SA trade figures, Kenya’s drought, Ugandan inflation - Capital Economics
Africa Economics

SA trade figures, Kenya’s drought, Ugandan inflation

Africa Economics Weekly
Written by Virag Forizs

The increase in South Africa’s trade surplus in November might look like good news at first glance, but it is merely a reflection of the weak economy. In Kenya, recently released data show that the economic damage caused by last year’s drought has been smaller than previous ones.

South Africa: growing trade surplus not so positive

The improvement in South Africa’s trade surplus in November was not the rare piece of positive news it first appeared and is merely a reflection of the weakness of the economy.

The rise in the trade surplus – from ZAR2.7bn in November 2018 to ZAR6.1bn – was due to imports contracting at a faster pace than exports. Whereas exports shrunk by 0.9% y/y in November, imports fell by 3.8% y/y.

The drop in imports appears to be symptomatic of weak domestic demand; retail sales growth slipped to just 0.3% y/y at the start of Q4. Activity data suggest that the economy as a whole continued to contract in October, raising fears of another technical recession.

Kenya: Lingering impact of drought

Figures released this week brought to the fore the economic cost of Kenya’s 2019 drought.

GDP growth eased from 5.6% y/y in Q2 to 5.1% y/y in Q3 last year, the weakest outturn in two years. The struggles in the agricultural sector – which employs almost 60% of Kenyan workers – appear to have spread to the rest of the economy.

Meanwhile, the drought pushed up food prices, with food inflation rising to double digits in December. This was the main driver behind the rise in the headline inflation rate from 5.6% y/y in November to 5.8% y/y last month.

That all being said, the data suggest that the latest drought has not caused the same damage to the economy as previous ones. In the past, droughts have tended to cause GDP to stagnate or even contract, and inflation to skyrocket.

Inflation in Uganda: up, up and up

We think that the increase in Ugandan inflation at the end of 2019, from 3.0% y/y in November to 3.6% y/y in December, is a sign of things to come. The country’s current account deficit is unsustainably large, at 12% of GDP, and the currency is likely to come under pressure, pushing up inflation further. Rather than resuming its easing cycle, we expect that the central bank will have to hike interest rates aggressively throughout 2020.

Angola: anti-corruption drive stepped up a notch

Freezing the assets of Isabel dos Santos, daughter of the former president of Angola, as part of a crackdown on corruption, is unlikely to have a major macroeconomic impact. Nonetheless, it signals the seriousness of President Lourenço’s pro-business reform drive. Another example of the government’s business friendly reform program is the transition to a more flexible exchange rate regime. Taken together, the reforms will improve the business environment and the country’s longer-term prospects. But in the near-term, Angolans will feel the pain from higher inflation and tighter policy. The economy is likely to remain in recession for a fifth consecutive year in 2020.

Elections in Côte d’Ivoire: rising threat of violence

Charges by the authorities in Côte d’Ivoire against Guillaume Soro, a former-ally-turned-opponent of President Ouattara, raise political uncertainty ahead of the country’s elections in October. The economy contracted by 4.9% in 2011 following contested polls and electoral violence. A repeat remains a key risk to an otherwise robust growth outlook.

The week (and year) ahead

Data released from South Africa will shed some more light on economic conditions in Q4. Readers wanting a roundup of our key views for 2020 – on Africa and the rest of the world – should go to the “Key Themes” section of our website, which you can find here.


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

6th Jan

Ken

Markit/Stanbic Bank PMI (Dec)

(07.30)

53.2

7th Jan

SA

Electricity Production (Nov)

(11.00)

(-1.9%)

8th Jan

SA

Absa Manufacturing PMI (Dec)

(09.00)

47.7

45.0

9th Jan

SA

SACCI Business Confidence (Dec)

(09.30)

92.7

SA

Manufacturing Production (Nov)

(11.00)

+2.7%(-0.8%)

-0.1%(-1.9%)

10th Jan

No Significant Data Releases

Also expected during this period:

3rd – 10th

Mau

CPI (Dec)

+0.5%(+0.2%)

+0.2%(+0.8%)

9th – 16th

Ang

CPI (Dec)

+1.5%(+16.6%)

+3.7%(+19.1%)

11th – 18th

Nga

CPI (Dec)

+1.0%(+11.9%)

+1.0%(+12.2%)

Selected future data releases and events

15th Jan

Bot

CPI (Dec)

(+2.1%)

Gha

CPI (Dec)

(+8.2%)

SA

Retail Sales (Nov)

(11.00)

-0.2%(+0.3%)

