Coronavirus round-up, defaults nearing - Capital Economics
Africa Economics

Coronavirus round-up, defaults nearing

Africa Economics Weekly
Written by Virag Forizs

The coronavirus continued to ripple through Sub-Saharan Africa this week, with policymakers ramping up containment measures. But there are reasons to think that severe restrictions will be less effective in the region than elsewhere. Meanwhile, growing pressure on public finances is pushing sovereigns ever closer to debt restructuring.

Coronavirus: latest on cases & containment

This week the tally of coronavirus cases in Sub-Saharan Africa continued to increase, with some policymakers tightening restrictions further. But there are reasons to think that lockdown measures will be less effective in the region than elsewhere.

East African governments ramped up their containment efforts this week. The authorities in Kenya banned travel to and from Covid-19 hotspots in the country, including the capital Nairobi. And Ethiopia announced a state of emergency.

But implementing the widely-used policies to combat the pandemic (lockdowns, social distancing and contact tracing) can be more problematic in Africa than elsewhere. Households are larger, cramming more people together, with limited access to sanitation. And large informal sectors mean that workers have no savings to cope with enforced idleness. Zimbabwe’s relaxation of its lockdown measures is a testament to this point.

Support from cash-strapped governments has so far been scant, and there is limited scope for large fiscal stimulus as seen elsewhere. The consequence is that even with containment measures in place, the risk of failing to stem the spread of the virus is larger, bringing the possibility of larger social costs and more protracted economic damage.

Sovereigns sliding towards default

As the outbreak intensifies in Sub-Saharan Africa, the pressure on fragile public finances is increasing, and so is the likelihood of a wave of debt restructurings sweeping the region.

Seychelles and Zambia already seem to be moving in that direction. The decision by a major copper producer to shut its Zambian operations (which account for about 14% of the country’s total copper output) this quarter due to the coronavirus will only deepen the hole in the government’s pockets and hasten the move to default.

Ethiopia and Angola are at the highest risk of following suit. Their central banks’ FX reserves are insufficient to meet external financing requirements – the foreign capital flows needed to roll over maturing external debt and to finance the current account deficit over the next year.

The list of countries at high risk of debt distress is long, and the calls for external assistance are getting louder. Nigeria has asked for a moratorium on debt payments to multilateral and bilateral lenders (although not Eurobond holders). But there is a growing movement supporting a comprehensive deal to restructure public and private debt across the region. Prominent Africans and NGOs joined African finance ministers’ earlier appeal this week.

No sugarcoating from the SARB

Elsewhere, given the likely disruption from the coronavirus, it didn’t come as a surprise that the South African Reserve Bank flagged that it now expects GDP to fall by 2-4% this year. Our forecast is at the lower end of that spectrum (-4%) on the basis that the lockdown will deal a severe blow to an economy that was already in recession before the pandemic hit. Indeed, low profile indicators suggest that activity has plummeted and, if the lockdown were to be extended, the economic picture would look even worse.

The week ahead

Figures out on Wednesday are likely to show that inflation in Nigeria picked up from 12.2% y/y in February to 12.5% y/y in March, but this won’t prevent policymakers from continuing their easing cycle. February retail sales figures for South Africa were due to be published next week, but South Africa’s statistics agency postponed this month’s data releases due to the country’s lockdown.

Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

15th Apr

Gha

GDP (Q4)

(+5.6%)

(+5.9%)

Gha

CPI (Mar)

(+7.8%)

(+6.1%)

Nam

Interest Rate Announcement

5.25%

5.00%

Nga

CPI (Mar)

(+12.2%)

(+12.5%)

SA

Retail Sales (Feb)

(10.30)

+0.9%(+1.2%)

16th April

Nga

Oil Production (Mar, bpd mn)

1.8

Ang

Oil Production (Mar, bpd mn)

1.4

Also expected during this period:

15th – 22nd

Ang

CPI (Mar)

(+18.4%)

(+19.6%)

15th – 22nd

Nam

CPI (Mar)

(+2.5%)

(+2.9%)

Selected future data releases and events

27th Apr

Ken

Interest Rate Announcement

7.25%

30th Apr

Moz

Interest Rate Announcement

15.75%

Bot

Interest Rate Announcement

4.75%

Ken

CPI (Apr)

+0.2%(+6.1%)

Zam

CPI (Apr)

(+14.00%)

Uga

CPI (Apr)

(+3.0%)

SA

Trade Balance (Mar, SAAR, ZAR)

(13.00)

+14.2bn

SA

Budget Balance (Mar, SAAR, ZAR)

