Ouattara Ivory Coast Bond Rally Hinges on Managing Nation's Former Gunmen

Alassane Ouattara’s handling of his political foes and their gunmen will determine whether he can attract investors after the prospect of civil war victory sparked a rally in Ivory Coast’s international bonds due 2032.

The former International Monetary Fund director inherits a banking system shuttered by a four-month civil war, a cocoa industry in danger of losing its dominance of the global market and a treasury that defaulted on a $2.3 billion bond in January. The country is also riven by the ethnic and political divides that fueled 10 years of conflict. Signs of his victory have driven the price of the Eurobond to a four-month high.

“He’s certainly a president with strong credentials in the international community,” said Kevin Daly, who helps manage $6 billion in emerging market funds at Aberdeen Asset Management Plc in London. “There’s no way investors will come back if you can’t address the various interests that both his supporters and rivals have and establish a functioning government.”

Ivory Coast has missed out on a wave of foreign investment in Africa from nations such as China, crimping economic growth to an average of 1.1 percent between 2002 and 2009, compared with 5.6 percent in neighboring Ghana. To make up for the lost decade, Ouattara pledged tax cuts during a presidential election in November, while donors considered scrapping $3 billion of Ivory Coast’s $14 billion debt.

IMF Sympathy

“I think the IMF and the World Bank are going to be quite sympathetic to the new regime,” Samir Gadio, an emerging-market strategist at Standard Bank Group Ltd., said from London. “In terms of debt relief we are probably going to get some results over the next few years, or next few months.”

Millions of aging cocoa trees need to be replaced to protect an industry that contributes a third of Ivory Coast’s export earnings. While the country’s cocoa production was little changed in the 2009-10 season from 2002-03 at 1.22 million metric tons, Ghana’s output almost doubled to 662,000 tons over the same period.

Ouattara, who has a Ph.D. in Economics from the University of Pennsylvania, served as director for the IMF’s African department between 1984 and 1988 and governor for the Central Bank of West African States over the next two years. The prospect of him assuming power has helped the price of the country’s Eurobond rally 25 percent in 10 days.

Technocrat

“He’s a technocratic guy,” said Alex Vines, Africa director at the London-based Chatham House think tank. “It remains to be seen if he’ll be able to handle the in-your- faceness of African politics, where he needs to be juggling the demands of armed groups and even his political rivals.”

Ouattara, 69, enjoys most of his support in the mainly Muslim north, which has pitted its interests against a predominantly Christian south.

Ouattara has appointed Guillaume Soro, a leader of the rebels that drove back the forces of previous president, Laurent Gbagbo, as his prime minister.

He will also need to find space in his government for Henri Konan Bedie, who sidelined him to become president in the 1990s. Bedie threw his weight behind Ouattara in the run-off vote after he finished third in the first round, helping his former enemy into first place.

Troops loyal to Ouattara are currently surrounding the residence of Gbgagbo, who is holed up in a bunker at the house in Abidjan, the commercial capital, and refuses to surrender. Gbagbo triggered the political crisis when he refused to accept defeat in the Nov. 28 election, claiming voter fraud. The United Nations, the U.S. and the African Union all recognize Ouattara as the winner.

Cocoa Falls

Cocoa fell 7.8 percent in the past two weeks on optimism that Ouattara’s victory was imminent. Cocoa for delivery in May gained 0.4 percent, or $13, to $3,012 per metric ton at 2:20 p.m. in London. The country’s Eurobond rose for third straight day, gaining 5.4 percent to 54.47 cents on the dollar, a four- month high, at 1:21 p.m. in Abidjan, according to Bloomberg data.

Gbagbo remains key to pacifying his youth militias, known as the Young Patriots, according to Pierre Schori, the head of the United Nations peacekeeping mission in Ivory Coast between 2005 and 2007.

The former president has portrayed his rival and the rebels as stooges of former colonial power France, a view enforced by joint UN and French strikes that wiped out much of the army’s heavy artillery on April 4.

‘Hate Message’

“What Gbagbo says now is extremely important,” Schori said in an interview from Stockholm, Sweden, where he also acted as foreign minister. “If he is taken out and his hate message is still hanging in the air, the Young Patriots will still believe all the propaganda and continue fighting him.”

The massacre of at least 800 people in the western town of Duekoue last month as Ouattara’s Republican Forces swept south, may undermine his attempts to unify the country. Ouattara’s justice minister has denied responsibility for the killings.

“When you use violence to come to power, those who you’ve violated will obviously seek revenge,” Ohoupa Sessegnon, a spokesman for Gbagbo’s Ivorian Popular Front party, said in a phone interview from Johannesburg.

After having acted as prime minister under President Felix Houphouet-Boigny, who led the country to independence, Ouattara was banned from contesting the 1995 and 2000 elections under a law that disqualified those who had a foreign-born parent. Ouattara’s father was born in neighboring Burkina Faso.

North-South Divide

The political exclusion of Ouattara and other northerners, many of whose families came from Mali and Burkina Faso to work on cocoa, coffee and cotton plantations, led to the 2002 attempt to topple Gbagbo.

Still, having won 45.9 percent of the vote against Ouattara’s 54.1 percent in the election, Gbagbo retains considerable support, especially in the south.

Ouattara’s “election victory wasn’t a landslide,” Vines said. “It’s about trying to tie Ivory Coast back together again after having been divided for about a decade. If he doesn’t show wisdom in reuniting Ivorians, it’s recipe for further serious problems.”

To contact the reporter on this story: Franz Wild in Johannesburg at fwild@bloomberg.net.

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net.

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