Aurelia Butler

MARRAKECH (Reuters) – The International Monetary Fund’s (IMF) Africa director said on Monday that he was “hopeful” that Zambia and its official creditors would announce a finalised debt restructuring deal before Thursday.”We’re very hopeful that the authorities and the creditors will be in a position to make an announcement very, very soon,” Abebe Selassie told Reuters in an interview on the sidelines of the IMF and World Bank annual meetings in Marrakech.”They’ve told us that there’s been very strong progress, that they’re in the last stage of finalising things.”Zambia became the first African country to default in the COVID-19 pandemic era in 2020 and its restructuring under the G20’s Common Framework process has been beset by delays.It clinched an agreement in June to restructure $6.3 billion in debt owed to governments abroad including China and members of the Paris Club of creditor nations. To formalise the debt deal, Zambia has to sign a memorandum of understanding (MoU) with these official creditors. Zambia’s Finance Minister Situmbeko Musokotwane said in late September that he expected the MoU to be “finalised and executed before the end of the year.” Last week, Zambia’s international bondholders formally started debt talks with the government, three sources told Reuters, a key step in restructuring more than $3 billion of overseas bonds. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Claudia Goldin, a professor at Harvard university, has won the Nobel Prize for economics for advancing the understanding of women’s labour market outcomes.The committee awarding the prize, officially known as the Sveriges Riksbank Prize in Economic Sciences in memory of Alfred Nobel, said she had “provided the first comprehensive account of women’s earnings and labour market outcomes throughout the centuries”, revealing the main causes of change and the main sources of the remaining gender gap.Goldin becomes only the third woman to win the prize, after Elinor Ostrom in 2009 and Esther Duflo in 2019.Randi Hjalmarsson, an expert on the prize committee, said Goldin had combined the tools of a labour market economist with those used by economic historians to chart how female employment in the US evolved over more than 200 years, in which a largely agricultural economy evolved into an industrial and then an office-based society.“She had to be a detective,” Hjalmarsson said, describing how Goldin had uncovered and interpreted new sources of data for periods in which women’s occupations and earnings often went unrecorded, showing that their employment rate was much higher than shown in censuses. One of her most counterintuitive findings was that women’s participation in paid employment did not increase steadily over time, or in line with economic growth, but formed a U-shaped curve. Almost 60 per cent of married women were in work at the end of the 18th century — including those in agriculture, cottage industries and in the home — but this proportion dropped over the next century as industrialisation made it harder to combine work in factories with family duties.Even in the 20th century, progress in closing the gender gap for employment and earnings was “slow and sporadic”, Goldin found. Overt barriers, such as legislation that prevented women from remaining in jobs such as teachers or office workers when they married, played a part in this.So did structural changes in the labour market. Pay discrimination against women increased in the early 20th century, Goldin found, as the growth of the service sector led employers to abandon piecework contracts in favour of monthly salary structures that tended to reward long service, uninterrupted by children. But Goldin’s research also showed the persistent influence of educational choices women had made early in their lives — when they did not expect to spend long in the labour market — that limited their choices much later when they tried to return to work as their children reached independence. Another key study she conducted showed how the introduction of the contraceptive pill at different times in different US states led women to plan and invest in their education and careers. Although Goldin does not use her research as the basis for policy conclusions, the committee awarding the prize said it had had “vast societal implications” as “by finally understanding the problem . . . we will be able to pave a better way forward”. