COVAX concerns, momentum at Eskom, Zambian mines - Capital Economics
Africa Economics

COVAX concerns, momentum at Eskom, Zambian mines

Africa Economics Weekly
Written by Virag Forizs
Reports this week pointing to the multilateral COVAX facility’s high risk of failure underline that the roll-out of vaccines for many African countries is likely to be slow, delaying the ensuing economic benefits. In South Africa, policymakers are coalescing around a plan to help reduce the debts of state electricity firm Eskom, but it will not single-handedly solve the company’s problems. It will continue to burden the government and the economy. Elsewhere, the push by Zambia to take a bigger role in the mining sector promises to reignite concerns among investors and the IMF.

Trials and tribulations of COVAX

Reports this week pointed to the multilateral COVAX facility’s high risk of failure, which would delay many African countries’ access to vaccines and the ensuing economic benefits.

South Africa, for its part, missed a deadline to make a down payment to COVAX, reinforcing concerns about the sluggish pace of the administration’s response to the latest coronavirus developments.

Without pre-orders with vaccine manufacturers, most other countries in Sub-Saharan Africa are reliant on the COVAX scheme too, which appears to be facing supply chain and financial pressures. The facility’s current portfolio includes yet-to-be-approved vaccines that are cheaper and easier to distribute, but are facing delays. Securing higher cost jabs that could be delivered more quickly would raise the funding needs of COVAX, which has yet to reach its initial target, let alone an even higher one.

The unravelling of the COVAX facility would set back the roll-out of vaccines in Sub-Saharan Africa, delaying any “vaccine bounce” in recoveries. While we think that the size of the boost to activity may be modest, continued restrictions and precautionary behaviour would weigh on output. Even so, indirect benefits from vaccines should start to trickle down as global demand rebounds, risk appetite improves and inflows of tourists and remittances pick up.

Eskom debt proposals the start of a long journey

South African officials are coalescing around a debt-to-equity swap to reduce the debt burden of state electricity firm Eskom, but other steps will be needed to put the firm and its operations on a sound footing.

Reports this week suggest that the Public Investment Corporation (PIC), South Africa’s largest public pension fund, has approached the Treasury to convert ZAR95bn (1.9% of GDP) of Eskom debt held by PIC into equity. The move would be a positive step on the road to resolving Eskom’s debt issues –total debt amounts to around 9.5% of GDP and debt servicing accounts for more than 40% of spending.

That said, reducing Eskom’s debt burden would not be sufficient to put the firm on a sustainable footing. Plans to split Eskom’s operations into generation, transmission and distribution are a step in the right direction. But more needs to be done. Large investment is needed to replace ageing power plants and carry out maintenance. Funding this will require either an imposition of steep tariff hikes, directing more state funds to Eskom or attracting more private investment (or a combination of all three). Failure to address these issues would not only cause debt problems to re-emerge further ahead but also mean that power cuts would weigh on activity for longer.

Zambia: One step forward, two steps back

Plans announced by the Zambian authorities this week to take a bigger role in the mining sector may prove popular with voters, but will probably raise concerns among investors and the IMF.

The government will seek to acquire majority stakes in selected mines, but has not provided much more detail. President Edgar Lungu might be courting voters ahead of elections scheduled for August 2021. But the plans are unlikely to play well with investors due to concerns about nationalisation of the key mining sector, which makes up about 10% of GDP.

The developments are a step back following Zambia’s official request last week for an IMF deal. Negotiations with the Fund may be delayed, which could make a debt restructuring deal following last month’s default more difficult to reach. Mixed messages by the government about its commitment to a pro-business environment and fiscal consolidation will do little to build creditors’ trust.

The weeks ahead

This is our last Weekly of 2020. The next edition will be published on 8th January. Merry Christmas and Happy New Year to our readers who are celebrating.

Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

22nd Dec

SA

Budget Balance (Nov., SAAR)

(12.00)

-49.7bn

23rd Dec

Bot

GDP (Q3, q/q(y/y))

(-24.0%)

Also expected during this period:

14th – 26th

Nga

Current Account (Q3, USD)

-3.2bn

21st – 4th

Ken

GDP (Q3, q/q(y/y))

(-5.7%)

(-1.1%)

Selected future data releases and events

31st Dec

Uga

CPI (Dec.)

(+3.7%)

Ken

CPI (Dec.)

+1.2%(_5.5%)

Zam

CPI (Dec.)

(+17.4%)

SA

Trade Balance (Nov., SAAR)

(12.00)

+36.1bn

6th Jan

Ken

Markit/Stanbic Bank PMI (dec.)

(07.30)

51.3

7th Jan

SA

Electricity Production (Nov.)

