Survey blues in South Africa, Nigeria’s budget woes - Capital Economics
Africa Economics

Survey blues in South Africa, Nigeria’s budget woes

Africa Economics Weekly
Written by Virag Forizs

Figures published in South Africa this week gave an early indication of the scale of economic devastation caused by the country’s lockdown. The risks to our forecast for a 6.5% fall in GDP this year are skewed to the downside. Meanwhile, in Nigeria, there is growing talk from policymakers of the need to halt debt payments to multilateral lenders. Given the gap in the public finances that will be left by the latest fall in oil prices, debt talks with private sector creditors aren’t out of the question.

Lifting lockdowns to lessen economic pain

After relatively early action to impose containment measures, more and more African countries are relaxing restrictions. Given patchy data on cases of Covid-19, it’s hard to tell whether the infections curve has flattened in Nigeria or Uganda, where lockdowns were lifted this week. Instead, economic necessity might be at play. Large informal sectors in these countries, where workers have limited savings or social safety nets to fall back on, make the enforcement of containment measures more challenging and their effectiveness more uncertain, even as the immediate economic damage from lockdowns is likely to be less severe.

South Africa: Survey data bears bad news

In South Africa, where containment measures are relatively well-enforced and remain fairly strict, figures released this week offered a glimpse into the scale of economic damage caused by the country’s lockdown.

PMI data suggest that business activity in the manufacturing sector came to a standstill in April as firms shut operations to comply with strict containment measures. On past form, the figures point to a 35% fall in manufacturing output. The economic toll on retailers is likely to be just as bad. Auto sales dropped by almost 100% y/y last month.

Other sectors were probably not spared either. Surveys covering the broader economy hit all-time lows. The whole-economy PMI plunged to 34.5 in April, the weakest reading since the survey began in 2011. And the South African Chamber of Commerce and Industry’s business confidence indicator tumbled as well, to a 35-year low.

All this points to increasing downside risks to our forecast of a 6.5% GDP contraction this year. Policymakers will have to do more to provide economic stimulus. Indeed, recent comments by Reserve Bank Governor Lesetja Kganyago support our view that the repo rate will be lowered by a further 75bps, to 3.50%, by year-end.

Nigeria’s budget: Sea of financing troubles

The latest budget revision plans floated by Nigeria’s finance minister this week suggest that the authorities are scrambling to plug the country’s huge financing hole caused by the collapse in oil prices and the coronavirus crisis.

The government has already proposed revising down the benchmark oil price used in its budget calculations in March from an initial $57pb to $30pb. The latest figure being floated is $20pb, which would cut government revenues by a further N750bn or so (around 0.5% of GDP).

Reports offer much less details on revisions to the government’s expenditure plans. Capital spending was one area previously flagged for cutbacks, to the tune of as much as 20%.

There is growing talk of debt relief in one form or another to free up resources to fight the coronavirus. Finance Minister Zainab Ahmed confirmed that they are seeking the suspension of debt service payments on bilateral and multilateral loans due this year and beyond. President Muhammadu Buhari went a step further, urging the cancellation of debt obligations owed to international financial institutions altogether.

And the risk of a turn to default on debts owed to the private sector lingers, even with financing from the IMF and other organisations. Tallying up funding already secured or requested from these institutions, the Fund estimates that only half of the external financing gap would be covered.

The week ahead

Figures due out next Friday from Nigeria will probably show that inflation eased a touch, from 12.3% y/y in March to 12.2% y/y in April. Even as price pressures pick up in coming months, we think that the central bank will cut its policy rate to support the struggling economy.


Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (BST)

Previous*

Median*

CE Forecasts*

13th May

Gha

CPI (Apr)

(+7.8%)

(+7.9%)

Ang

Oil Production (Apr, bpd mn)

1.4

Nga

Oil Production (Apr, bpd mn)

1.9

15th May

Nga

CPI (Apr)

(+12.3%)

(+12.2%)

Gha

Interest Rate Announcement

14.50%

14.00%

Also expected during this period:

8th – 23rd

Mau

CPI (Apr)

(+2.9%)

(+2.8%)

13th – 20th

Bot

CPI (Apr)

(+2.2%)

(+2.4%)

16th – 23rd

Nam

CPI (Apr)

(+2.4%)

(+2.5%)

16th – 23rd

Ang

CPI (Apr)

(+19.0%)

(+20.6%)

Selected future data releases and events

19th May

SA

Mining Production (Feb)

(10.30)

(+6.1%)

SA

Manufacturing Production (Feb)

(12.00)

(-2.0%)

(-2.4%)

20th May

Zam

Interest Rate Announcement

11.50%

SA

Retail Sales (Feb)

(12.00)

(+1.2%)

(+1.1%)

21st May

SA

Interest Rate Announcement

4.25%

26th May

Nga

Interest Rate Announcement

13.50%

27th May

SA

CPI (Apr)

(09.00)

+0.3%(+4.1%)

28th May

Zam

CPI (May)

(+15.7%)

29th May

Uga

CPI (May)

(+3.2%)

Ken

CPI (May)

+0.9%(+5.6%)

SA

Trade Balance (Apr, SAAR, ZAR)

(13.00)

+24.2bn

SA

Budget Balance (Apr, SAAR, XAR)

(13.00)

-51.2bn

1st Jun

SA

Absa Manufacturing PMI (Apr)

(10.00)

46.1

4th Jun

Ken

Markit/Stanbic Bank PMI (May)

(08.30)

SA

Current Account Balance (Q1, ZAR)

(10.00)

-68bn

SA

Electricity Production (Apr)

(12.00)

(-4.1%)

6th Jun

Mau

CPI (May)

Also expected during this period:

20th – 24th

Ang

Interest Rate Announcement

15.50%

20th – 27th

Nga

GDP (Q1)

(+2.6%)

20th – 27th

Ken

Interest Rate Announcement

7.25%

6th – 12th May

SA

SAACI Business Confidence (May)

*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

-6.5

3.5

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

-2.6

3.9

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

(7th May)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

13.50

Down 50bp (Mar ’19)

Down 50bp (May ’20)

12.50

12.00

South Africa

Repo Rate

4.25

Down 100bp (Apr ’20)

Down 50bp (May ’20)

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)

Down 25bp (May ’20)

6.75

6.75

Ghana

Policy Rate

14.50

Down 150bp (Mar ‘20)

Down 50bp (May ’20)

14.00

13.50

Uganda

Central Bank Rate

9.00

Down 100bp (Oct ’19)

Down 100bp (Jun ’20)

8.00

8.00

Sources: National Sources, Capital Economics

Table 3: Key Market Forecasts

Forecasts

Forecasts

Currency

Latest
(7th May)

End

2020

End

2021

Stock Market

Latest

(7th May)

End

2020

End
2021

Nigeria

NGN (Official)

360

400

400

NGSE

24,354

20,000

26,000

NGN (Nafex)

387

450

450

South Africa

ZAR

18.7

17.5

17.0

JALSH

50,133

49,850

60,600

Angola

AOA

545

625

625

n/a

Kenya

KES

106

110

110

NSE 20

2,041

2,300

2,700

Ghana

GHS

5.7

6.0

6.1

GSECI

2,044

2,000

2,300

Uganda

UGX

3,795

3,900

4,000

UGSE

1,496

1,600

1,800

Sources: Bloomberg, Capital Economics


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