In the latter part of 2009, Nigeria's government mounted its most intense peace initiative in the turbulent and oil-rich Niger Delta region since President Umaru Yar'Adua took office in 2007. The effort appears to have paid some dividends, but peace in the region remains tenuous and several factors continue to undermine Yar’Adua’s mandate. Meanwhile, political divisions seem likely to continue to complicate both Nigeria’s oil revenue-sharing proposal and plans to reform the national oil company. Corruption remains a major obstacle to reform, as does Nigeria’s federal government structure, the root cause of much of the debate over how to distribute power and revenue between the federal and state governments. The costs of further Nigerian political turmoil—or the benefits of an improved situation in the Delta—would certainly be felt outside the country’s borders.

In the following analysis, RGE’s Lee Hudson Teslik examines what the Delta peace initiative and Nigeria’s push for oil industry regulatory reform will mean for Nigerian output and for international oil companies operating in the country.

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Today we take a look at the health of residential and commercial property markets around the world. Slowing economic activity and a credit crunch contributed to a decline in housing activity, prices and construction in most major economies. Eastern Europe and the Baltics, as well as the U.S. and UK, have endured some of the sharpest declines. In many countries, not only in the U.S., the bottom of the property markets still seems far off, with sales, prices and starts forecast to continue declining, albeit at a slower pace, through much of 2009.

In fact, many European economies (and Canada) tend to have housing cycles that lag behind the U.S. by about 2-3 years, suggesting that their declines could also persist beyond a U.S. housing stabilization. Sounder lending standards and lower incentives to invest in residential property in some countries may allow them to avoid the depths of the U.S. property correction but others may suffer more severely. The liquidity resulting from quantitative easing has contributed to a slower deterioration of the housing markets. Yet with high inventories in many markets, it may take some time to absorb the excess. This will continue to erode the value of asset-backed securities and banks' balance sheets and defer the revival of construction activity, a major driver of growth.

The decline in retail trade and contraction of the financial sector has worsened the commercial property outlook. Commercial vacancy rates are on the rise in almost all major centers in Europe and North America and net effective rates have declined by 25-30% in major cities in Asia, suggesting that new investment is unlikely as these cities try to absorb overcapacity in retail and hotel trade. Meanwhile, still tight corporate debt markets pose obstacles for corporate finance. Despite the weak fundamentals, REITs and other property investments have benefited from the renewed risk appetite and have been climbing off late. These property investments might well be vulnerable to any reversal of risk appetite.

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As debate about Sovereign investors rages in many OECD countries (see related RGE coverage), there has been less attention to their investments in emerging and developing economies – in part because to date reported investments in the US and EU have been much larger. In fact investment by sovereign wealth funds and state owned enterprises of developing countries is part of a broader increase in South-South investment that also includes EM private multinationals. As these companies seek higher returns, fast growing emerging markets seem attractive.

A new OECD report looks at the effects of these new public sector investors on the EM sponsoring countries and the recipients. Javier Santiso suggests that SWFs might be better considered Sovereign Development Funds as their investment might soon exceed development aid from OECD countries. Should SWFs allocate 10% their portfolio to developing economies and rate of growth continue, they might invest $1.4 trillion over the next decade. The role of these actors from the emerging world - public and private - is a reason why G7 is not the only or even the best venue to talk about development.

The effects on developing countries haven’t been ignored exactly. - Back in September, Simon Johnson of the IMF noted that while SWF assets are small in comparison to global market capitalization and total financial assets, they are large in comparison to the market capitalization of emerging markets. Similarly, Gerald Lyons suggested SWFs would increase their stake in EM equity markets and many commentators have suggested that SWF strategy shifts would boost EM currencies and weaken the dollar and to a lesser extent the Euro. Vinay Nair warned that India should strike a balance between encouraging inflows needed for development and urging more transparency. Desmond Lachman noted that Latin America has not been a major focus of SWFs.

At present EM public and private sector companies might actually be more significant than SWFs per se, though they are part of a broader trend. Whatever the source, more interest in EM assets could have significant effects both on asset prices and on macroeconomic policy management. Since most developing countries already run net surpluses and many still control their exchange rates, a significant capital inflow from any source is a challenge for policy makers. This also implies that unless domestic investment really accelerates in recipient countries that capital will continue to flow to the net debtors (ie the U.S. - and some EU countries). The interest of investors - sovereign and private - in developing countries is likely a good sign. But developing countries need to take a close look to maximize the benefits from foreign investment. This might have the side benefit of increasing transparency, which might benefit citizens and foreign investors alike.