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Unhedged newsletter. Sign up here to get the newsletter sent straight to your inbox every weekdayGood morning. How will markets digest the breakout of war in the Middle East? Minds immediately leapt to the oil price, and to memories of the 1973 Yom Kippur war, another surprise attack on Israel. The oil embargo that followed ultimately led to the unanchoring of US inflation and forced the Federal Reserve, under Paul Volcker, to crush the economy. Is that antecedent the right one? Let us know your thoughts: [email protected] and [email protected] term premiumUnhedged has written several times about the rising term premium, an important, and concerning, attribute of the recent sell-off in long bonds. The term premium is the extra dollop of yield investors get for holding long-dated Treasuries, as compensation for taking on interest rate risk. Think of it as the difference in yield between a 10-year Treasury and rolling over the expected one-year rate 10 times over a decade.Because the term premium can’t be observed, it is estimated. The main two methods both involve running regression models on different parts of the yield curve. One approach (called the ACM model, after its authors’ names) does so only using data on yields, and the other (the K&W model) mixes yields data with forecaster expectations of short-term rates. Results sometimes differ, but lately both approaches have told the same story. The term premium appears to be positive for the first time since 2017:If the term premium reverted to its 30-year average, it could add something like 80 basis points to the 10-year yield, leaving it not far from 6 per cent. The ACM and K&W models may even be too sanguine on how far the term premium could increase, says Michael Howell of CrossBorder Capital. So it matters why the term premium is rising right now. On Friday, we came up with several potential reasons, and over the weekend readers chipped in a few more (we’ve tried to keep them distinct but there is some overlap):Expected rate volatility is higher, perhaps because expected inflation volatility is higher. Strong economic growth, (some) signs of sticky inflation and a Fed insisting on higher for longer all cloud the rate outlook. There is also the live possibility of structurally higher volatility in inflation, such as from climate-related supply disruptions or geopolitical flare-ups. Investors will want compensation for that volatility. “If there’s less certainty around long-term rates, that deserves more of a term premium,” says Gordon Shannon, investment grade portfolio manager at TwentyFour Asset Management. Uncertainty around US solvency and/or political stability is higher. In its US sovereign credit downgrade in August, Fitch blamed “a steady deterioration in standards of governance”, raising fears that political dysfunction might someday cause a missed bond repayment. As an explanation for a higher term premium, this is hard to believe. Given the global appetite for safe assets, as investments and as collateral, plus the US’s singular role in producing loads of them, the Treasury market is too big to fail. Unless and until a payment actually is missed, investors will probably look through hypothetical US credit risk.Treasury supply has risen sharply, and will keep rising. Extraordinary peacetime fiscal deficits require extraordinary bond issuance. As our colleagues Kate Duguid and Mary McDougall report, net Treasury issuance so far this year is already the second-highest on record, though well short of the record Treasury flood in 2020. After some surprisingly chunky bond auctions in the third quarter, many market-watchers expect supply to continue growing fast next year. Foreign Treasury demand is not rising. At least, not at a pace that can offset the surge in supply. Some have raised the alarm about falling Japanese and Chinese Treasury purchases, but Brad Setser, one of the closest watchers of global capital flows data, argues this is a misreading. He shows nicely in the chart below that demand is OK; the story is largely about supply: The marginal buyer may be growing more price-sensitive. Classic Treasury buyers who don’t much care about price include the Fed, US commercial banks and foreign central banks. But the Fed is running its quantitative tightening programme, commercial banks are trying to reduce duration risk and foreign Treasury demand isn’t rising (see previous bullet). In their place, more price-conscious asset managers, hedge funds and pension funds are stepping in, Jay Barry of JPMorgan points out in a recent note. His chart:Marginal buyers who are more price sensitive and who face a wave of supply presumably have more power to extract a higher term premium. However, we’d point out that this seems more a backdrop force than a proximate cause of the recent Treasury term premium rise. As the chart above shows, price sensitivity has been on the rise for some time.The balance of risks for bonds has shifted. The four-decade bond bull market is widely believed to be over, so investors want more coupon in place of the expectation of capital appreciation. “The relative risks of being pinned at the zero lower bound have fallen (Fed has plenty of room to cut rates) and risks of higher inflation have risen. Following the GFC risks were much more one-sided and bonds were seen as a hedge for Japan-like outcomes,” points out one esteemed reader. Like with buyer price sensitivity, though, we’re not sure why this would have started applying just now. The drumbeat of QT continues. JPM’s Barry argues that the Fed’s balance sheet run-off has contributed to a rising term premium. He starts by noting that in the post-2008 quantitative easing era, the yield curve’s shape correlated tightly with the term premium. As the Fed bought long bonds, it pushed prices up and yields down, flattening the yield curve throughout