Vaccine AUphoria?, polls in Uganda, debt relief demand - Capital Economics
Africa Economics

Vaccine AUphoria?, polls in Uganda, debt relief demand

Africa Economics Weekly
Written by Virag Forizs
The announcement that the African Union (AU) has secured a large COVID-19 vaccine order is a positive step towards Africa’s recovery from the coronavirus crisis, but the road remains long and bumpy. In Uganda, the post-electoral environment looks quite fragile and the lingering risk of violence could weigh on the economy and, ultimately, make it more difficult for the government to service its external debts. Elsewhere, Kenya’s belated participation in a global debt relief initiative might be the exception rather than the rule.

Propping up Africa’s vaccine supply

The announcement that the African Union (AU) has secured a large COVID-19 vaccine order is a positive step towards Africa’s recovery from the coronavirus crisis, but the road remains long and bumpy.

Reports suggest that about 270mn vaccine doses were secured through the African Union, consisting of jabs from Pfizer/BioNTech, Oxford/AstraZeneca, and Johnson & Johnson. The former two have already been approved (and used) in many corners of the world. The latter is expected to publish trial results in the coming weeks – early indications suggest that they will be encouraging.

Prior to the news, many African countries were wholly dependent on the multilateral Covax facility, which aims to vaccinate 20% of participating countries populations by end-2021. But concerns emerged late last year that the scheme is at a high risk of failure. On top of “diversifying” the region’s vaccine sources, the additional supply will go some way to inoculating vulnerable populations more quickly than would otherwise have been the case.

That said, most Sub-Saharan African economies will still lag behind in the global vaccination race. For one thing, shipments through Covax and the AU are not expected before March and April, respectively, with the bulk of doses only dispatched later in 2021.

In the meantime, some countries – like South Africa and Nigeria – will have to grapple with second waves of COVID-19, increasing the likelihood of further economic damage before the widespread roll-out of vaccines. The authorities in South Africa tightened restrictions in late-2020, and mounting pressure on the healthcare sector may prompt additional curbs on activity.

The upshot is that second waves and delayed access to vaccines may keep containment measures in place for longer in Sub-Saharan Africa compared to other parts of the world, delaying recoveries.

Uganda’s electoral hot potato

While early election results from Uganda suggest a comfortable re-election for President Yoweri Museveni, the post-election situation remains fragile. Bobi Wine, the main opposition candidate challenging the long-time incumbent, alleged widespread voting irregularities in polls that took place yesterday amidst an internet and social media shutdown. Security forces cracked down on the opposition in the lead-up to the elections and the risk of further violence lingers, which could weigh on local financial markets and the economy. There is a risk that this ultimately makes it more difficult for the government to service its external debts, which amount to around 34% of GDP.

DSSI and Kenya: for better or worse

On the face of it, the news this week that Paris Club creditors approved Kenya’s request under the Debt Service Suspension Initiative (DSSI) comes at an odd time. Kenya opted not to participate at the start of the programme last year, but will now defer about $300mn worth of bilateral debt repayments in the first half of this year. The government’s borrowing costs have dropped back since the height of the pandemic and we suspect that the turn to the DSSI may be due to pressure from the IMF, with whom Kenya is negotiating a financing package.

That said, a general improvement in risk appetite and lower sovereign bond yields mean that we think most other African governments will end up living with higher debt burdens and the take-up of debt relief initiatives will probably remain modest.

The week ahead

Figures due in South Africa are likely to show that inflation eased a touch, to 3.0% y/y in December, and that the rebound in the mining and retail sectors dwindled in the middle of Q4. All of this will provide the backdrop for an interest rate cut when the Reserve Bank’s MPC meets on Thursday. (See Data Previews.)

Data Preview

South Africa Consumer Prices (Dec.) Wed. 20th Jan.

Forecasts

Time (GMT)

Previous

Consensus

Capital Economics

Consumer Prices (% y/y)

(08.00)

3.2

3.2

3.0

Inflation to have dropped back to bottom of SARB’s target range

We expect figures due to be released on Wednesday will show that South Africa’s headline inflation rate edged down to 3.0% y/y in December.

