SA trade data, oil producers in the line of fire - Capital Economics
Africa Economics

SA trade data, oil producers in the line of fire

Africa Economics Weekly
Written by Virag Forizs
South Africa’s external sector probably shifted from being an economic tailwind to a headwind in the second quarter. Meanwhile, Africa’s oil producers are facing mounting pressure from OPEC to comply with their quotas. While lower output would reduce oil revenues, the cost would be even greater if Saudi Arabia reacted to non-compliance by raising oil output, which would have the effect of driving prices down. Finally, protests that erupted this week in Ethiopia underscore the high risk of political instability in the country, which could undermine the ambitious reform agenda.

South Africa’s net exports: changing of the winds

Balance of payments figures released this week from South Africa may paint a misleadingly positive economic picture, but – as is often the case – the devil is in the details.

In Q1, South Africa’s current account deficit swung into a surplus for the first time in 17 years. And the positive contribution from goods trade reached similarly historic highs. The headline figures mask that goods imports fell for a third consecutive quarter, reflecting weak domestic demand. Meanwhile, exports actually dropped in volume terms with surging prices (most notably, gold) pushing up the value of exports and supporting the trade and current account balances.

More recent data suggest that goods trade turned from an economic tailwind into a headwind in Q2. Exports fell by 50% y/y in April, the height of South Africa’s lockdown. The easing of restrictions in May brought back some of activity, but exports were still down by 8% y/y. In contrast, the decline in imports intensified in May and, worryingly, that pattern held even when stripping out oil imports. As we’ve argued before, demand by consumers and businesses will probably remain subdued, holding back the economic recovery.

Non-compliant OPEC members to face reckoning?

Pressure seems to be growing on OPEC members to improve their compliance with oil output cuts agreed by the group in April, with Saudi Arabia pressing Nigeria and Angola (amongst others) to compensate for recent overproduction.

Nigeria has a very poor track record when it comes to compliance with oil production agreements. Officials have regularly committed to bringing output in line with quotas, but have failed to follow through. Repercussions from OPEC have been limited so far. Past experience would suggest Nigeria’s non-compliance will continue.

Angola, meanwhile, has more often than not produced below its quota although this has tended to be involuntary and a reflection of chronic underinvestment in the sector. Yet in May, when Angola did exceed its quota, officials struck a defiant tone in the face of OPEC pressure with no commitment to make up for past non-compliance.

Of course, history might not be a good guide this time around. Saudi Arabia seems increasingly unwilling to shoulder the burden of additional voluntary output cuts (beyond its quota) to bring overall OPEC production more in line with agreed levels. Recent reports suggest that Saudi officials are particularly displeased with their Angolan counterparts. The risk of the latest OPEC deal falling apart has certainly increased.

To prevent that and the likely plunge in oil prices that would follow, African oil producers might be willing to do just enough to keep Saudi Arabia on side by lowering their oil output. After all, Angola and Nigeria are both particularly vulnerable to oil price shocks due to their weak balance sheets and heavy reliance on oil exports for foreign currency and government revenues.

Growing political tensions in Ethiopia

Deadly protests that were sparked by the death of a popular Ethiopian singer this week served as a reminder that the country’s political system remains very fragile, and the risks to stability are high. In the near term, civil unrest adds to the list of issues that the authorities are tackling, including the coronavirus crisis and a severe locust outbreak. In the longer term, worsening ethnic tensions and political instability could undermine the country’s ambitious reform program.

The week ahead

Hard activity data from South Africa, due out on Thursday, will probably show that manufacturing output fell sharply in April.

Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

7th Jul

Mau

CPI (Jun)

(+2.8%)

(+2.9%)

8th Jul

Mau

Interest Rate Announcement (Jul)

1.85%

1.85%

9th Jul

SA

Manufacturing Production (Apr)

(12.00)

-1.2%(-5.4%)

Also expected during this period:

22nd Jun- 10th Jul

Nga

Current Account (Q1)

-$7.0b

2nd– 10th Jul

Bot

GDP (Q1)

(+1.6%)

5th-12th

SA

SACCI Business Confidence (Jun)

77.8

9th – 16th

Tan

CPI (Jun)

(+3.2%)

(+2.9%)

Selected future data releases and events

14th Jul

Nga

Oil Production (May, bpd, mn)

1.6

Ang

Oil Production (May, bpd, mn)

