As a financier and portfolio manager, I pay a close attention on every single aspect of global capital market behaviour. My daily routine starts with sipping off a cup of chamomile tea at 5AM, while following European live trading along with Asia’s closing day numbers before I turn on my New York Stock Exchange monitors.
This first week of February has been extremely volatile as far as Wall Street is concerned but also it brought some new key global highlights that not only have increased the level of my days’ adrenaline, but also have made me sit back and realise how Rwanda’s policy makers have outweighed their Greek counterparts.
This Friday 6 February 2015, the Standard & Poors (S&P) has downgraded the Greek sovereign bond to a B– with a negative outlook—which means it could be worse. This has caught my attention—not only I am an active sovereign bonds and Credit Default Swaps (CDS) trader—Rwanda’s recent rating by Fitch Rating Agency was a slam dunk of a whooping B+, with a positive outlook from a B.
Question is: what happened to Greece for the past couple of decades?
In fact, what didn’t Greece see coming that Rwanda’s policy makers anticipated beforehand? Shouldn’t Greek Prime Minister Alexis Tsipras’s tour have been to learn from Rwanda’s finance minister Clever Gatete and central bank governor John Rwangombwa, as opposed to trying to cut a debt release deal with French president François Hollande, Angela Merkel of Germany, or Mario Draghi of European Central Bank (ECB), to name a few?
In 1995, Rwanda was struggling to rebuild. The country’s Debt to GDP ratio was at its all-time high—at 119.50 %, Rwanda’s cumulative debt was slightly higher than its Gross Domestic Production in 1995.
During this particular year, Greece’s Debt to GDP ratio was about 126%. One would look at these two scenarios as being similar. On one hand it’s slightly the same as far as numbers are concerned but these two nations were different, with Rwanda’s 1994 genocide put into the equation.
Today, 20 years later, Rwanda’s Debt to GDP ratio is at 29.42% with an all-time low of 21% in 2008, as opposed to 175% for Greece today. The former means Rwanda’s debt accounts for nearly 30% of its internal gross production.
One doesn’t have to be a genius to appreciate the remarkable turnaround that Rwanda has accomplished over the past 20 years. It is impressive indeed.
Today, Prime Minister Tsipras is touring Europe to reach an agreement with creditors to a €240 Billion bailout, otherwise his cash-drained-out government is even threatening to leave the Eurpean Union shouldn’t the credit agreement be reached soon.
This reminds me of the saying that “when you find yourself in a hole, stop digging.”
Greece kept digging for the past two decades and it seemingly shows no intention to stop any time soon. It has been spending far more than it earns overtime. Greece has lacked similar economic policy such as Rwanda’s Kwigira, which has turned Fitch’s heads to earn a one-notch upgrade for the country.
Fitch has stated that the Rwanda economic outlook is promising due to political stability, effective business and investment approaches, increase in commodities export forecast, such as tea and coffee to name a few. The most important factor that Fitch couldn’t leave out is Rwanda’s policy of financial independence that gave birth to the mainstream Agaciro Development Fund. Such policies would help Rwanda’s budget deficit, without digging into a much deep debt hole as now seen for Greece.
Greece didn’t see this crisis coming. They didn’t understand that those Eurobonds, if not backed up with effective GDP numbers, would eventually backfire. Today, most of Greece 10-year treasury bonds are due while the country cannot even afford to keep the basic internal government operations running.
With the Euro currency weakening against the US dollar, along with the Quantitative Easing that ECB just put in effect, which would weaken the Euro currency even further for the sake of deflation; the future of Greece is nearly as speculative as its Credit Default Swaps, as opposed to Rwanda which has formed a V-chart for the past two decades.
Now, what happened to this former Europe tourism powerhouse?
Why did I have to go to Brazil or the Dominican Republic for my Christmas holidays instead? Isn’t it because those Greek medieval theatre stadiums haven’t been innovated up to par? Why does S&P has to downgrade Greece while Rwanda is upgraded? Isn’t it maybe because its financial modelling formula has turned out ineffective?
Perhaps Prime Minister Tsipras should look back and probably pay a visit to the heart of Africa, to learn from Rwanda’s story, instead of letting Merkel and Hollande laugh at his face—to send him home empty handed.
The author is a Rwandan Financier and a Portfolio Manager at NewBridge Securities Corporation, a Wall Street Hedge Fund. He currently lives in New York City.