the 2010s. At the same time, the 10-year term premium fell. Now, Barry expects the opposite: QT should re-steepen the curve, which in turn should lift the term premium.None of this suggests we ought to expect something catastrophic, such as a Treasury market buyers’ strike. The Treasury market’s global centrality makes a true breakdown unthinkable; anything approaching one would force the state to act. Rather, as Shannon put it to us: “It’s all a question of price. There are no absolutes.”One good read“Netanyahu’s entire strategy towards the Palestinians now looks like a failure.”FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, hosted by Ethan Wu and Katie Martin, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youSwamp Notes — Expert insight on the intersection of money and power in US politics. 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Soon after an earthquake struck Morocco on September 8, killing some 3,000 people, the country’s ruler, King Mohammed VI, announced a five-year Dh120bn ($11.7bn) reconstruction package to rebuild villages and support those who lost homes and livelihoods.The plan would aim to help 4.2mn people in the worst affected areas, according to Moroccan officials. The High Atlas mountains — epicentre of the 6.8 magnitude quake — are in one of the poorest regions of the kingdom. There, about 60,000 houses in 2,930 villages have been damaged. A third of the houses have collapsed, officials say.But in spite of the tragic loss of life, and the destruction, analysts do not expect a massive impact on the country’s diversified economy. While there may be some short-term effects on agriculture and tourism in the region, key sectors such as financial services, the automotive industry, and fertiliser production are based far from the stricken area.And, although they are closer to the epicentre, the annual meetings of World Bank and IMF in Marrakech on October 9-15 will go ahead. “The impact should not be too bad on the economy in the short term,” says James Swanston, analyst at Capital Economics, the London-based consultancy. “As for the reconstruction plan, it is spread over the course of a few years and shouldn’t raise any concerns with Morocco’s financial position.”Before the September earthquake, gross domestic product was expected to grow in 2023 by 2.9 per cent.In late September, Abdellatif Jouahri, governor of Bank al-Maghrib, the central bank, said it was too early to assess the earthquake’s impact on growth, debt and the budget, suggesting the picture would become more apparent at the end of the year.He added that Morocco has “specific financing lines set aside for similar circumstances” and that the country had a $5bn flexible credit line from the IMF at its disposal. “We will be able to use this line without conditionality since we are facing a shock,” he explained.The IMF credit facility was agreed upon in April. At the time, the lender described Morocco as having “very strong fundamentals and institutional policy frameworks, [and a] sustained record of implementing very strong policies”. It said the facility was aimed at addressing “elevated” risks to the economic outlook, mainly recurrent droughts that damage growth and impact the large section of the labour force — 39 per cent — that is engaged in agriculture.Another risk, said the lender, was inflationary pressures from elevated commodity prices as a result of Russia’s invasion of Ukraine.The Moroccan economy had rebounded strongly from the Covid pandemic, growing by 7.9 per cent in 2021. But, in 2022, a combination of severe drought and higher global food and energy prices caused growth to plummet to 1.1 per cent while inflation rose to 7.6 per cent.A man walks past collapsed buildings days after the September 8 earthquake . . .  More

Recep Tayyip Erdoğan entered an auditorium in the depths of his vast palace on September 6 to a standing ovation and roaring applause from government officials and state media. Dramatic regal music blared from the speakers.The Turkish president was there to introduce the country’s medium-term economic programme, a technical presentation that he has always delegated to his economic team. But this year, Erdoğan used the occasion to endorse a plan that marks an abrupt break from the unorthodox policies that the longtime leader has touted for years.“With the help of tight monetary policy, we will bring inflation back down to single digits,” Erdoğan said just days after the country’s statistical body announced consumer price growth was running at about 60 per cent. The remarks from a leader who has previously called interest rates the “mother and father of all evil”, and insisted that high borrowing costs cause rather than cure runaway inflation, reverberated across Turkey and flashed up on financial terminals around the world. Turkish vice-president Cevdet Yılmaz tells the Financial Times that Turkey’s strongman leader was trying to make a point about his “political ownership” of the programme. “President Erdoğan himself announced the medium-term programme, that was a first and it was also a message in itself,” he says.Yılmaz, a veteran politician in Erdoğan’s Justice and Development party (AKP), is part of a slate of senior leaders the president appointed following his re-election in May who are attempting to steer the country away from the brink. Their appointments have ignited a furious debate about whether Erdoğan has really abandoned his “new economy model” in favour of mainstream economics.Years of unorthodox policymaking triggered a series of escalating economic crises in the country. The malaise eroded Erdoğan’s popularity ahead of May’s elections, although massive public giveaways before the polls helped Turkey’s longtime leader beat an opposition that had campaigned vigorously on the gloomy state of the $900bn economy.