Some examples:

- GCC: SWFs especially investment companies are upping exposure to Asia – targetting of 10-30% of total portfolio - for its strong growth and dollar weakness hedge, but diversification is limited by the persistence of dollar pegs.

- IIF estimates 11% of GCC outflows were bound for each of MENA and Asia regions.

- In 2006, 14% of ADIA’s equity allocation was in Emerging markets, likely the highest of sovereign wealth funds at the time (via Euromoney and the FT)

- QIA is reportedly interested in Latin America. Few (Same goes with Asia) mention Eastern Europe, though it is likely included in EM portfolios.

- QIA and KIA both have stakes in China’s ICBC. Others have stakes in Indian, Pakistani and African banks – and telecom licenses.

- Asia: Asia (ex Japan and Singapore) makes up 40% of Temasek’s holdings – more than its Singapore holdings and twice that in the OECD. Though this may not include its stake in Merrill.

-Available targets suggest CIC will have significant EM exposure- mostly Asia.

- GIC has recent property joint ventures in a range of EMs - and significant exposure to EM Asia.

-Chinese state bank ICBC invested $5.6b in South Africa’s Standard Bank, the largest single investment by a Chinese firm abroad. Most of the funds will go to establish a joint fund to invest in African economies.

-Government pension funds of Taiwan, Korea may invest in energy sector abroad

- for now Kazakhstan and Russian SWFs invest only in the G-10 and US/EU15/Canada respectively. Though Russian banks and energy companies are investing in Emerging markets in Eastern Europe and Africa.

The Pros: In many ways sovereign wealth funds seem like an ideal investor for developing countries, long-term rather than short-term speculators, able to pass on knowledge to developing economies and probably less likely to impose political conditionality than development funders. Despite their tendency to use less leverage, some sectors (eg property development may be backed by more loans than others.

With their focus on economic returns and materials, EM investors may be more targeted towards the identified infrastructure needs of African countries. They also tend to privilege stability and access to resources rather than governance, democracy and human rights that are a focus of most development assistance. Yet, all investors may be hurt by poor governance or political uncertainty or nationalization. DAC countries are also changing how they deliver aid- more development priorities are being set with national governments and to meet their needs – though amount given is falling. And infrastructure is returning as a target - most recent millennium Challenge Corporation (MCC) grants include infrastructure components.

Real estate, energy sector, utilities, telecoms and banks are key sectors of interest. Technology transfer is a key part of deals – some EM corporates and SWFs already have expertise in related areas and may be able to pass it on - to make higher returns. Unlike investments in flagship G-10 companies, technology transfers might be from the investing country to the target rather than the other way. These countries also provide a model for less developed economies.

If developed economies raise more barriers to state-backed investors or private , emerging markets might seem even more attractive. Several sovereign funds have announced a hold on investment in the US either because of fear that deals may be blocked or a (belated) realization that their dive into the financial sector may have been too soon. Many EMs, especially in the MENA region have been actively courting investment from SWFs

The investment climate in many African countries is improving as investors seek other opportunities. Many are developing their capital markets, seeking sovereign ratings, and bond and equity offerings are increasing. Growth is up and inflation is down. To protect against the risk of illiquid bond issues, institutions like the AfDB and the EIB are sponsoring a series of local currency bonds that are attractive to investors seeking higher yields.That being said, many emerging markets – especially those sponsoring SWFs retain significant barriers to investment, even beyond sectors deemed strategic but some are opening more sectors.

But it may not all be rosy

Investments are not altruistic. They are commercial, and perhaps in some cases strategic motivations (especially resources). Furthermore they, like any investor will privilege some countries over others. There will still be a need for funds targeted towards improving health and social outcomes and poverty reduction. This development assistance and loans need not come from developed economies. China, India, Kuwait and Saudi Arabia are among those that have increased development assistance or loans – often with political implications. And economic growth triggered by the removal on infrastructure bottlenecks and improvements in revenue collection might make domestic governments better placed to invest in such sectors.

