Emerging Markets Weekly Blog Post: 17/4/2016

I start the emerging markets blog post feature with a prediction: The mainstream media would spend 2016 obsessing over every brain-fart of Donald Trump while ignoring the fact that 29 different countries were caught up in a commodities crash. That prediction (perhaps a very easy one to make) has come true in spades. Nonetheless, the unwinding of BRIC boom years is a fascinating, ongoing story, and the past few weeks have brought up a late of interesting developments. This post aims to offer a panoramic overview of the commodity-crash economies with the latest headlines from the web.

Angola– Angola has sought help from the International Monetary Fund (IMF) to help reform its economy, discussing a three-year program to combat the effects of prolonged low oil prices. An IMF program will mean Angola will have to be more transparent in its finances and implement the reforms that have been talked of for years with little result. This is a major comedown for a country which was growing by up to 15% per year early in the century.

Azerbaijan– Oil-rich Azerbaijan suffered a massive slide in its currency early this year as its red-hot economy came off the boil. It appears that the President may be trying to divert popular resentment against an external foe (a favored method of autocrats since time immemorial). The frozen conflict in the Armenian enclave of Nagorno-Karabakh has recently shown signs of life again, with clashes between Armenian and Azerbaijani forces. Both countries blamed each other for the latest hostilities, but many observers believe that Azerbaijan’s military unleashed an offensive aiming to seize some ground in order to make Armenia more likely to discuss a compromise in peace talks.

Brazil–  Lawmakers in Brazil handed embattled President Dilma Rousseff a sobering defeat late Sunday, voting overwhelmingly to impeach her. Rouseff had been accused of concealing how bad Brazil’s finances were before the last election in order to make her re-election more likely. Brazil is in the depths of its worst economic slowdown since the 1930s and it has now contracted more than 5% in total.

Kenya– Kenya’s economy is more resilient and diversified than some of the others mentioned here, but there’s trouble in its banking sector. Three banks are being wound down by the central bank. Two of the banks failed last year, and a third was forced into the arms of the lender of last resort this month. A fourth bank is being investigated, and analysts believe consolidation in the industry is inevitable. The East African nation has 43 banks, most of which have overstated profits and are buckling under the weight of non-performing loans and a big fall in deposits. A dozen banks may end up under central bank control as it tries to clean up the sector.

Nigeria– The weakening of the naira and the collapse in world oil prices have wiped billions of dollars from Africa’s largest economy. The whole of Nigeria’s economic elite are feeling the pinch. Nigeria’s richest man, Aliko Dangote, reported losing 17% of his total wealth since a year ago, though he still has $17 billion to console himself with.

Venezuela– Inflation in Venezuela is projected to increase 481% this year and by a staggering 1,642% next year, according to new estimates released Tuesday by the IMF. The IMF also forecasts that Venezuela- which rarely publishes its own economic data- will have an unemployment rate of 17% this year and nearly 21% next year.

It is hardly surprising then that some economists are now saying that even America’s economy is now slowing as it imports economic problems from abroad. Economist Carl Weinberg has been one vocal proponent of this view. He believes the global glut in commodities could last for several years, disrupting trade and reducing worldwide demand for goods and services.

“You can’t unring the bell. We are stuck with this huge excess,” he said. “It will take years to dig out of this.”

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