accessed on November 27, 2016. 13http://www.africanews.com/2016/03/29/zambia-seeks-to-add-420-mw-to-its-power-grid-in-2016/, accessed on November 27, 2016. 14https://southernafrican.news/2016/04/21/batoka-gorge-power-project-finally-starts/, accessed on November 27, 2016. 15http://www.erb.org.zm/content.php?viewpage=erips, accessed on November 27, 2016. 16“World Bank Zambia’s Infrastructure: A Continental Perspective,”March 2010. http://siteresources.worldbank.org/INTAFRICA/Resources/Zambia-Country_Report_03.2011.pdf. 17http://www.imf.org/en/News/Articles/2016/11/01/PR16475-Zambia-IMF-Staff-Concludes-Visit, accessed on November 27, 2016. 18IMF WEO Outlook October 2016 data. 19As of October 2015. Source: Haver Analytics, Lazard. 20IMF WEO Outlook data, October 2016. 21“Human Development Reports, 2015,” http://hdr.undp.org/en/countries/profiles/ZMB, accessed on November 27, 2016. 22“Table 17 – Major Diseases,” Africa Economic Outlook, accessed on October 27, 2015, http://www.africaneconomicoutlook.org/en/data-statistics/table-17-major-diseases/. 837 Important Information Published on 24 February 2017. Information and opinions presented have been obtained or derived from sources believed by Lazard to be reliable. Lazard makes no representation as to their accuracy or completeness. All opinions expressed herein are as of the published date and are subject to change. Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. An investment in bonds carries risk. If interest rates rise, bond prices usually decline. The longer a bond’s maturity, the greater the impact a change in interest rates can have on its price. If you do not hold a bond until maturity, you may experience a gain or loss when you sell. Bonds also carry the risk of default, which is the risk that the issuer is unable to make further income and principal payments. Other risks, including inflation risk, call risk, and pre-payment risk, also apply. High yield securities (also referred to as “junk bonds”) inherently have a higher degree of market risk, default risk, and credit risk. Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, application of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting companies in these countries. This material is provided by Lazard Asset Management LLC or its affiliates (“Lazard”). There is no guarantee that any projection, forecast, or opinion in this material will be realized. Past performance does not guarantee future results. This document is for informational purposes only and does not constitute an investment agreement or investment advice. References to specific strategies or securities are provided solely in the context of this document and are not to be considered recommendations by Lazard. Investments in securities and derivatives involve risk, will fluctuate in price, and may result in losses. Certain securities and derivatives in Lazard’s investment strategies, and alternative strategies in particular, can include high degrees of risk and volatility, when compared to other securities or strategies. Similarly, certain securities in Lazard’s investment portfolios may trade in less liquid or efficient markets, which can affect investment performance. Australia: FOR WHOLESALE INVESTORS ONLY. Issued by Lazard Asset Management Pacific Co., ABN 13 064 523 619, AFS License 238432, Level 39 Gateway, 1 Macquarie Place, Sydney NSW 2000. Dubai: Issued and approved by Lazard Gulf Limited, Gate Village 1, Level 2, Dubai International Financial Centre, PO Box 506644, Dubai, United Arab Emirates. Registered in Dubai International Financial Centre 0467. Authorised and regulated by the Dubai Financial Services Authority to deal with Professional Clients only. Germany: Issued by Lazard Asset Management (Deutschland) GmbH, Neue Mainzer Strasse 75, D-60311 Frankfurt am Main. Hong Kong: Issued by Lazard Asset Management (Hong Kong) Limited (AQZ743), Unit 29, Level 8, Two Exchange Square, 8 Connaught Place, Central, Hong Kong. Lazard Asset Management (Hong Kong) Limited is a corporation licensed by the Hong Kong Securities and Futures Commission to conduct Type 1 (dealing in securities) and Type 4 (advising on securities) regulated activities. This document is only for “professional investors” as defined under the Hong Kong Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and its subsidiary legislation and may not be distributed or otherwise made available to any other person. Japan: Issued by Lazard Japan Asset Management K.K., ATT Annex 7th Floor, 2-11-7 Akasaka, Minato-ku, Tokyo 107-0052. Korea: Issued by Lazard Korea Asset Management Co. Ltd., 10F Seoul Finance Center, 136 Sejong-daero, Jung-gu, Seoul, 04520. People’s Republic of China: Issued by Lazard Asset Management. Lazard Asset Management does not carry out business in the P.R.C. and is not a licensed investment adviser with the China Securities Regulatory Commission or the China Banking Regulatory Commission. This document is for reference only and for intended recipients only. The information in this document does not constitute any specific investment advice on China capital markets or an offer of securities or investment, tax, legal, or other advice or recommendation or, an offer to sell or an invitation to apply for any product or service of Lazard Asset Management. Singapore: Issued by Lazard Asset Management (Singapore) Pte. Ltd., 1 Raffles Place, #15-02 One Raffles Place Tower 1, Singapore 048616. Company Registration Number 201135005W. This document is for “institutional investors” or “accredited investors” as defined under the Securities and Futures Act, Chapter 289 of Singapore and may not be distributed to any other person. United Kingdom: FOR PROFESSIONAL INVESTORS ONLY. Issued by Lazard Asset Management Ltd., 50 Stratton Street, London W1J 8LL. Registered in England Number 525667. Authorised and regulated by the Financial Conduct Authority (FCA). United States: Issued by Lazard Asset Management LLC, 30 Rockefeller Plaza, New York, NY 10112.