FOB Africa: Credit anchors, markets price in risk

IN the second half of 2025, crude benchmarks have stabilised while refined product FOB (Free-on-Board) prices have softened, but the way African markets transmit these global shifts has become one of the clearest tests of governance and invest-ability.

Brent (ICE:CO1) trades near 66.9 US dollars per barrel and WTI (NYMEX:CL1) at 63.4 US dollars, while diesel FOB prices slipped 5.5 per cent in September, petrol eased 0.2 per cent and kerosene 3.5 per cent.

These are modest declines because global demand remains underpinned by China, which is up-stocking at an extraordinary pace of about 530,000 barrels per day—double its normal intake—while Russia’s latest export curbs, down 6 per cent from western ports in September and refinery outages affecting roughly 17 per cent of capacity have kept diesel supply tight.

The global effect is a paradox: Crude benchmarks remain steady, FOB product prices cool only slightly and African policymakers must decide whether to pass even these modest reliefs through or absorb them politically. For investors, the distinction is no longer technical; it is a trade signal.

Tanzania offers the clearest long-credit story in frontier Africa. EWURA’s monthly caps, linked to Mediterranean and Arab Gulf Platts FOB quotations, translated the September diesel decline into a 23/- per litre cut and petrol into a 36/- cut. This came despite the shilling (USD/2,680/- ) weakening 3.96 per cent, with inflation anchored at 3.2 per cent year-on-year.

The 2031 Eurobond (XS2015272696) yields 7.8 per cent, trading nearly 200 basis points inside Kenya’s 2032 (XS2396040095), a gap entirely explained by transparent pass-through and stable inflation expectations. Tanzanian corporates such as Twiga Cement (DAR:TCCL) and TBL Breweries (DAR:TBL) see 100 to 150 basis points of margin relief as transport costs fall.

Forward-looking, if USD/Tsh breaches 2,700 Tanzanian shillings, investors will test whether EWURA’s formula can withstand sharper FX pass-through, but for now the country remains the best relative-value overweight in African sovereign credit.

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Kenya is the opposite: A sell-the-rally story where tax extraction blunts market signals. EPRA reported petrol landed costs down 0.73 per cent in August–September, diesel up 3.08 per cent and the result was a token 1.0 Kenyan shilling reduction in petrol and no change in diesel, which held at 171.58 Kenyan shillings per litre. With more than 40 per cent of the pump price made up of taxes, fiscal priorities trump consumer relief.

Inflation runs at 6.0 per cent, nearly double Tanzania’s, while the shilling (USD/ Ksh 128.5) stays range-bound. The 2032 Eurobond (XS2396040095) yields 9.2 per cent, about 430 basis points above US Treasuries (US10Y) and is unlikely to compress until after the November budget, which may add fresh levies.

The trade remains to avoid duration in Kenyan paper and keep positioning defensive in equities that are exposed to transport and consumer demand. Uganda demonstrates how infrastructure bottlenecks can erase global signals altogether. Petrol stayed at 5,050 Ugandan shillings per litre in September, with fuel inflation rising from 0.3 per cent in July to 0.7 per cent in August, pushing the shilling (USD/Ush 3,850) under pressure.

Uganda has no Eurobond outstanding, but local debt faces upside risk to yields if the Bank of Uganda tightens into 2026. Rwanda sits at the other end: petrol is steady at 1,803 Rwandan francs per litre, supported by reserves and quarterly resets, with inflation at 4.5 per cent and the franc (USD/RWF 1,340) stable.

The country is too small and illiquid to trade in size, but it offers macro predictability in a volatile region. Investors will watch whether reserves hold if China slows stocking and Brent drifts lower, but for now Rwanda represents stability rather than opportunity.

Ethiopia is the outlier where politics severs any link to markets. With subsidies removed mid-year, pump prices average 77 Ethiopian birr per litre, up nearly 40 per cent year-on-year. Inflation is above 20 per cent, the birr (USD/ETB ~57) continues its managed slide and the 2024 Eurobond (XS1577952440) yields above 20 per cent, effectively priced for restructuring.

Investors cannot treat this as investable credit; it is a warning about policy credibility. CEMAC economies remain subsidy-locked. Cameroon’s pump prices are frozen at 1.49 US dollars per litre, unchanged year-to-date, while CAR’s are the highest in Africa at 1.86 US dollars.

The 2025 Eurobond (XS1959498169) yields 8.1 per cent, more than 520 basis points above US10Y and fiscal deficits are stuck at 4–5 per cent of GDP. Inflation hovers at 5.5 per cent, while the CFA franc’s peg to the euro (XAF/ EUR) masks external strains.

Here China’s up-stocking and Russia’s curtailed exports bite doubly: By holding Brent steady and keeping diesel tight, they limit the chance of substantial FOB relief and subsidies prevent households from seeing any of it anyway. For investors, this is dead weight: Spreads remain wide, inflation sticky and fiscal space shrinking. The trigger to watch is the next IMF programme reviews, which will dictate how long subsidies can be sustained. The cross-asset signals are clear.

Tanzania compresses sovereign spreads and supports consumer equities, Kenya stays wide and capped by fiscal politics, Uganda creeps toward inflationary tightening, Rwanda remains low-vol but illiquid, Ethiopia is priced for restructuring and CEMAC carries subsidy drag. FX tells the same story: USD/Tsh has lost just 3.96 per cent year-to-date with low volatility, USD/KES trades heavy, USD/Ush drifts weaker and XAF/EUR masks fragility.

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ETFs such as VanEck Africa (NYSE:AFK) and MSCI Frontier (NYSE:FM) underweight Tanzania, but the relative-value case for overweighting Tanzanian credit versus CEMAC or Kenyan sovereigns is compelling. Commodities add another layer: Diesel cracks (ICE:G) remain firm due to Russian outages, limiting importers’ relief, while Brent is underpinned by Chinese buying.

The true message for investors is not about fuel prices at all, but about how governance shapes capital markets. China and Russia may set the global floor for crude, but it is domestic policy that determines whether African sovereigns tighten or widen against Treasuries, whether currencies offer carry or bleed reserves and whether corporates gain margins or lose demand. FOB pass-through has become the litmus test.

Transparent passthrough earns tighter spreads; opaque policy demands a risk premium and thus countries doing so are writing the case for fragility. In frontier Africa today, investors aren’t pricing oil, they’re pricing politics.