SWFs may be more likely to take majority stakes in developing countries – this may equally be a positive as they may be in a place to make positive corporate governance roles and transfer technology. In fact the nature of direct investment by SOEs and MNCs implies they would want a management role – not just the financial benefits. But it also means that developing countries will need to think about some of the issues preoccupying g-10 policymakers. Passivity is not necessarily a panacea –willingness to take a passive (especially non-voting stake) may only open up speculation about implicit influence and quid pro quos. But it raises a key question for recipients. After all, Temasek had political problems in its investments in South East Asia and Standard Chartered may soon lose its status as a HK$ issuing bank as Temasek’s stake breaches 20%.

Investment by foreign governments might increase the role of the state, both domestic and foreign. In many developing countries, the state does not have a good track record in picking winners. Perhaps a weakening of institutions is a greater risk. Investment could influence political and regulatory processes in recipient countries, especially if such foreign countries are less bound to regulations in home countries or shareholders to corruption and related practices.

Reverse nationalization could be as significant for developing countries as it is for developed and perhaps more given nascent institutions and regulations. At a time when some developing countries are privatizing key sectors, they may not want a foreign government to control significant sectors.,

As with aid, there is a question absorbing increased flows, especially short-term speculative flows. Many small emerging markets, especially in Asia, already run current account surpluses, meaning that they ultimately have net outflows. New investment - from SWFs other EM investors among - may put more pressure on EM currencies. Should countries continue to try to limit upward movement, reserve accumulation might continue and possibly trigger even more sovereign wealth funds as reserves exceed needed levels. Furthermore challenges of sterilizing the effect on the money supply would be high. Though the reserves of African countries are far from excess levels.

It may be easier to identify target countries than to find opportunities to invest. SWFs have a lot of competition and they are competing with each other There is already a lot of investment flowing into China Investment opportunities in some of the more exotic markets may be dominated in a small number of flagship companies. Portfolio investors may be offput by the small size of offerings - ADIA for one apparently rarely invests in small bond issues. The size and liquidity of these markets may continue to be a limiting factor to investment – as breakingivews notes.

Returns in other developing countries may not be as uncorrelated to those in home countries of SWFs as Santiso suggests. Firstly, commodity prices – which have contributed to growth in Africa, most of Latin America and the Middle East - themselves have tended to be correlated. Standard Chartered though suggests that government spending – in part facilitated by debt relief - is a bigger growth driver especially among non-oil exporters. Should investment help diversify away from commodities and respond to the infrastructure gap, that could lead to more sustainable sources of growth and returns.

Correlation among emerging markets is up also. Though EMs with healthy surpluses have tended to outperform those with deficits, many EMs were tainted with a similar risk aversion brush. Although African markets have been largely sheltered from credit market turmoil (south Africa is a notable exception) Asian markets have not been – and all may be vulnerable to shifts in commodity prices and global demand. And if African economies open more to foreign investment, they might also be more susceptible to global trends. Indeed, by some accounts, more money has been invested in frontier markets since the beginning of the subprime crisis in the search of a sector less correlated to EM and developed country equities. Given that the goal of most sovereign funds is to be to rainy day fund, investing in a broad range of countries – including Emerging markets - and sectors is the best way to diversify. But it should not obscure the risks in what are now illiquid markets. An SWF in a position to buy and hold may be better placed than a private fund manager but even SWFs can only endure so many losses.

PS. interestingly Norway, one of few donors exceeding the 0.7% GNI target agreed at the UN in 1971 – with development assistance reaching 0.89% of GNI in 2006, has very little exposure to emerging market equities in its pension fund. this is a reflection of the GPF-G’s role as a financial actor, they invest in more liquid markets and that Norway uses other vehicles for its development assistance, which tends to focus on governance issue. Its benchmark portfolio requires that EMs make up less than 5% of the equity portfolio – and the latest data implies exposure of under 4% - most of it in countries like Hong Kong, Singapore as well as Brazil, Mexico, and South Africa (data from Norges bank). Its exposure to Canada, Australia and New Zealand is higher than that to emerging Asia. But its recent launch of an office in Beijing may imply a shift in the future and upping its equity allocation will also slightly boost EM exposure.