16th Jan

SA

Interest Rate Announcement

6.50%

SA

Mining Production (Nov)

(09.30)

+1.0%(-2.9%)

22nd Jan

SA

CPI (Dec)

(08.00)

+0.1%(+3.6%)

27th Jan

Ken

Interest Rate Announcement (Jan)

8.50%

Gha

Interest Rate Announcement (Jan)

16.00%

30th Jan

Zam

CPI (Jan)

(+11.7%)

31st Jan

Uga

CPI (Jan)

(+3.6%)

Ken

CPI (Jan)

(+0.9%)

Also expected during this period:

20th – 22nd

Nga

Interest Rate Announcement (Jan)

13.50%

30th – 31st

SA

Budget (Dec)

*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

2008-17

Ave.

GDP

Consumer Prices

2018

2019

2020

2021

2018

2019

2020

2021

Nigeria

0.86

4.4

1.9

2.0

2.2

2.5

12.2

11.0

11.0

11.5

South Africa

0.58

1.5

0.8

0.5

0.5

1.0

4.6

4.3

5.0

4.8

Angola

0.15

2.4

-1.7

-1.0

-1.5

1.0

20.3

18.0

30.0

18.0

Kenya

0.13

5.6

6.3

5.8

6.0

5.5

4.7

5.2

5.0

5.5

Ethiopia

0.16

9.7

7.7

7.5

8.5

8.0

13.9

15.0

12.0

10.0

Ghana

0.14

7.0

6.5

6.5

7.0

6.0

9.8

9.0

9.0

8.5

Côte d’Ivoire

0.08

6.1

7.5

7.0

7.5

7.0

0.4

0.5

2.5

2.5

Tanzania

0.13

6.5

5.2

5.5

5.3

5.0

3.5

3.7

5.5

6.0

Mozambique

0.03

3.7

3.3

2.5

5.0

4.0

4.0

3.0

4.0

4.0

Uganda

0.07

5.3

6.2

5.5

5.0

4.5

2.6

3.0

5.5

6.5

Rwanda

0.02

7.2

8.6

10.0

9.0

8.0

1.4

2.0

3.5

3.5

Botswana

0.03

3.7

4.5

4.0

4.0

3.5

3.2

3.5

4.0

4.0

Zambia

0.05

5.6

3.7

2.0

4.5

4.5

7.5

9.0

8.5

8.0

Mauritius

0.02

3.7

3.8

3.5

4.0

4.0

3.2

1.3

3.0

3.5

Namibia

0.02

3.4

-0.1

-1.0

2.0

2.0

4.3

3.8

4.5

6.0

Sub-Saharan Africa

3.1

4.2

2.7

2.7

3.0

3.2

8.8

8.2

8.2

8.2

Sources: Refinitiv, Capital Economics. 1) % of GDP, 2018, PPP terms (IMF estimates).

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(3rd Jan.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

13.50

Down 50bp (Mar ’19)

Down 50bp (Q4 ’20)

13.00

12.00

South Africa

Repo Rate

6.50

Down 25bp (Jul ’19)

None on horizon

6.50

6.50

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Up 100bp (Q1 ’20)

20.00

17.00

Kenya

Central Bank Rate

8.50

Down 50bp (Jul ’18)

Down 50bp (Q2 ’20)

8.00

8.00

Ghana

Policy Rate

16.00

Down 100bp (Jan ‘19)

Down 50bp (Q1 ’20)

15.00

14.50

Uganda

Central Bank Rate

9.00

Down 100bp (Oct ’19)

Up 100bp (Q3 ’20)

12.00

14.00

Sources: National Sources, Capital Economics

Table 3: Key Market Forecasts

Forecasts

Forecasts

Currency

Latest
(3rd Jan.)

End

2020

End

2021

Stock Market

Latest

(3rd Jan.)

End

2020

End
2021

Nigeria

NGN (Official)

306

307

307

NGSE

26,969

32,000

34,000

NGN (Nafex)

364

380

400

South Africa

ZAR

14.2

16.3

16.5

JALSH

57,810

56,850

62,525

Angola

AOA

477

425

425

n/a

Kenya

KES

101

110

115

NSE 20

2,708

3,000

3,000

Ghana

GHS

5.65

7.00

7.00

GSECI

2,296

2,500

2,700

Uganda

UGX

3,680

4,300

4,500

UGSE

1,830

1,900

2,100

Sources: Bloomberg, Capital Economics


Virág Fórizs, Emerging Markets Economist, +44 20 7808 4079, virag.forizs@capitaleconomics.com