Evercore Pan Asset

I don’t write much about Africa, and we haven’t invested much in Africa. The lack of stable governments, high and variable inflation, corruption, civil war and poor economic government in many countries does not provide a good background.

In recent years some countries have done much better. Some old scores have been settled or forgotten. South Africa with strong mineral resources has often performed well. China has moved in, buying up land and commodity deposits, working with local government and management.

This year we have seen a series of dramatic political events. The much delayed Ivory Coast election has resulted in a win for the Opposition that the outgoing regime does not accept. The old north-south divide remains deeply rancorous. The Sudan has voted to become two countries, though it takes them ages to count the votes and declare the obvious result. Tunisia has ejected an unpopular President through people power. Egypt is in the throes of doing the same. The King of Jordan saw the beginnings of similar rumblings in his kingdom, so sacked his Prime Minister and Ministers and appointed a new government, pledged to undertake major political reform to involve people more and to listen better. In each of these countries new governments will need to move in a more democratic direction.  In Nigeria there are arguments over rotation of office between Christians and Muslims, exposing the fault lines of that troubled country.

Does this matter to the global investor? Many westerners wish these African countries well if they are grasping democracy, and hope they will find non violent ways of settling differences and reaching compromises within their countries. Most of the time investors can ignore their internal politics, as it has little impact on the world economic stage.

One of the common causes behind these political seismic shocks is the surge in food prices. The rioters and protesters in Tunis and in Cairo were partly motivated by the sharp rise in food costs and the impact this is having on living standards. In all lower income countries the big increases in the price of wheat, corn and rice, vegetables and meat is having a bad impact on individuals and on social harmony. Inflation is too fast. The combination of Chinese growth and US easy money has created new hazards for the developing world where the food basket takes up a much larger proportion of the weekly wage.

The main western preoccupation as always is the price of oil. Oil markets have risen a little on the back of the Egyptian crisis. They are allowing for disruption to Egypt’s small contribution to world supply, and to any possible impediments  to Suez canal and Egyptian pipeline transport of oil. It is difficult to improve on the market’s assessment. Most investors seem to think the revolutions will not spread to the major oil producing countries, and that the chaos in Egypt will not throttle all movements of oil. If we thought Saudi or another major oil producer was about to plunge into turmoil we would be more worried, but so far that does not seem to be likely.