This weekend, in one of a series of trips that will mark his last year in the White House, President Bush has been visiting five countries in Africa. This trip, his second, is meant to review progress since his last visit in 2003. Since then African nations have seen both development and direct humanitarian aid from the United States jump from a total of $1.4bn in 2001 to $4bn a year today and many of these countries have benefited from debt relief. Over the same period, trade between the US and the continent has more than doubled and as a group, sub-Saharan African economies have achieved high levels of growth (around 6% in 2006 and 2007) and lowered inflation – despite high energy prices. Yet the visit comes amid heightened post election ethnic clashes in Kenya, violent rebellion leading to a state of emergency in Chad and worsening crisis in Darfur, Sudan – to name a few.

The focus of the trip is development assistance and economic development, especially reducing the burden of diseases like AIDS, Tuberculosis and Malaria. President Bush is slated to visit Benin, Tanzania, Rwanda, Ghana and Liberia countries that are viewed as having made economic progress and success at fighting pandemic diseases as a result of American foreign aid. Two, Tanzania and Ghana, were also stops on Treasury Secretary Paulson's trip en route to the G-20 meeting in South Africa last fall.

A closer look at the US ties and aid to these five countries:

Benin: $13.7 million (PDF) in U.S. aid in 2006 and a total of $300 million from the Millennium Challenge Corporation (MCC). Benin was also one of nine African countries to receive funds from the United States’ newest foreign aid initiative, the MCC. It is a major contributor of peacekeepers in the region.

-Tanzania: $151.3 million in U.S. aid in 2006, $100 million of which for HIV/AIDS initiatives. Bush will announce a five-year, $698 million compact (PDF) with Tanzania during his visit focusing on improving the country’s infrastructure the largest single grant in the history of the Millenium Challenge Corporation. Tanzania’s economic growth was a healthy 7.1 percent in 2007 (IMF)

-Rwanda: $95.2 million in US aid in 2006, the majority of which went to HIV/AIDS initiatives. More than a decade after the 1994 Genocide, Rwanda had 4.5 % growth in 2007. Trade with the U.S. rose by 37% in the first eight months of 2007 to $18.6 million ($7m imports from Rwanda mostly of Tungsten and coffee) and a bilateral investment deal is under negotiation. However, some note that despite economic growth, the democratization process has stymied.

-Ghana had 6.3 percent GDP growth in 2007. The United States is among Ghana’s top trading partners, with bilateral trade reaching $572 million in the first 11 months of 2007 or a 31% increase over 2006. U.S.-Ghana military cooperation is robust. (see a recent CRS report for details).

- Liberia: $106 million in aid in 2006 as well as $50 million in supplemental economic support funds. Many Liberians credit Bush with bringing peace to their country following 14 years of civil war which ended in 2005. Bilateral trade reached $207.7 m in 2006 and the two countries signed a trade and investment agreement in 2007. Liberia has been the only African country to publicly express interest in hosting the U.S. military’s new command for Africa.

Jennifer Cooke of CSIS suggests that this trip is a type of ‘victory lap’ for the president. Noting that “expectations for action on Africa were very low when Bush came to office but in fact, beginning very early in his tenure and under Secretary of State Colin Powell, you saw almost an immediate launch into greater activism in Africa” including Darfur, the Millenium Challenge account and Pepfar. Overall, Development assistance to Africa has increased in President Bush’s tenure –Secretary of State Condolezza Rice notes that Bush ‘should be known for the largest single investment in Aids and malaria, the biggest health investment of any government program ever.’

In Bush's tenure, the US launched several new vehicles to deliver aid more directly. President’s Emergency Plan for AIDS Relief (PEPFAR), launched in 2003, will have spent $18.8 billion in Africa in its fight against AIDS by September. The U.S. increase in not alone however - other G7 nations also upped foreign assistance to the poorest countries and have been testing out new vehicles for aid delivery– though not all pledges have been met. Mr. Bush is now seeking to double pepfar’s fund size, to $30 billion. Congress has suggested raising it even further – to $50 billion, but the Administration worries that a larger inflow would overwhelm the recipient economies. National Security Advisor Stephen Hadley suggests that President Bush’s $1.2 billion Malaria Initiative has benefited an estimated 25 million people in 15 African countries. The Millennium Challenge Corporation gives development aid in the form of grants to poor countries that adopt economic and political reforms, its recipients have included $4 billion in grants to nine African countries since its founding in 2004 – the MCC, bases its grants on the needs articulated by member governments. However, unlike pepfar, congress has appropriated less for the MCC than requested by the administration, in part because it was slow to disburse money. Nii Akuetteh, executive director of Africa Action points out that as with aid from other countries, such support comes with strings attached, including a requirement that the government open up to trade and foreign investors.