“It was a policy mix that, regardless of the outcomes, actually delivered the president a bigger victory in the elections than people had anticipated. So this kind of complete reversal was unexpected,” says Paul Gamble, head of emerging Europe sovereign ratings at Fitch.Turkey’s economy has expanded rapidly over Erdogan’s 20 years in power, with annual output growth averaging 5.5 per cent on an inflation-adjusted basis. A credit-fuelled construction boom and big investments in infrastructure and industry led to particularly big leaps in the development of Turkey’s economy from 2003 to 2013. But the growth-at-all-costs mentality led to painful levels of inflation: consumer price growth officially has averaged 55 per cent annually since the start of 2021. The deteriorating economic backdrop and Erdogan’s increasingly tight grip on all parts of policymaking — he is on his fifth central bank chief since the start of 2019 — has also sent foreign capital fleeing Turkey’s markets in recent years.Low interest rates have been a pillar of Erdoğan’s economic programme, but the government also took steps to “lira-ise” the economy at a time when many companies and individuals have sought refuge in dollars and gold. Turkey has spent tens of billions of dollars since 2021 in backdoor currency interventions aimed at steadying the lira, while also deploying ever-changing rules and regulations that punish companies for holding foreign currencies. Authorities went so far as intervening in the timing and scale of corporate currency deals, according to one banker. Erdoğan’s government also deployed a massive stimulus effort ahead of May’s election, giving away a month of free gas and boosting public sector salaries and the minimum wage. The policies have led to huge imbalances in Turkey’s economy. Consumers have raced to purchase items such as home appliances, fearing that with inflation running so hot, goods will be much more expensive in the future. The spending binge sharply increased imports, as did the rush among Turks to purchase gold to protect their savings. These factors have sent Turkey’s year-to-date current account deficit through July to $42bn, the second-highest gap for this time of year on records going back to 1992. And the central bank’s international reserves were severely run down to finance the big current account deficit and as authorities attempted to defend the lira, which has fallen 71 per cent against the dollar in the past three years. Many economists were deeply worried that if Erdoğan did not change course, the country was heading for a financial catastrophe. During fiery campaign rallies, Erdoğan insisted that it was international forces rather than his policies that were hitting Turkey’s economy.“If the previous policies were continued, it would have led to a balance of payments crisis or hard capital controls,” says Hakan Kara, a former Turkish central bank chief economist who is now a professor at Ankara’s Bilkent University.Selva Demiralp, a former Federal Reserve economist who is now at Istanbul’s Koç University, says that the previous policies would probably have led to a “very deep recession”.While Erdoğan has endorsed the new economic programme, investors and economists are deeply concerned over how long the president’s patience with tighter monetary policy will last. Analysts also caution that while policy is moving in a more orthodox direction, Erdoğan’s longtime focus on growth presents a serious challenge to policymakers’ attempt to rein in inflation. The success or failure of the programme will be pivotal both to corporate Turkey and the wellbeing of everyday Turks, who have seen the value of their savings severely eroded by high inflation and a falling lira in recent years. “I don’t know if [the new policy] is really a U-turn or if it’s a detour,” Demiralp says.‘Sea change’ in policyLeading the effort to restore what he has described as “rational” policymaking is Mehmet Şimşek, a former senior Merrill Lynch bond strategist who was appointed finance minister in early June. “The entire programme is based on rebalancing the economy and moderating domestic demand,” Şimşek tells the FT.Over the past four months Şimşek has pushed for investor-friendly officials to be installed by the president in senior policymaking roles as his team attempts the complex process of unknotting years of unconventional policies. The appointment of former Goldman Sachs banker Hafize Gaye Erkan as the first female central bank chief was seen as a particularly important step towards economic orthodoxy.Hafize Gaye Erkan holds a meeting in Ankara earlier this month. The appointment of the former Goldman banker as Turkey’s first female central bank chief was seen as an important step towards economic orthodoxy More

