Nigeria flip-flops, policymakers in financing pickle - Capital Economics
Africa Economics

Nigeria flip-flops, policymakers in financing pickle

Africa Economics Weekly
Written by Virag Forizs
Mixed signals from recent policy announcements in Nigeria raise doubts about the administration’s commitment to pro-business reforms, especially in relation to the currency. At least the government seems to be making progress on loan negotiations with the World Bank – unlike policymakers in South Africa, who continue to baulk at the conditions that the Bank is insisting on. And Kenya will reportedly join the list of countries turning to multilateral lenders, highlighting that fiscal positions across the region remain strained.

Nigerian reforms: blowing hot and cold

Mixed signals from recent policy announcements in Nigeria raise doubts about the administration’s commitment to pro-business reforms, most notably in relation to the currency.

The announcement by the Central Bank of Nigeria (CBN) to reverse a ban on sourcing imports from third parties was a small, but positive, step to ease restrictions on foreign currency transactions and reduce pressure on the naira. Even so, the currency weakened further on the parallel market, to 495/$ at the time of writing, against the official rate of 381/$. Comments by CBN Governor Godwin Emefiele dismissing the black market rate, which we think is closer to the naira’s fair value, further dent hopes for a shift towards a market-driven exchange rate. And there is mounting evidence that the country’s FX restrictions are hurting the economy. Almost 40% of Nigeria’s estimated 2020/21 cocoa output is currently stranded at ports due to CBN measures aimed at clamping down on FX transactions.

Currency reforms seemed to be a key sticking point in negotiations with the World Bank over Nigeria’s $1.5bn loan request that stalled in August. While we think that the country’s exchange rate policy remains a concern, the talks between Nigeria and the World Bank are reportedly in the final stages. The loan’s approval, combined with the recent rise in oil prices and a possible sign-up to official debt relief efforts, would ease strains on Nigeria’s balance sheets.

Variations on financing: Kenya and Côte d’Ivoire

As debt problems bite, obtaining funding from international bond markets is proving prohibitively expensive for Kenya and the government seems to be relying more heavily on securing cheap sources of financing. The authorities are reportedly seeking up to $3.8bn from the IMF and the World Bank in concessional loans to ease fiscal strains as the country’s debt pile mounts. And in a U-turn, the government is also considering joining the G20’s Debt Service Suspension Initiative. In contrast, Côte d’Ivoire tapped international bond markets this week – the first Sub-Saharan African government to do so since the onset of the pandemic.

SA talks with World Bank still proving difficult

Comments from South Africa’s Finance Minister, Tito Mboweni, this week suggest that negotiations over a loan from the World Bank are struggling to make much headway, adding to the impression that support for the economy is likely to remain small.

Talks with the World Bank over a loan, believed to be around $900mn, have been ongoing for many months now and Mr. Mboweni did say that an agreement is “edging closer”. But the government has continued to baulk at the idea of conditions being imposed on the government in return for financing. Indeed, Mr. Mboweni said that he “won’t have any of that” and highlighted that a recent loan from the IMF came with no strings attached – although that’s because South Africa opted for a Rapid Financing Instrument, rather than one of the more traditional Stand-by Agreement or Extended Fund Facility deals that do come with conditionality.

The continued delay in securing funds from the World Bank adds to the impression that the government is dithering in its economic response to the coronavirus crisis. So far, direct fiscal support has been smaller in South Africa than in other major EMs and, in the absence of further financing from multilateral institutions, this is likely to remain the case. As we’ve argued before, this runs the risk of significant scarring effects from the crisis that will hold back the economic recovery.

The week ahead

Figures due out on Monday will probably show that inflation in Kenya picked up from 4.8% y/y in October to 5.0% y/y in November. Meanwhile, we will outline our updated forecasts incorporating the latest vaccine developments next week.

Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

30th Nov

Uga

CPI (Nov.)

(4.5%)

(+4.4%)

Ken

CPI (Nov.)

(+4.8%)

(+5.0%)

SA

Trade Balance (SAAR)

(12.00)

+33.5bn

SA

Budget (Oct., SAAR)

(12.00)

-42.9bn

1st Dec

SA

Absa Manufacturing PMI (Nov.)

(09.00)

60.9

60.5

3rd Dec

Ken

Markit/Stanbic Bank PMI (Nov.)