The headline rate eased from 3.3% y/y in October to 3.2% y/y in November as a drop in transport inflation more than offset a further pick-up in food price pressures. (See here.)

We think that inflation fell further to 3.0% y/y in the final month of last year, leaving it at the bottom of the Reserve Bank’s 3-6% target range. (See Chart 1.) Food inflation is likely to have stabilised. And the continued appreciation of the rand against the dollar will have pushed down inflation of imported goods, including fuel. Meanwhile, weak economic activity will have kept core price pressures in check.

The backdrop of subdued inflation means that there is scope for the Reserve Bank to step its support for the economy (see below), which has been dealt a fresh below amid South Africa’s worsening COVID-19 outbreak and tighter containment measures.

Chart 1: South Africa Consumer Prices (% y/y)

Sources: Refinitiv, CEIC, Capital Economics

South Africa Interest Rate Announcement Thu. 21st Jan.

Forecasts

Time (GMT)

Previous

Consensus

Capital Economics

Repo Rate (%)

3.50

3.50

3.25

Balance on MPC to tip in favour of further easing

Weak inflation and a faltering recovery mean that the South African Reserve Bank (SARB) is likely to cut its repo rate by 25bp, to 3.25%, next week.

The SARB left rates unchanged at its past two meetings but the decisions have been close, with two of the five MPC members voting for policy to be loosened. We think that the balance on the MPC is now likely to have tipped in favour of further easing.

After all, inflation pressures remain subdued – we think that headline rate dropped back to the bottom of the SARB’s 3-6% target range in December (see above). The rand has held on to most of its gains over the past few months. And, perhaps most importantly, the near-term economic outlook has taken a turn for the worse. South Africa’s second wave of COVID-19 has prompted a tightening of containment measures which, if extended, are likely to result in a fresh downturn in Q1. (See here.) With the scope for fiscal support constrained by the dire public finances, monetary policy will have to do the heavy lifting. Further out, we expect rates to stay lower for longer than most expect. (See Chart 2.)

Chart 2: South Africa Repo Rate (%)

Sources: CEIC, Refinitiv, Capital Economics

Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

19th Jan

SA

Mining Production (Nov.)

(09.30)

-0.3%(-6.3%)

+1.5%(-5.0%)

20th Jan

SA

CPI (Dec.)

(08.00)

0.0%(+3.2%)

+0.2%(+3.2%)

+0.1%(+3.0%)

21st Jan

SA

Interest Rate Announcement

3.5%

3.5%

3.25%

SA

Retail Sales (Nov.)

(11.00)

-0.2%(-1.8%)

+1.0%(-2.6%)

Also expected during this period:

15th – 22nd

Ang

CPI (Dec.)

(+24.9%)

18th – 22nd

Ken

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

(-5.7%)

(-1.1%)

18th – 29th

Mau

Interest Rate Announcement

1.85%

Selected future data releases and events

26th Jan

Nga

Interest Rate Announcement

11.5%

27th Jan

Moz

Interest Rate Announcement

13.25%

Ken

Interest Rate Announcement

7.0%

28th Jan

Ang

Interest Rate Announcement

15.5%

Zam

CPI (Jan.)

(+19.2%)

29th Jan

Uga

CPI (Jan.)

(+3.6%)

Ken

CPI (Jan.)

+1.1%

SA

Trade Balance (Dec., SAAR)

(12.00)

+36.7bn

SA

Budget (Dec., SAAR)

(12.00)

-21.4bn

1st Feb

SA

Absa Manufacturing PMI (Jan.)

(09.00)

50.3

3rd Feb

Ken

Markit/Stanbic Bank PMI (Jan.)

(07.30)

51.4

4th Feb

SA

Electricity Production (Dec.)

(11.00)

5th Feb

Mau

CPI (Jan.)

(+2.7%)

8th Feb

Tan

CPI (Jan.)