US military presence in Africa has also risen under Bush’s tenure - in part because of US global anti-terror efforts. Steven Morrison notes that US hard security interests in Africa have risen in the past decade – driven by energy needs, counterterrorism and the Chinese role in the region. There is growing skepticism among African nations about the American Africa Command (AFRICOM) though. AFRICOM is mandated to strengthen American forces’ operations and activities in Africa, enlarge the capacities of African partners, and create a new model of integrated U.S. civilian and military approaches. For an overview of AFRICOM see this post Liberia's desire to host AFRICOM may stem from a desire to lock in US presence after peacekeepers leave. AFRICOM is planning four regional offices though. Critics like Chris Blattman strongly condemn this initiative as colonialism - the use of civilizing aid to advance national economic and security interests. Others, like Robert Kaplan suggest that AFRICOM will help the United States to keep pace with the Chinese, who are offering Africans across the continent an attractive development model: massive loans and infrastructure modernization.

In part the increase in US trade and investment is a measure of commodity needs and energy supply diversification efforts. Oil accounted for much of the nominal increase in US imports from Africa - Nigeria is the 5th largest oil supplier to the US and other west African countries are exploring likely oil and gas deposits. However, trade is not limited to energy products. Since AGOA’s official launch in 2000, bilateral trade has expanded five-fold, with US imports from SSA countries reaching $59.2b and exports $12.1b in 2006. Most imports from Sub-Saharan Africa now enter the U.S. duty free, including 98% of imports from AGOA-eligible countries (38 of 48 SSA countries). It is true, however that commodity exports do dominate - posing a challenge for African countries

Many African countries are developing their capital markets with more countries seeking sovereign ratings. African local currency bills – including the Zambian Kwacha for a period in 2006 have benefited from investors quest for high yield and indirect resource plays. The involvement of the AfDB and EIB as sponsors and use of dollar or euro clearing helps reduce some transactions risk, though the small size of issues and relative illiquidity has deterred some investors. Equity markets have also attracted both domestic and international interest as many garnered high returns. So far, though limitations on investment have kept most sub-saharan economies sheltered from recent credit market turmoil – though recent bond issues like the EIB Zambian Kwacha bond has a higher yield than when it was planned several months ago.

Chinese investment in Africa clearly has an influence on U.S. policy responses, particularly as the Chinese tend to be more focused on political stability and access to resources rather than the governance concerns raised by the US ( and EU). Chinese officials tend to raise the concern that some cases of democracy promotion can be destabilizing. As such, they have been more willing to support dictators. yet, China may also be facing some political risks to its African investment - including sabotage of pipelines. Chinese companies have contributed to infrastructure development in Africa – though some Africans have worried about the terms of their loans, the tendency to import Chinese workers to do the work and the overall competition posed by Chinese manufacturing to some African nations. Princeton Lyman has noted that China’s ability to combine public and private investment gives it tools that the U.S. does not. It’s notable that many of the recent MCC grants have been earmarked towards infrastructure, an area of interest for African countries.

Political risk is looming large again through - in part because of a broader risk reassessment in financial markets and because some political and regulatory risks in resource sectors seem less predicable. Kenya's violent election may have reminded some that the political situation may rapidly deteriorate especially in these countries where democracy is not fully established - or underlying institutions still are works in progress. . Until its recent elections and violent aftermath Kenya was cited as a model, with booming equity markets, several large IPOs and some progress in cutting down on corruption. However, the response to the elections and destabilizing effect, have renewed assessments of risk both in Kenya and elsewhere. It would be unwise to overreact, many investors likely anticipated such risks - Aureos noted that it now focuses on regional funds and regional companies in Africa to hedge against single country risks. Furthermore, most countries do have limits of absorbing foreign capital – and challenges in redistributing the new wealth.