(11.00)

(-2.8%)

8th Jan

Tan

CPI (Dec.)

(+3.0%)

Mau

CPI (Dec.)

(+3.1%)

SA

Absa Manufacturing PMI (Dec.)

(09.00)

52.6

12th Jan

SA

Manufacturing Production (Nov.)

(11.00)

+2.6%(-3.4%)

13th Jan

Gha

CPI (Dec.)

(+9.8%)

SA

Retail Sales (Nov.)

(11.00)

-0.2%(-1.8%)

15th Jan

Nam

CPI (Dec.)

Bot

CPI (Dec.)

Also expected during this period:

4th – 11th

SA

SACCI Business Confidence (Dec.)

93.4

11th – 18th

Nga

CPI (Dec.)

(+14.9%)

15th – 22nd

Ang

CPI (Dec.)

(+24.9%)

*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

Inflation

2019

2020f

2021f

2022f

2019

2020f

2021f

2022f

Nigeria

0.80

4.4

2.2

-2.0

3.5

3.0

11.4

13.0

13.5

12.0

South Africa

0.57

1.5

0.2

-8.0

5.0

4.0

4.1

3.2

3.8

3.5

Ethiopia2

0.20

9.7

9.0

6.1

3.0

9.0

15.7

20.5

15.5

12.0

Kenya

0.18

5.6

5.4

-0.5

7.0

7.0

5.2

5.0

5.0

4.5

Angola

0.17

2.4

-0.9

-5.0

3.5

2.5

17.1

22.0

18.5

16.0

Ghana

0.13

7.0

6.5

3.0

7.0

6.5

8.7

10.0

9.5

8.5

Tanzania

0.12

6.5

5.8

1.5

6.5

6.5

3.4

3.5

4.0

4.5

Côte d’Ivoire

0.10

6.1

6.5

2.5

7.5

7.5

0.8

2.3

0.5

1.0

Uganda

0.08

5.3

6.7

-1.5

7.0

6.0

2.9

4.0

4.5

5.5

Zambia

0.05

5.6

1.4

-4.5

3.5

4.5

9.1

15.5

13.0

10.0

Botswana

0.03

3.7

3.0

-10.5

8.5

5.5

2.8

2.0

3.5

3.0

Mozambique

0.03

3.7

2.3

-0.5

4.0

5.0

2.8

3.0

3.0

3.5

Rwanda

0.02

7.2

9.4

-4.0

11.5

11.0

2.4

8.5

5.5

4.5

Mauritius

0.02

3.7

3.0

-15.0

12.5

6.5

0.4

2.5

3.0

3.0

Namibia

0.02

3.4

-1.0

-5.5

5.0

4.5

3.7

2.5

3.5

3.5

Sub-Saharan Africa

2.5

4.2

3.0

-2.5

4.9

4.8

8.4

9.7

9.2

8.1

Sources: Refinitiv, National Sources, Capital Economics. (1) % of GDP, 2019, PPP terms (IMF estimates); (2) Fiscal Years.

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(18th Dec.)

Last Change

Next Change

Forecasts

End
2021

End

2022

Nigeria

MPR

11.50

Down 100bp (Sep. ’20)

Down 100bp (Jan. ’21)

10.00

10.00

South Africa

Repo Rate

3.50

Down 25bp (Jul. ’20)

None on horizon

3.50

3.50

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Down 75bp (Q3 ’21)

14.00

13.00

Kenya

Central Bank Rate

7.00

Down 25bp (Apr. ’20)

None on horizon

7.00

7.00

Ghana

Policy Rate

14.50

Down 150bp (Mar. ‘20)

Down 100bp (Q2 ’21)

13.50

13.50

Uganda

Central Bank Rate

7.00

Down 100bp (Jun. ’20)

None on horizon

7.00

7.00

Sources: National Sources, Capital Economics

Table 3: Key Market Forecasts

Forecasts

Forecasts

Currency

Latest
(18th Dec.)

End

2021

End

2022

Stock Market

Latest

(18th Dec.)

End
2021

End

2022

Nigeria

NGN (Official)

381

400

400

NGSE

36,805

43,000

48,000

NGN (Nafex)

392

425

425

South Africa

ZAR

14.6

14.5

15.0

JALSH

59,980

73,750

89,225

Angola

AOA

650

700

750

Kenya

KES

111

115

120

NSE 20

1,797

2,250

2,600

Ghana

GHS

5.82

5.90

6.00

GSECI

1,893

2,300

2,600

Uganda

UGX

3,649

3,850

3,850

UGSE

1,254

1,650

1,900

Sources: Refinitiv, Capital Economics


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