(13.00)

+22bn

1st May

SA

Absa Manufacturing PMI (Apr)

(10.00)

48.1

6th May

Ken

Markit/Stanbic Bank PMI (Apr)

(08.30)

37.5

7th May

SA

Electricity Production (Mar)

(12.00)

(+1.0%)

8th May

Tan

CPI (Apr)

(+3.4%)

Mau

CPI (Apr)

Also expected during this period:

27th – 2nd

Ken

GDP (Q4)

(+5.1%)

(+5.3%)

6th – 13th

SA

SAACI Business Confidence (Apr)

89.9

*m/m(y/y) unless otherwise stated

Sources: Bloomberg, Capital Economics

Main Economic & Market Forecasts

Table 1: GDP & Consumer Prices (% y/y)

Share of

World (1)

2009-18

Ave.

GDP

Consumer Prices

2018

2019

2020

2021

2018

2019

2020

2021

Nigeria

0.86

4.4

1.9

2.3

1.0

2.5

12.2

11.4

12.0

11.5

South Africa

0.57

1.5

0.8

0.2

-4.0

1.0

4.6

4.1

3.9

4.9

Angola

0.14

2.4

-1.2

-0.5

-3.5

1.0

20.3

17.3

24.0

18.0

Kenya

0.14

5.6

6.3

5.5

2.7

6.0

4.7

5.2

5.5

5.5

Ethiopia

0.17

9.7

7.7

7.5

4.8

8.0

13.8

15.7

15.5

11.5

Ghana

0.15

7.0

6.5

6.0

2.8

6.0

9.8

8.7

8.0

8.0

Côte d’Ivoire

0.08

6.1

7.4

7.0

3.5

7.0

0.4

0.5

1.5

1.5

Tanzania

0.14

6.5

5.4

5.5

5.8

5.5

3.5

3.4

4.0

6.0

Mozambique

0.03

3.7

3.3

2.5

5.0

4.0

3.9

2.8

4.0

4.0

Uganda

0.07

5.3

5.8

5.5

2.9

5.0

2.6

2.9

5.5

6.5

Rwanda

0.02

7.2

8.6

10.0

4.8

8.0

1.4

2.4

6.0

4.0

Botswana

0.03

3.7

4.5

3.5

-0.5

3.5

3.2

2.8

4.0

4.0

Zambia

0.05

5.6

3.7

2.0

2.0

3.5

7.5

9.1

8.5

8.0

Mauritius

0.02

3.7

3.8

3.5

-0.8

4.0

3.2

0.4

2.0

3.0

Namibia

0.02

3.4

-0.1

-1.1

2.0

2.0

4.3

3.7

4.5

6.0

Sub-Saharan Africa

2.5

4.2

2.9

2.7

0.5

3.4

8.8

8.4

9.3

8.6

Sources: Refinitiv, National Sources, Capital Economics. (1) % of GDP, 2019, PPP terms (IMF estimates).

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(9th Apr.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

13.50

Down 50bp (Mar ’19)

Down 50bp (May ’20)

12.50

12.00

South Africa

Repo Rate

5.25

Down 100bp (Mar ’20)

Down 50bp (May ’20)

4.50

4.50

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Up 100bp (Q3 ’20)

18.50

16.50

Kenya

Central Bank Rate

7.25

Down 100bp (Mar ’20)

Down 25bp (Q2 ’20)

7.00

7.00

Ghana

Policy Rate

14.50

Down 150bp (Mar ‘20)

Down 50bp (Q3 ’21)

14.50

14.00

Uganda

Central Bank Rate

9.00

Down 100bp (Oct ’19)

Down 100bp (Q2 ’20)

9.00

10.00

Sources: National Sources, Capital Economics

Table 3: Key Market Forecasts

Forecasts

Forecasts

Currency

Latest
(9th Apr.)

End

2020

End

2021

Stock Market

Latest

(9th Apr.)

End

2020

End
2021

Nigeria

NGN (Official)

360

360

360

NGSE

21,384

20,000

26,000

NGN (Nafex)

387

400

400

South Africa

ZAR

17.90

18.00

18.00

JALSH

47,961

49,800

60,525

Angola

AOA

555

600

650

n/a

Kenya

KES

106

110

110

NSE 20

1,967

2,300

3,000

Ghana

GHS

5.76

6.50

6.50

GSECI

2,110

2,500

2,700

Uganda

UGX

3,785

4,300

4,500

UGSE

1,302

1,900

2,100

Sources: Bloomberg, Capital Economics


Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com