Renaissance (via the EIU) cautions that African countries may lack sufficient political will and resources to invest in the needed infrastructure including power-supply to make up for years of investment neglect. The power supply issues besetting Nigeria and East Africa for so long- and now retarding the growth of Southern Africa are one example. This shortfall and the potential for political setbacks, the EIU suggests, might inject a note of caution into the plans of private equity and large investors, noting that the commodity boom has done little to broaden the base of economic development in Africa, with cheap consumer goods being imported from Asia in exchange for resource exports. Despite the resource windfall, much of the population is not benefiting from the new wealth – and other countries like Ghana are trying to avoid the pitfalls of newfound oil wealth. concerns about nationalism and investment regime changes especially in the resource sector have risen in countries like the DRC, and Zambia and security risks to the oil sector are growing in Nigeria and the Sudan.

Despite its focus on Mr. Bush’s efforts in Africa against AIDS and malaria, politics, governance and clashes may fight their way on to the agenda.. The WSJ opines that the White House hasn't invested enough energy in diplomacy in Africa, particularly in comparison with its investment in economic development and disease relief, suggesting that Mr. Bush will mostly likely avoid addressing the regions seemingly intractable problems, particularly those related to ethnic strife. In fact, Kenya and Uganda were reportedly originally on the trip plans. Steven Morrison noe that President Clinton also skirted some of the most heated political issues in his 1998 visit to Africa. However on the eve of his visit the president announced that Secretary of State Condoleezza Rice will be visiting Kenya to help resolve the political crisis that has caused the deaths of at least 1000 locals and caused a series of spillovers to its neighbors who were accustomed to routing shiping through the Kenyan port of Mombasa. Despite it all, the U.S remains quite popular in Sub-Saharan Africa at a time when America's standing has dropped elsewhere.

Raw cocoa futures rose $57 to a 24-year high of $2545/ton today on ICE Futures US (Formerly New York Board of Trade) despite news of rainfall (at last!) in West Africa and the end of a strike in Ivory Coast (world's largest cocoa producer). Cocoa has been on a tear this year as drought conditions put cocoa production at a 55% larger-than-expected deficit of 242,000 tons. Normally, bad weather (rain) is good news for cocoa supply - which would drive prices down - but speculative fund buying interest plowed on regardless. Vaught at AG Edwards sees cocoa vulnerable to a technical correction as RSI for near-term cocoa futures has risen above 70, signalling overbought conditions after prices rose more than 50% since Q1 2007. Cocoa may dip in the near future, but Alaron's Cruel believes it will test $2800/ton in a month or two.

The fundamentals picture for cocoa and cocoa products remains bright:

-Agricultural commodities have seen hedging interest from funds looking for 'the next big thing' after gold and oil hit all-time nominal highs in January.

-Manufacturers stocking up on cocoa before speculators drive prices even higher

-Positive correlation between Chindia (China, India) income growth and cocoa demand

-Growing demand for darker and darker chocolate. Valrhona, Lindt, Michel Cluizel, Scharffen Berger have produced ultra-dark 99% cacao bars to capitalize on the wave of enthusiasts and interest in dark chocolate's vaunted health benefits

-High milk and sugar prices add to price pressures on sweeter chocolate

-Perennial supply concerns that plague the industry: Intermittent strikes and political instability - especially in Ivory Coast which provides 40% of world's cocoa, poor weather (lack of rainfall in West Africa - 70% of world cocoa supply), bugs and disease that frequent the tropical areas where cacao is grown (mostly Indonesia, Latin America, Caribbean, West Africa)

-Turf War - various agricultural commodities vie for limited supply of arable land

-Compared with other commodities, cocoa (and other agriculturals) were undervalued. While energy and metals have recently hit all-time highs, cocoa is far from its $5379/ton high in 1977.

