Covid cases fall in SA, security risks to Mozambican gas - Capital Economics
Africa Economics

Covid cases fall in SA, security risks to Mozambican gas

Africa Economics Weekly
Written by Virag Forizs

SA: drop in virus cases no silver bullet for economy

New coronavirus cases in South Africa appear to be dropping off in a sign that the authorities are managing to curb the outbreak but, even if this leads to a further easing of containment measures, the economic recovery will be slow and bumpy.

While South Africa still has the fifth highest number of total coronavirus cases in the world, daily new cases have dropped from 13,000 in mid-July to below 3,000. Admittedly, testing has also declined in recent weeks but the share of tests coming back positive looks to have inched down, suggesting progress in bringing the virus under control.

Against this backdrop, policymakers are leaning towards loosening containment measures. Senior government officials have proposed this week to ease the lockdown from level three to two, which would allow, among others, the retail and manufacturing sectors to fully re-open.

Figures released this week showed just how deep an economic hole South Africa is in. Hard activity data for June indicate that the country suffered one of the largest falls in output in Q2 anywhere in the world. And while activity has rebounded since April, there are worrying signs that the recovery stalled in recent weeks.

If the authorities further loosen restrictions, this could resuscitate the recovery. But we think that there are plenty of bumps on the road ahead. Renewed power cuts, that may last beyond this week as the state-owned electricity firm Eskom struggles with breakdowns, will weigh on activity. And further ahead, the government envisions harsh fiscal austerity from next year, that will hold back demand.

Pressure mounting on the SARB

Monetary support in South Africa will probably be more forthcoming in the months ahead, but not the kind that some politicians are urging the Reserve Bank (SARB) to dole out. Pressure is growing on the SARB to do more to support the economy and finance the government, by launching a large-scale government bond buying programme for instance. Such proposals are unlikely to shape up in the near future but, if and when they do, they are likely to result in higher inflation and sharper falls in the rand.

Insecurity in Mozambique: gas exports on the line

This week’s militant attack in Mozambique’s far north underscores the persistent security threat to the country’s huge gas projects. Islamist militias seized the port city of Mocímboa da Praia, a key logistics hub for nearby offshore gas investments currently under development.

Chart 1: Mozambique Exports (USD bn)

Sources: IMF, Capital Economics

The stakes are certainly high. Investments tied to the LNG megaprojects are worth $60bn, four times the country’s entire economic output in 2019. The IMF projects that Mozambique’s exports will jump by as much as 35% y/y from 2023 as gas projects come onstream. (See Chart 1.) Delays triggered by security (or other) concerns pose a downside risk to our otherwise rosy medium-term outlook for the country.

The week ahead

Nigerian inflation figures for July are likely to show that the headline rate edged up, from 12.6% y/y in June to 13.1% y/y last month.

Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

17th Aug

Nga

CPI (Jul)

(+12.6%)

(+13.1%)

19th Aug

Nam

Interest Rate Announcement (Aug)

4.25%

4.25%

Zam

Interest Rate Announcement (Aug)

9.25%

9.25%

20th Aug

Bot

Interest Rate Announcement (Aug)

4.25%

4.25%

Moz

Interest Rate Announcement (Aug)

13.25%

13.25%

Also expected during this period:

13th– 20th

Bot

CPI (Jul)

(+0.9%)

(+1.1%)

16th – 23rd

Nam

CPI (Jul)

(+2.1%)

(+2.4%)

17th – 31st

SA

Unemployment Rate (Q2)

30.1%

35.0%

18th – 24th

Mau

Interest Rate Announcement (Aug)

1.85%

1.85%

Selected future data releases and events

26th Aug

Nga

GDP (Q2)

(+1.9%)

SA

CPI (Jun)

(09.00)

+0.5%(+2.2%)

27th Aug

Zam

CPI (Aug)

(15.8%)

28th Aug

SA

Budget (SAAR, Jul)

(13.00)

-22.3bn

31st Aug

Uga

CPI (Aug)

(+4.7%)

Ken

CPI (Aug)

+0.1%(+4.4%)

1st Sep

SA

Absa Manufacturing PMI (Aug)

(10.00)

51.2

3rd Sep

Ken

Markit/Stanbic Bank PMI (Aug)