(07.30)

59.1

SA

Electricity Production (Oct.)

(11.00)

(-3.1%)

Bot

Interest Rate Announcement

3.75%

3.75%

Selected future data releases and events

7th Dec

Mau

CPI (Nov.)

(+3.2%)

8th Dec

SA

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

(10.30)

-51.0%(-17.1%)

9th Dec

Nam

Interest Rate Announcement

3.75%

Gha

CPI (Nov.)

(+10.1%)

SA

CPI (Nov.)

(08.00)

SA

Retail Sales (Oct.)

(09.30)

+1.1%

SA

Real Retail Sales (Oct.)

(11.00)

(-2.7%)

10th Dec

SA

Current Account (Q3, ZAR)

(09.00)

-104bn

SA

Mining Production (Oct.)

(09.00)

-0.3%(-2.8%)

SA

Manufacturing Production (Oct.)

(10.30)

+3.2%(-2.6%)

11th Dec

Uga

Interest Rate Announcement

7.0%

15th Dec

Nga

CPI (Nov.)

(+14.2%)

16th Dec

Gha

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

(-3.2%)

Moz

Interest Rate Announcement

13.25%

Also expected during this period: December

6th – 17th

Ken

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

(-5.7%)

10th – 17th

Nam

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

(-11.1%)

10th – 17th

Bot

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

(-24.0%)

10th – 17th

Tan

CPI (Nov.)

(+3.1%)

11th – 18th

Uga

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

(-6.0%)

11th – 18th

Bot

CPI (Nov.)

(+2.2%)

16th – 23rd

Nam

CPI (Nov.)

(+2.3%)

16th – 23rd

Ang

CPI (Nov.)

(+24.1%)

*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

-4.0

3.0

2.5

11.4

13.0

12.5

12.0

South Africa

0.57

1.5

0.2

-8.5

4.0

2.0

4.1

3.3

3.8

3.5

Ethiopia

0.20

9.7

9.0

6.1

2.0

9.5

15.7

20.0

14.0

12.0

Kenya

0.18

5.6

5.4

-0.5

6.5

6.0

5.2

5.0

5.0

4.5

Angola

0.17

2.4

-0.9

-5.0

3.0

2.0

17.1

22.0

19.0

16.0

Ghana

0.13

7.0

6.5

3.0

6.5

6.0

8.7

10.0

9.5

8.5

Tanzania

0.12

6.5

5.8

1.5

6.0

6.0

3.4

3.5

4.0

4.5

Côte d’Ivoire

0.10

6.1

6.5

2.5

7.0

7.0

0.8

2.5

1.0

1.0

Uganda

0.08

5.3

6.7

-1.5

6.5

5.5

2.9

4.0

4.5

5.5

Zambia

0.05

5.6

1.4

-4.5

3.5

4.0

9.1

15.0

12.0

10.0

Botswana

0.03

3.7

3.0

-10.5

6.0

3.5

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

-4.0

10.0

9.0

2.4

8.5

5.5

4.5

Mauritius

0.02

3.7

3.0

-15.0

9.0

4.5

0.4

2.5

3.0

3.0

Namibia

0.02

3.4

-1.0

-5.5

4.0

3.0

3.7

2.5

3.5

3.5

Sub-Saharan Africa

2.5

4.2

3.0

-3.2

4.2

4.0

8.3

9.5

8.8

8.2

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

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(27th Nov.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

11.50

Down 100bp (Sep. ’20)

Down 100bp (Jan. ’21)

11.50

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)

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
(27th Nov.)

End

2020

End

2021

Stock Market

Latest

(27th Nov.)

End

2020

End
2021

Nigeria

NGN (Official)

381

400

400

NGSE

34,879

36,000

43,000

NGN (Nafex)

389

400

425

South Africa

ZAR

15.3

15.5

14.5

JALSH

57,821

58,950

74,250

Angola

AOA

647

680

700

Kenya

KES

110

110

115

NSE 20

1,758

1,850

2,250

Ghana

GHS

5.81

5.80

5.90

GSECI

1,807

1,900

2,300

Uganda

UGX

3,695

3,750

3,850

UGSE

1,312

1,375

1,650

Sources: Refinitiv, Capital Economics


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