South Africa: reading behind budget lines
Finance Minister Tito Mboweni appears to have put rose-tinted glasses on when he delivered South Africa’s budget this week.
We noted that, despite repeatedly claiming that the 2021 blueprint was not an austerity budget, Mr. Mboweni largely stuck to the government’s previously-outlined fiscal consolidation path. The case against putting the “austerity-label” on the budget seemed to rest, at least partly, on the notion that capital investments will be the government’s fastest growing expenditure in the coming years.
A boost to investment is certainly needed. The government’s capital expenditure fell for four consecutive years both in absolute terms and as a share of GDP until a pick-up in the current fiscal year. (See Chart 1.) Persistent power cuts due in part to underinvestment at state-owned utility Eskom, are just one example of the economy already suffering from the repercussions of low investment. By 2040, the Global Infrastructure Hub estimates that South Africa’s investment gap – that is, the extra investment needed for infrastructure to be of comparable quality to that in similarly-developed economies – will exceed $150bn (42% of GDP).
Chart 1: Capital Expenditure |
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Source: South Africa National Treasury, Refinitv, Capital Economics |
However, even with the increase in capital expenditure outlined in the 2021/22 budget, public investment will remain relatively low as a share of GDP, at around 1.6%. In comparison, debt servicing costs, projected to reach 5.6% of GDP in 2024, are much larger. What’s more, as Chart 2 highlights, the government has a poor track record in sticking to plans for capital expenditure. Indeed, since 2015/16, capital spending has undershot the government’s projections by an average of 25%.
Chart 2: Capital Expenditure (ZAR bn) |
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Source: South Africa National Treasury, Refinitv, Capital Economics |
The upshot is that South Africa will probably have to rely on the private sector to plug its large investment gap. Pro-business reforms featured heavily in the budget, but will probably take a while to materialise (if at all). Until then, the economic pain due to underinvestment is likely to mount.
Bond market fallout drags down SA rand
The South African rand took a beating in recent days amidst a rout in global financial markets, but we doubt that this will push the Reserve Bank to tighten policy. As a highly liquid currency prone to swings in risk sentiment towards emerging markets, the rand has been among the hardest over the past week, plunging by 2.8%. But we don’t expect the fallout from here to be large. Global risk appetite will probably improve and South Africa’s current account that swung into a large surplus (of 5.9% of GDP) last year will support the rand. And low inflation will allow policymakers at the Reserve Bank to look through the weakness in the currency.
The week ahead
The highlights will be February’s PMI and January’s electricity production data from South Africa.
Economic Diary & Forecasts
Date | Country | Release/Indicator/Event | Time (GMT) | Previous* | Median* | CE Forecasts* | |
1st March |  | SA | Absa Manufacturing PMI (Feb.) | (09.00) | 50.9 | 50.8 | – |
3rd March |  | Ken | Markit/Stanbic Bank PMI (Feb.) | (07.30) | 53.2 | 52.0 | – |
4th March | | SA | Electricity Production (Jan.) | (11.00) | (+1.1%) | – | – |
5th March |  | Mau | CPI (Feb.) | – | (+1.0%) | – | (+1.3%) |
 | Nga | Trade Balance (Q4, NGN) | – | -2,389bn | – | – | |
Selected future data releases and events | |||||||
8th March |  | Tan | CPI (Feb.) | – | (+3.5%) | – | – |
9th March | | SA | GDP (Q4, q/q saar (y/y)) | (09.30) | +66.1%(-6.0%) | – | – |
