Investments under threat in Nigeria and South Africa - Capital Economics
Africa Economics

Investments under threat in Nigeria and South Africa

Africa Economics Weekly
Written by Virag Forizs
Foreign investments into the biggest economies in Sub-Saharan Africa took a blow this week. We think that the announcement of a major food retailer’s exit from Nigeria may be representative of the country’s deteriorating business conditions. And while the news that two brewers operating in South Africa are halting investments could prove to be a temporary measure, we are not optimistic about the government’s plans to boost investment in the country.

Nigeria: ShopRite takes stage right

The announcement this week by South Africa-based food retailer ShopRite that it will exit the Nigerian market reinforces concerns about the country’s increasingly inhospitable business environment.

While the coronavirus crisis has no doubt played a part, the quoted reasons behind the decision – including supply chain disruptions and currency shortages – seem more entrenched. Nigeria ranks 110th (out of 160) on the World Bank’s Logistics Performance Index, with inefficient customs processes and poor infrastructure quality. Limits on access to FX make the Nigerian market unfavourable to businesses. Even though the central bank resumed supplying FX after a recent pause, it only did so for limited purposes retaining a segmented FX market that policymakers appear to fundamentally prefer.

Chart 1: Direct Investment into Nigeria ($bn)

Sources: Refinitiv, Capital Economics

Taking a broader view, it seems that protectionist policymaking under the administration of President Muhammadu Buhari has sapped foreign investment into the country. (See Chart 1.) Without much needed investment to boost growth and no elections in sight until 2023, it will be difficult for Nigeria to escape from the economic slump caused by the coronavirus crisis and low oil prices.

S. Africa: no “cheers” as brewers halt investment

Elsewhere, investment plans in South Africa have got off to a bad start following the announcement by large brewers this week that they are halting expansion plans. Over the course of this week, AB InBev’s South African Breweries paused plans to upgrade plants and Heineken halted work on a new brewery. Meanwhile, Consol Glass, which produces glass packaging for the alcoholic beverage industry, suspended construction of a new production plant.

Admittedly, the sums involved are small in the grand scheme of things. What’s more, they appear to be partly related to South Africa’s ban on alcohol sales, which was re-imposed recently as part of the government’s efforts to deal with a surge in coronavirus cases. Accordingly, the investments may just be delayed and could go ahead once the ban has been permanently lifted.

Nonetheless, the decisions highlight the significant impact that the coronavirus crisis is inflicting on the economy. What’s more, they will do little to instil confidence in the government’s plans to boost investment over the coming years. We’ve noted before that raising investment – which, at less than 20% of GDP, is low by emerging market standards – will depend heavily on increasing domestic savings. But this would require deeply unpopular reforms, that we wouldn’t hold our breath for.

Green shoots for tourism?

Following the recent decision by Kenya and Rwanda to reopen for international tourism, there are some positive signs of airlines restoring passenger travel. Qatar Airways announced this week the resumption of flights to both countries, ahead of peak tourism season in Q4. But even with a few African nations placed on safe travel lists, visitors may take longer to return and it will be a long-fought battle to revive the tourism sector after the coronavirus blow.

The week ahead

Hard activity data from South Africa will probably show that the manufacturing, mining and retail sectors continued to recover in June from April’s standstill.


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

11th Aug

SA

Unemployment Rate (Q2)

(10.30)

30.1%

35.0%

 

SA

Manufacturing Production (Jun)

(12.00)

-44.3%(-49.4%)

(-25.8%)

12th Aug

Ang

CPI (Jul)

(+21.8%)

(+23.0%)

 

Gha

CPI (Jul)

(+11.2%)

 

SA

Retail Sales (Jun)

(12.00)

+74.2%(-12.0%)

+11.9%(-4.9%)

13th Aug

Uga

Interest Rate Announcement

7.00%

7.00%

 

SA

Mining Production (Jun)

(10.30)

+44.0%(-29.8%)

+15.0%(-19.8%)

Also expected during this period:

6th – 13th Aug

SA

SACCI Business Confidence

9th-16th Aug

Tan

CPI (Jul)

(+3.2%)

(+3.3%)

13th– 20th

Bot

CPI (Jul)

(+0.9%)

(+1.1%)

16th – 23rd

Nam

CPI (Jul)

(+2.1%)

(+2.4%)

Selected future data releases and events

17th Aug

Nga

CPI (Jul)

(+12.6%)

19th Aug

Nam

Interest Rate Announcement

4.00%

 

Zam

Interest Rate Announcement

9.25%

 

SA

CPI (Jul)

(09.00)

20th Aug

Bot

Interest Rate Announcement

4.25%

 

Moz

Interest Rate Announcement

13.25%

26th Aug

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

 

Ken

Markit/Stanbic Bank PMI

(08.30)

3rd Sep

SA

Electricity Production (Jul)

(12.00)

Also expected during this period:

17th Aug-17th Sept

Nga

GDP (Q2)

(+1.9%)

18th – 24th

Mau

Interest Rate Announcement

1.85%

4th – 11th

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%)

*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

(7th 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
(7th Aug.)

End

2020

End

2021

Stock Market

Latest

(7rd Aug.)

End

2020

End
2021

Nigeria

NGN (Official)

381

400

400

NGSE

24,984

25,500

30,000

NGN (Nafex)

386

450

450

 

South Africa

ZAR

17.5

16.0

16.5

JALSH

56,859

59,425

71,300

Angola

AOA

578

625

625

n/a

 

Kenya

KES

108

110

115

NSE 20

1,759

2,300

2,700

Ghana

GHS

5.7

6.0

6.1

GSECI

1,888

2,000

2,300

Uganda

UGX

3,675

3,900

4,000

UGSE

1,246

1,600

1,800

Sources: Bloomberg, Capital Economics


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