...But perhaps not as bright as markets believe:

-Though food demand growth will support agricultural commodities, chocolate is generally a luxury food - not a staple like rice or wheat. Cocoa demand could take a hit from a US-led global growth slowdown (Jim Rogers would disagree)

-Forecasts of increased supply - ICCO (International Cocoa Organization) and Fortis Bank forecast a surplus for 2007-2008 - on improved weather and the end of the Ivory Coast strike

-Cadbury recently announced an investment program to raise Ghana's dwindling yield

-Valentine's Day is almost over

Related Cluster: Craving for Cocoa: Sweet Spot in the Market Meltdown

China's growing ties with African nations continue with its hosting of this year's African Development Bank (AfDB) meeting in Shanghai this week, only the second time it has been held off the African continent. China's trade with African countries reached $55 billion in 2006, with the Chinese government projecting it will rise to $100 billion by 2010.  to compare, U.S.-African trade was $91 billion in 2006).  China’s commodity demand has contributed to high growth (6% projected in 2007).  China's investment and loans make it an increasingly important actor in many Sub-Saharan African countries, though as with any relationship, not without its costs. China's reluctance to interfere with domestic politics has been welcomed by many leaders (including al-Bashir of the Sudan and Mugabe of Zimbabwe) but international pressure and costs to may be changing the calculus for China.

Many African countries are seeking out new financing sources -  with some analysts worrying that newly debt-relieved countries are again becoming indebted. but, development of soverign bond markets may provide needed financing for infrastructure and  future space for corporate finance. Calling for further bond market development, Booth argued in the FT that the challenge for Africa was not too much but rather too little globalization.  The sources and costs of this financing vary.

Fitch just gave positive credit outlook for many Sub-Saharan African countries on the basis of strong commodity-export led growth and debt relief.  More African countries are seeking out credit ratings for their local and foreign currency bonds. 14 are now rated by Fitch, with Rwanda being the most recent.  China is issuing loans (though the details and interest rates are unknown) and some countries are seeking private sector financing.  Perhaps in part to counter China, Germany has made support of African bond markets part of its EU/G8 presidency platform and it will be one of the many topics at this weekend's G8 meeting.

As investors search for ever decreasing yield, some African local currency bonds and bills have become more attractive. An example was the rapid demand for Zambian t-bills in the summer and fall of 2006 ( largely in line with the copper price). however, many african countries are not that in demand, others might find it diffficult to raise the typical size of bond issues - multilateral development banks like the AfDB have stepped in.

The combined OECD/AfDB African Economic Outlook released over the weekend in also worth a look, especially the country reports. The overall outlook: Looking ahead, economic prospects for 2007 and 2008 are in aggregate positive, though, in view of the likelihood of a softening in non-oil commodity prices, substantial differences are expected between the experiences of net oil-exporters and oil-importers. Resource-rich countries will need to ensure that a large part of the windfall gains now accruing to their treasuries due to favourable terms of trade is directed towards supporting medium- and long-term development: emphasis will need to be placed on investments in infrastructure and human capital. Net oil-importing countries will need to ratchet down inflation to single-digit levels while minimising the impact on growth.

Though the economic prospects are broadly favourable, most countries are of course starting from a very low base. Human security continues to be severely affected by the vulnerability that accompanies extreme poverty. Exacerbated by weak governance structures and by internal conflicts, this vulnerability is holding back private sector development and continues to impede the integration of African countries into the global economy. The added impetus to the international community’s support to Africa given by the G8 Summit in St-Petersburg has therefore been essential; the decision of the German presidency of the European Union to maintain this impetus a Heiligendamm is to be warmly welcomed.

As well as good sections on managing oil revenues and on export patterns, The IMF's regional outlook on Sub-Saharan Africa has a good breakdown of local currency bond markets in African countries.

As many sovereign creditors have granted debt relief, the focus is turning to domestic debt management but government and foreign currency borrowing may continue to be the focus. Several African countries are seeking credit ratings including Zambia and Ghana and the number of local and international debt instruments issued will likely increase as governments look for new sources of infrastructure funding. however, the IMF cautioned that the high returns on government debt is likely to discourage private investment.

The local bonds of South Africa, and Botswana have attracted foreigner investors for several years, those of other countries have recently become sought after. They note" Early estimates suggest that in the first half of 2006 Nigeria received portfolio inflows of roughly $1 billion, more than five times the total capital flows in 2005. Similar trends have been observed in Tanzania and Zambia." The IMF Financial Stability Report has a section on the inflow of funds into Zambian T-bills from late 2005 to mid 2006, along with the rise in the copper price. 

"Since 2000 the share of debt held by nonbanking agents in Uganda, for instance, has gone up by 7 percentage points (Figure 5.3). In more developed markets like Botswana and South Africa, the nonbanking sector holds more than 80 percent of total debt—comparable to industrial countries."