10th March |  | Gha | CPI (Feb.) | – | (+9.9%) | – | – |
11th March | | SA | Current Account (Q4, ZAR) | (09.00) | +297bn | – | – |
| SA | Mining Production (Jan.) | (09.30) | +0.5%(+0.1%) | – | – | |
15th March |  | Nam | CPI (Feb.) | – | (+2.7%) | – | – |
 | Bot | CPI (Feb.) | – | (+2.3%) | – | – | |
16th March | | Nga | CPI (Feb.) | – | (+16.5%) | – | – |
17th March |  | Moz | Interest Rate Announcement | – | 16.25% | – | – |
22nd March | | Gha | Interest Rate Announcement | – | 14.50% | – | – |
23rd March | | Nga | Interest Rate Announcement | – | 11.50% | – | – |
24th March | | Gha | GDP (Q1, q/q(y/y)) | – | (-1.1%) | – | – |
| SA | CPI (Feb.) | (08.00) | +0.3%(+3.2%) | – | – | |
25th March |  | Zam | CPI (Mar.) | – | – | – | – |
| SA | Interest Rate Announcement | – | 3.50% | – | – | |
Also expected during this period: March | |||||||
7th – 14th | | SA | SACCI Business Confidence (Feb.) | – | 94.5 | – | – |
9th – 20th | | Ken | GDP (Q4, q/q(y/y)) | – | (-1.1%) | – | – |
10th – 17th | | Nam | GDP (Q4, q/q(y/y)) | – | (-10.5%) | – | – |
11th – 18th | | SA | Manufacturing Production (Jan.) | – | -0.1%(+1.8%) | – | – |
11th – 18th | | SA | Retail Sales (Jan.) | – | -0.8%(-1.3%) | – | – |
14th – 21st |  | Uga | GDP (Q4, q/q(y/y)) | – | (-2.2%) | – | – |
15th – 26th | | Mau | Interest Rate Announcement | – | 1.85% | – | – |
15th – 29th | | Nga | Current Account (Q4, USD) | – | -3.3bn | – | – |
16th – 27th |  | Ang | CPI (Feb.) | – | (+25.3%) | – | – |
*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 | 2020e | 2021f | 2022f | 2019 | 2020e | 2021f | 2022f | |||
Nigeria | 0.80 | 4.4 | 2.2 | -2.0 | 3.5 | 3.0 | 11.4 | 13.2 | 15.0 | 13.0 |
South Africa | 0.57 | 1.5 | 0.2 | -7.3 | 4.3 | 4.0 | 4.1 | 3.3 | 3.8 | 3.3 |
Ethiopia2 | 0.20 | 9.7 | 9.0 | 6.1 | 3.0 | 9.0 | 15.7 | 20.4 | 14.5 | 12.5 |
Kenya | 0.18 | 5.6 | 5.4 | -0.5 | 6.0 | 6.5 | 5.2 | 5.3 | 5.5 | 5.0 |
Angola | 0.17 | 2.4 | -0.9 | -5.0 | 3.5 | 2.5 | 17.1 | 22.2 | 21.0 | 16.0 |
Ghana | 0.13 | 7.0 | 6.5 | 0.5 | 5.5 | 6.5 | 8.7 | 10.0 | 9.0 | 8.5 |
Tanzania | 0.12 | 6.5 | 5.8 | 1.5 | 6.5 | 6.5 | 3.4 | 3.3 | 3.0 | 4.5 |
Côte d’Ivoire | 0.10 | 6.1 | 6.5 | 2.5 | 7.5 | 7.5 | 0.8 | 2.5 | 0.5 | 1.0 |
Uganda | 0.08 | 5.3 | 6.7 | -1.5 | 7.0 | 6.0 | 2.9 | 3.8 | 4.0 | 5.5 |
Zambia | 0.05 | 5.6 | 1.4 | -2.5 | 3.0 | 4.0 | 9.1 | 15.7 | 16.5 | 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 | 4.5 | 2.8 | 3.0 | 3.0 | 3.5 |
Rwanda | 0.02 | 7.2 | 9.4 | -3.5 | 11.5 | 11.0 | 2.4 | 7.8 | 3.0 | 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 | -7.5 | 6.0 | 5.0 | 3.7 | 2.5 | 3.5 | 3.5 |
Sub-Saharan Africa | 2.5 | 4.2 | 3.1 | -2.4 | 4.6 | 4.8 | 8.3 | 9.7 | 9.8 | 8.5 |
Sources: Refinitiv, National Sources, Capital Economics. 1) % of GDP, 2019, PPP terms (IMF estimates); 2) Fiscal Years. | ||||||||||
Policy Rate | Latest (26th Feb.) | Last Change | Next Change | Forecasts | ||
End | End 2022 | |||||
Nigeria | MPR | 11.50 | Down 100bp (Sep. ’20) | Down 100bp (Q2 ’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 100bp (Q4 ’21) | 14.50 | 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 | End 2021 | End 2022 | Stock Market | Latest (26th Feb.) | End | End 2022 | |
Nigeria | NGN (Official) | 381 | 400 | 400 | NGSE | 39,800 | 49,000 | 55,000 |
NGN (Nafex) | 410 | 425 | 425 | |||||
South Africa | ZAR | 15.2 | 14.5 | 15.0 | JALSH | 66,138 | 75,650 | 91,550 |
Angola | AOA | 631 | 700 | 750 | – | – | – | |
Kenya | KES | 110 | 115 | 120 | NSE 20 | 1,916 | 2,250 | 2,650 |
Ghana | GHS | 5.73 | 5.90 | 6.00 | GSECI | 2,198 | 2,400 | 2,800 |
Uganda | UGX | 3,660 | 3,850 | 3,950 | UGSE | 1,352 | 1,500 | 1,700 |
Sources: Refinitiv, Capital Economics | ||||||||
Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com