1.3

SA

Mining Production (May)

(10.30)

-34.1%(-47.3%)

15th Jul

Nga

CPI (Jun)

(+12.4%)

Gha

CPI (Jun)

(+11.3%)

SA

CPI (May)

(09.00)

-0.5%(+3.0%)

-0.3%(+3.2%)

21st Jul

Nga

Interest Rate Announcement

12.50%

22nd Jul

SA

Retail Sales (Apr)

(12.00)

+2.3%(+2.7%)

SA

Retail Sales (May)

(12.00)

23rd Jul

SA

Interest Rate Announcement

3.75%

27th Jul

Gha

Interest Rate Announcement

14.50%

28th Jul

SA

Labour Market- Quarterly Employment Statistics (Q1)

(11.30)

29th Jul

SA

CPI (Jun)

(09.00)

30th Jul

Zam

CPI (Jul)

(15.9%)

SA

Budget Balance (Jun, SAAR)

(13.00)

-52.4bn

31st Jul

Ken

CPI (Jul)

-0.3%(+4.6%)

Uga

CPI (Jul)

(+4.1%)

SA

Trade Balance (Jun, SAAR)

(13.00)

+15.9bn

Also expected during this period:

12th – 13th

Ang

CPI (Jun)

(+21.1%)

12th – 19th

Bot

CPI (Jun)

(+2.4%)

16th – 23rd

Nam

CPI (Jun)

(+2.1%)

19th – 26th

Ken

Interest Rate Announcement

7.00%

20th – 24th

Ang

Interest Rate Announcement

15.5%

*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

-3.0

2.5

2.0

11.4

13.0

12.5

12.0

South Africa

0.57

1.5

0.2

-11.0

5.5

1.8

4.1

3.8

4.3

3.8

Angola

0.14

2.4

-0.3

-6.0

3.0

2.0

17.3

25.0

20.0

17.5

Kenya

0.14

5.6

5.6

1.5

5.5

6.5

5.2

6.0

5.5

5.0

Ethiopia

0.17

9.7

9.0

3.0

7.0

8.5

15.7

17.0

14.0

10.0

Ghana

0.15

7.0

6.5

0.0

5.5

6.0

8.7

9.0

8.5

8.0

Côte d’Ivoire

0.08

6.1

7.5

1.0

7.0

7.0

0.8

1.5

1.0

1.0

Tanzania

0.14

6.5

5.6

1.5

5.0

5.0

3.4

3.5

5.0

4.5

Mozambique

0.03

3.7

2.2

1.0

5.0

4.0

2.8

4.0

4.5

4.0

Uganda

0.07

5.3

5.6

1.0

5.0

5.0

2.9

4.0

5.5

6.0

Rwanda

0.02

7.2

9.4

2.5

7.5

9.0

2.4

7.0

5.5

5.0

Botswana

0.03

3.7

3.5

-3.5

3.0

3.5

2.8

2.0

3.0

3.0

Zambia

0.05

5.6

2.0

-3.0

3.0

4.0

9.1

14.5

11.5

9.5

Mauritius

0.02

3.7

3.5

-10.0

3.5

4.0

0.4

4.5

4.5

3.5

Namibia

0.02

3.4

-1.4

-3.0

2.0

3.0

3.7

4.5

4.0

3.5

Sub-Saharan Africa

2.5

4.2

3.0

-3.8

4.3

3.5

8.4

9.7

9.1

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

(3rd Jul.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

12.50

Down 100bp (May ’20)

Down 50bp (Sep. ’20)

12.00

12.00

South Africa

Repo Rate

3.75

Down 50bp (May ’20)

Down 50bp (Jul ’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
(3rd Jul.)

End

2020

End

2021

Stock Market

Latest

(3rd Jul.)

End

2020

End
2021

Nigeria

NGN (Official)

360

400

400

NGSE

24,336

20,000

26,000

NGN (Nafex)

388

450

450

South Africa

ZAR

17.0

16.0

16.5

JALSH

54,522

49,850

60,600

Angola

AOA

579

625

625

n/a

Kenya

KES

106

110

110

NSE 20

1,946

2,300

2,700

Ghana

GHS

5.7

6.0

6.1

GSECI

1,888

2,000

2,300

Uganda

UGX

3,712

3,900

4,000

UGSE

1,335

1,600

1,800

Sources: Bloomberg, Capital Economics


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