(08.30)

SA

Electricity Production (Jul)

(12.00)

(-5.8%)

7th Sep

Mau

CPI (Aug)

(1.5%)

8th Sep

SA

GDP (Q2, q/q(y/y))

(10.30)

-2.0%(-0.1%)

10th Sep

SA

Current Account (Q2, ZAR)

(10.00)

+70bn

SA

Mining Production (Jul)

(10.30)

SA

Manufacturing Production (Jul)

(12.00)

Also expected during this period:

4th Sep– 11th Sep

SA

SACCI Business Confidence (Aug)

4th – 11th

Nga

Trade Balance (Q2, NGN)

-139.0bn

6th – 17th

Ken

GDP (Q2, q/q(y/y))

(+4.9%)

7th – 25th

Nga

CPI (Q2, USD)

-4.9bn

9th – 16th

Tan

CPI (Aug)

(3.3%)

10th – 17th

Nam

GDP (Q2, q/q(y/y))

(-0.8%)

10th – 17th

Bot

GDP (Q2, q/q(y/y))

(2.6%)

11th – 18th

Uga

GDP (Q2, q/q(y/y))

(1.8%)

11th – 18th

Bot

CPI (Aug)

*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

0.86

4.4

2.2

-5.5

3.5

3.0

11.4

13.0

12.5

12.0

South Africa

0.57

1.5

0.2

-11.0

4.5

2.5

4.1

3.0

3.0

3.3

Ethiopia

0.17

9.7

9.0

2.5

8.0

9.0

15.7

19.0

14.0

10.0

Ghana

0.15

7.0

6.5

0.0

6.5

6.0

8.7

10.0

9.0

8.0

Angola

0.14

2.4

-0.3

-6.0

3.0

2.0

17.3

22.5

20.0

17.5

Kenya

0.14

5.6

5.6

0.5

5.5

6.5

5.2

5.0

5.0

5.0

Tanzania

0.14

6.5

5.6

1.5

6.0

6.0

3.4

4.0

5.0

4.5

Côte d’Ivoire

0.08

6.1

7.5

1.0

7.0

7.0

0.8

2.0

1.0

1.0

Uganda

0.07

5.3

6.7

1.0

6.0

5.5

2.9

4.5

5.5

6.0

Zambia

0.05

5.6

1.5

-4.5

3.5

4.0

9.1

15.0

11.5

10.0

Mozambique

0.03

3.7

2.2

1.0

5.0

4.0

2.8

3.5

4.0

4.0

Botswana

0.03

3.7

3.5

-6.5

4.0

3.5

2.8

2.0

2.5

3.0

Rwanda

0.02

7.2

9.4

-2.5

10.0

9.0

2.4

8.0

5.5

5.0

Mauritius

0.02

3.7

3.5

-10.0

6.0

4.5

0.4

2.5

3.0

3.5

Namibia

0.02

3.4

-1.4

-5.5

4.0

3.0

3.7

2.5

3.5

3.5

Sub-Saharan Africa

2.5

4.2

2.9

-4.8

4.7

4.1

8.4

9.5

8.8

8.1

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

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(14th Aug.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

12.50

Down 100bp (May ’20)

Down 50bp (Sep. ’20)

12.00

11.50

South Africa

Repo Rate

3.50

Down 25bp (Jul ’20)

Down 25bp (Sep ’20)

3.00

3.00

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Down 75bp (Q3 ’21)

15.50

14.00

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)

14.50

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
(14th Aug.)

End

2020

End

2021

Stock Market

Latest

(14th Aug.)

End

2020

End
2021

Nigeria

NGN (Official)

379

400

400

NGSE

25,200

25,500

30,000

NGN (Nafex)

387

450

450

South Africa

ZAR

17.4

16.0

16.5

JALSH

57,001

59,425

71,300

Angola

AOA

584

625

625

n/a

Kenya

KES

108

110

115

NSE 20

1,744

2,300

2,700

Ghana

GHS

5.7

6.0

6.1

GSECI

1,876

2,000

2,300

Uganda

UGX

3,665

3,900

4,000

UGSE

1,200

1,600

1,800

Sources: Bloomberg, Capital Economics


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