(+3.2%)

10th Feb

Gha

CPI (Jan.)

11th Feb

SA

Mining Production (Dec.)

(09.30)

SA

Manufacturing Production (Dec.)

(11.00)

Also expected during this period:

4th – 11th

SA

SACCI Business Confidence (Jan.)

8th – 15th

SA

Unemployment Rate (Q4)

30.8%

11th – 18th

Nga

CPI (Jan.)

14th – 21st

Uga

Interest Rate Announcement

7.0%

14th – 25th

Ang

CPI (Jan.)

*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

2020e

2021f

2022f

2019

2020e

2021f

2022f

Nigeria

0.80

4.4

2.2

-2.0

3.5

3.0

11.4

13.0

13.5

12.0

South Africa

0.57

1.5

0.2

-8.0

5.0

4.0

4.1

3.2

3.8

3.5

Ethiopia2

0.20

9.7

9.0

6.1

3.0

9.0

15.7

20.5

15.5

12.0

Kenya

0.18

5.6

5.4

-0.5

7.0

7.0

5.2

5.0

5.0

4.5

Angola

0.17

2.4

-0.9

-5.0

3.5

2.5

17.1

22.0

18.5

16.0

Ghana

0.13

7.0

6.5

3.0

7.0

6.5

8.7

10.0

9.5

8.5

Tanzania

0.12

6.5

5.8

1.5

6.5

6.5

3.4

3.5

4.0

4.5

Côte d’Ivoire

0.10

6.1

6.5

2.5

7.5

7.5

0.8

2.3

0.5

1.0

Uganda

0.08

5.3

6.7

-1.5

7.0

6.0

2.9

4.0

4.5

5.5

Zambia

0.05

5.6

1.4

-4.5

3.5

4.5

9.1

15.5

13.0

10.0

Botswana

0.03

3.7

3.0

-10.5

8.5

5.5

2.8

2.0

3.5

3.0

Mozambique

0.03

3.7

2.3

-0.5

4.0

5.0

2.8

3.0

3.0

3.5

Rwanda

0.02

7.2

9.4

-4.0

11.5

11.0

2.4

8.5

5.5

4.5

Mauritius

0.02

3.7

3.0

-15.0

12.5

6.5

0.4

2.5

3.0

3.0

Namibia

0.02

3.4

-1.0

-5.5

5.0

4.5

3.7

2.5

3.5

3.5

Sub-Saharan Africa

2.5

4.2

3.0

-2.5

4.9

4.8

8.4

9.7

9.2

8.1

Sources: Refinitiv, National Sources, Capital Economics. (1) % of GDP, 2019, PPP terms (IMF estimates); (2) Fiscal Years.

Table 2: Central Bank Policy Rates

Policy Rate

Latest

(15th Jan.)

Last Change

Next Change

Forecasts

End
2021

End

2022

Nigeria

MPR

11.50

Down 100bp (Sep. ’20)

Down 100bp (Mar. ’21)

10.00

10.00

South Africa

Repo Rate

3.50

Down 25bp (Jul. ’20)

Down 25bp (Jan. ’21)

3.25

3.25

Angola

BNA Rate

15.50

Down 25bp (May ’19)

Down 75bp (Q3 ’21)

14.00

13.00

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)

13.50

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
(15th Jan.)

End

2021

End

2022

Stock Market

Latest

(15th Jan.)

End
2021

End

2022

Nigeria

NGN (Official)

381

400

400

NGSE

41,176

43,000

48,000

NGN (Nafex)

394

425

425

South Africa

ZAR

15.2

14.5

15.0

JALSH

63,550

73,750

89,225

Angola

AOA

653

700

750

Kenya

KES

110

115

120

NSE 20

1,920

2,250

2,600

Ghana

GHS

5.78

5.90

6.00

GSECI

1,975

2,300

2,600

Uganda

UGX

3,700

3,850

3,850

UGSE

1,327

1,650

1,900

Sources: Refinitiv, Capital Economics


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