After the severe disruptions of Covid, Morocco’s textile and clothing industry is flourishing again. The sector is firmly focused on exports and, in 2022, these jumped by a fifth year-on-year to reach a record 44bn Moroccan dirhams ($4.25bn). Despite fierce international competition, the country is now Europe’s eighth-largest textile and clothing supplier. Even after the pandemic disrupted manufacturing and global demand, Morocco’s textiles industry still accounted for 15 per cent of industrial GDP in 2021 and 11 per cent of its exports, according to a recent report by the International Finance Corporation, part of the World Bank.So-called “fast fashion” accounts for 52 per cent of production. Predominantly, this involves the assembly of designs provided by wholesale and retail customers using fabrics, yarn and other accessories imported from countries led by Turkey — although there is increasing diversification.“Its proximity to southern Europe — specifically Spain — is a huge advantage given the speed of supply in fast fashion,” says Martin Stone, partner at Zenobia Intelligence, a business consultancy focused on the Middle East and north Africa. “Moroccan textiles make up most of brands like Zara and Mango’s garment supplies.”However, EU rules on what counts as “substantive stages of production” — depending on the sourcing of materials — constrain what can be exported free of duties in the Pan-Euro-Med trading zone.As well as its proximity and its logistical links to European end markets, the Moroccan textile industry also offers competitive labour costs, short lead times, and flexibility for small and medium orders, through its dedicated textile technology parks and industrial zones. It has had some significant ups and downs in past decades, though. In the 1990s, trade boomed when cheap labour was plentiful. But, then, with the rise of trade with post-Soviet eastern Europe, Romania’s textile industry — in particular — took much of the export market from the Kingdom. When customers such as the British retailer M&S left Morocco in the 2000s, factories closed. However, Morocco’s fortunes as a centre of clothing manufacturing changed again when Romania entered the EU as a full member. Many of that country’s workers gradually switched to other, better-paying industries, helping restore the cost competitiveness of Morocco’s textile trade. More recently, the Covid pandemic has severely disrupted Morocco’s gradual fightback. Exports from the sector fell from Dh37bn ($3.6bn) in 2019 to under Dh30bn ($2.9bn) in 2020. They then clawed their way back to near pre-pandemic levels before a surge in 2022 to the record Dh44bn.Today, the textile sector today has 1,600 companies registered and, last year, they reached a turnover of Dh60bn ($5.6bn), according to the Moroccan government. Exports accounted for Dh40bn ($3.9bn) of this total, compared with Dh36bn ($3.5bn) in 2018. In July 2023, Ryad Mezzour, Morocco’s minister of industry and trade, told the country’s House of Representatives that there were 173 investment projects in the sector under way and that Morocco’s ambition was to boost exports further to Dh50bn a year.For the country, the textile sector is an essential source of foreign exchange, as well as a key employment provider. Figures differ but, according to the Moroccan Association of the Textile and Apparel Industries (AMITH), the industry employs around 160,000 workers, most of whom are women.Registered factories are frequently inspected by the government and also audited by buyers to ensure acceptable working conditions and production standards prevail. However, the sector has been embarrassed by the operation of illegal factories, based primarily around Tangier. In 2021, a factory owner was jailed after 28 workers died in the flooding of an illegal clothes factory concealed in a villa basement. It had been operating in the city for more than 20 years. For textile business owner Jorgin Poli — whose company supplies retailers including River Island and Monsoon, and who has been working in Morocco for 25 years — the long-established skill of the workforce is essential to the sector’s success. “They have a heart for the business,” he says. “The Moroccan workforce is very flexible: 95 per cent of our workers are women, and a lot of them are mothers but, even so, they will stay and work late to make sure the orders go out.” Even so, labour shortages are an issue for the factory owners, as better wages in other sectors make some workers look elsewhere. Other industries have become more popular among the young. For example, jobs in the expanding car industry are sought after as foreign investment comes in and salaries are raised.Morocco’s average textile factory wage is between Dh2,000 ($195) and Dh4,000 ($390) per month. This compares with an average of Dh7,200 ($700) per month for a car factory worker.Textile industry leaders remain