Vaccine AUphoria?, polls in Uganda, debt relief demand

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. 20^th Jan.

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. 21^st Jan.

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

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