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December 14, 2018

Leaders have lost control of ‘Africa Rising rhetoric’

One of my favourite poets is the Irishman WB Yeats, and one of my favourite poems is called The Second Coming. And that Poem begins thus: 

Turning and turning in the widening gyre

The falcon cannot hear the falconer;

Things fall apart; the centre cannot hold;

 According to Google analytics, this poem has seen a parabolic surge in ''mentions'' – and I am sure you will understand why when you read the poem in full. 

 Last week, I attended the Financial Times Africa Summit at Claridge's in London. Hannah was impressed that the lift had a sofa, and of course very little beats a really grand hotel, especially one as venerable as Claridge's. The president of the African Development Bank, the very dapper Akin Adesina said ''Africa is not falling apart''. 

 Pravin Gordhan, who described himself as more of an activist than a Finance Minister, admitted he was just one phone call away from being fired. Lionel Barber checked whether his phone was off for the duration of the interview. 

 Overall, with the exception of, it seems Mr Ibrahim, Mr Collymore and myself – it still felt like everyone was still singing from the same ''Africa rising'' hymn sheet. 

 When it was my turn – and bear in mind I had Tito Mboweni (The ex-South African Central Banker) on my left – I said: ''SSA is predicted at its slowest rate since the early 1990s. The challenge now is that you can drive a truck through the chasm between the ''Africa rising'' rhetoric and the reality (slowest GDP expansion in more than 25 years).''

 If you want a market measure of the chasm, look at the official FX rates and compare them with the black market rates in so many countries. In Nigeria, the official rate is around 311.00, but the black market rate is close to 500.00. Look at Angola. These black market rates are a real time temperature gauge, and they are clearly emitting a signal. The point is that policymakers have now lost control of the narrative and they need to adjust the rhetoric, otherwise credibility starts sliding. It's a mystery to me how there is even a shred of credibility left in Nigeria. It is clear now that the denouement is not being side-stepped, but instead is being hurtled towards.

 Given that FT Africa conference was held in London, it is worth turning to some tectonic shifts in sterling asset prices. The catalyst for the sell-off in the pound were comments by the Prime Minister Theresa May at the conservative party conference 

 “We should not let things drag on too long; having voted to leave, I know that the public will soon expect to see, on the horizon, the point at which Britain does formally leave the European Union,” May said on Sunday. “There will be no unnecessary delays in invoking Article 50. We will invoke it when we are ready. And we will be ready soon. We will invoke Article 50 no later than the end of March next year.”

 These comments coupled with hard-line comments on immigration sent sterling into a tail-spin. This tail-spin culminated in the early hours of Friday morning (when most of us were tucked up in bed and in the blissful land of nod), when the pound fell as far as 1.1200 on some electronic trading platforms – though most financial news wires are talking about a low around 1.1800. It is still a matter of speculation as to what could have led to such a precipitous fall. Some are blaming automated algorithm trading systems (which buy and sell enormous amounts of FX on the basis of word counts and so on), fat fingers and all kinds. The point is sterling ''flash-crashed'' big. The United Kingdom runs a near 100b current account deficit and debt-to-GDP is somewhere around 90 per cent. 

 And here again we can see that Prime Minister Theresa May has nailed her colors to the ''Brexit'' mast. The language of ''Brexit'' is hard-edged and is not considering the impact on the financial markets at all. Sterling has become a prisoner of the hard-edged rhetoric. 

 I was deep in the countryside in Worcestershire at a clay-pigeon shoot and everyone at my table was a farmer. And they all have been beneficiaries of the European Union's largesse. I asked, did any of you vote for Brexit? And everyone had voted for it. And then I realised that this whole thing crossed a threshold a long time ago.

 UK 10 year gilts at less than one per cent, on a yield basis are the sale of the year. Next week Carney will be pressing buttons, the lights might blink but ''the Falcon cannot hear the falconer''.


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