concerned about its future and its rivals. China dominates world production, but Turkey is the rival that Morocco is targeting. The manufacturing of clothing for both local and export markets in Morocco uses large quantities of textiles sourced from Turkey. Fabrics, yarns and other raw material exports to Morocco increased by 30 per cent in the first six months of 2022. Also, in terms of local consumer sales, it is Turkish rather than domestic products that are omnipresent in Moroccan shops and markets. Factory owners want to be able to use more local Moroccan materials and accessories. Recently, the government has been investing in developing weavers and other raw material producers in the supply chain, but there is still some way to go.There are also new markets to be developed. “The industry is going to grow,” says Zakarraya Boukhari, managing director of BMS Clothing, which supplies retailers including Bravissimo, Evans, Bon Marche, M&S, Mothercare, John Lewis and River Island. “[But] we need to invest more in new technology, and we need government help to access new research and textiles and to participate in trade fairs like London and Paris,” he says. The sector also needs to search out new sales territories, Boukhari argues. “We should look to Africa. It is a new market, and it is the future market.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The world’s largest copper producers have warned that there is a lack of mines under development to deliver enough of the metal to keep pace with the clean energy transition.The warning comes as miners struggle with falling metal prices because of the weakness of the global economy and cost inflation, which makes executives, investors and banks cautious over financing new projects. With labour shortages also holding back new supplies, there are worries over the switch to carbon-free power since copper is vital to manufacture electric cars and upgrade the electricity grid.Kathleen Quirk, president of Freeport-McMoran, the largest US copper producer, said that higher copper prices alone would not be enough to secure enough metal needed for the world to go green.“Now it’s not just price. It’s these other factors that really are going to limit how quickly we can develop supplies,” she said, speaking on the sidelines of the FT Mining Summit last week. “What may end up happening is that this [energy transition] gets extended out longer.”Copper prices have dropped 4 per cent this year to about $8,000 a tonne, down from more than $10,000 at their peak last year, as the growth in the world economy has cooled off and production at new mines in Peru and Chile has been increasing.Yet demand for the commodity is expected to take off to supply the green economy, as well as to support the economic rise of India and other developing nations. The living standards of the average westerner requires 200-250 kilogrammes of copper per person, versus 60kg on average globally, according to Anglo American, one of the world’s largest miners.It is used in everything from electrical wiring and household appliances to infrastructure such as trains.Its use will become ever greater as the world goes green, resulting in it being dubbed the “metal of electrification”, with forecasts that it will double to a 50mn tonne market by 2035 compared with 2021 levels, according to S&P Global, which predicts a “chronic gap” between supply and demand.Also speaking at the FT summit, Robert Friedland, billionaire mining magnate and founder of Ivanhoe Mines, said that the current bout of softer prices would stoke shortages later on.Despite huge expected growth, copper producers are struggling to generate enough large projects because the commodity is becoming harder to find in high quantities in the ground. For example, Freeport is turning to new technology to extract copper from old piles of mining waste ahead of expanding mines.Farid Dadashev, head of European metals and mining at RBC Capital Markets, said that executives were proving reluctant to invest in mines that will take 10-15 years to build and cost billions of dollars with low prices and political uncertainty in mining jurisdictions.“When you add further complexity from longer permitting timelines, higher inflation and generally declining ore body grades, this perhaps explains why we’re finding ourselves in the situation where it’s likely there won’t be enough copper to meet decarbonisation goals in the next few decades,” he said.Copper miners are becoming increasingly resigned to the likelihood of shortages later this decade driving innovation to substitute and reduce use of the metal in products, although it is uncertain how far this can go.“There will be some restructuring of demand,” said Maximo Pacheco, chair of Codelco, the Chilean state mining group, which produced the lowest volume of copper in 25 years in 2022.For some, the supply crunch for metals risks a trade-off between satisfying the decarbonisation goals of the economy and efforts to lift large parts of the world out of poverty without policy intervention.“Something has to give somewhere along the line,” said Duncan Wanblad, chief executive of Anglo American. More