Vaccines and wars... recoveries and restrictions... - Capital Economics
Africa Economics

Vaccines and wars… recoveries and restrictions…

Africa Economics Weekly
Written by Virag Forizs
The announcement this week of a successful trial of a COVID-19 vaccine is without doubt good news, but the economic gains for Africa may not be as sweeping as many might hope. Meanwhile, Ethiopia appears to be on the brink of a civil war which would have devastating humanitarian consequences. On the economic front, it would push the economy into recession and significantly raise the risk of a sovereign default.

Warnings against vaccine euphoria

The announcement this week of a successful trial of a COVID-19 vaccine is without doubt good news, even as potential access and distribution issues could test policymakers in the region. But the economic gains may not be as sweeping as many might hope.

Unlike developed nations that have struck agreements with vaccine manufacturers, most African countries will probably have to rely on the multilateral COVAX facility that currently does not include Pfizer’s vaccine. COVAX participation might enable 20% of countries’ populations to get vaccinated by the end of 2021, although policymakers will also face distribution challenges.

What’s more, any potential boost to economic recoveries may not be that large for many countries in Sub-Saharan Africa. This is because the high share of non-discretionary spending in the region means that the hit to activity from the pandemic has generally been smaller than in most other parts of the world. By the same token, any rebound would be limited. In addition, wide-spread distribution of a vaccine may not be able to reverse some of the economic damage already done. Rising concerns about South Africa’s fiscal sustainability is one such area for which a vaccine will be no cure.

South Africa: make the economy great first

Developments in South Africa over the past week suggest that President Ramaphosa’s priorities are shifting away from the virus and towards supporting the economy.

Despite concerns over a potential second wave of COVID-19, the government announced a relaxation of containment measures this week. Restrictions on the sale of alcohol have been eased. And tourists from around the world can now visit South Africa so long as they arrive with a negative COVID-19 test.

The economic recovery is certainly in need of a boost – activity data published this week showed that manufacturing and mining output were still down, by 2.6% y/y and 2.8% y/y respectively in September. And more timely indicators suggest that the recovery has waned in Q4. There has also been growing evidence of scarring from the crisis, with the unemployment rate jumping above 30% in Q3.

In what might be seen as positive economic news, this week, the Secretary-General of the ruling African National Congress, Ace Magashule (an ally of former president Jacob Zuma), was arrested and charged with corruption, fraud and money laundering. Mr. Magasule’s arrest is the most high-profile so far and this may ultimately strengthen the president’s hold over the party and boost reform prospects.

“Common Framework” too late for Zambia

The G20 released details of its new “Common Framework for Debt Treatments Beyond the DSSI” on Friday that aims to give a push to debt relief efforts, which have not made as much progress as many had originally hoped. We will look in more detail at this in a Focus on Monday. But the additional support comes too late for Zambia, which looks set to formally enter default at the end of today.

Ethiopia sliding deeper into conflict

The conflict between Ethiopia’s federal government and the region of Tigray appears to have taken a turn for the worse and the threat of a civil war looms ever larger. Thousands have already fled the country amidst reports of civilians being targeted, while both sides ramped up the rhetoric rather than heeding calls to negotiate. In the meantime, the humanitarian and economic costs will mount.

The week ahead

Data due out next week will probably show that inflation ticked up in Nigeria, from 13.7% y/y in September to 13.8% y/y in October. And in South Africa, policymakers are unlikely to provide more monetary stimulus. (See Data Previews.)

Data Preview

Nigeria Consumer Prices (Oct.) Mon. 16th Nov.

Forecasts

Time (GMT)

Previous

Consensus

Capital Economics

Consumer Prices (% y/y)

13.7

14.1

13.8

Price pressures to stay high

Figures due out on Monday will probably show that inflation in Nigeria picked up from 13.7% y/y in September to 13.8% y/y in October.

The headline rate has risen for fourteen consecutive months, to 13.7% y/y in September. Price pressures increased broadly at the start of Q3, food, housing and transport inflation all picked up. Floods and moves to liberalize energy prices probably also played a role.

We think that upwards pressures on prices remained in place in October, pushing up inflation to 13.8% y/y. (See Chart 1.)

Looking ahead, the headline rate will probably stay elevated. An electricity tariff hike that was scheduled to take effect in September was delayed into November. And food price pressures are likely to remain high. We suspect that policymakers will want to wait for inflation to drop back before cutting interest rates further. We have pencilled in 150bp of cuts in Q1 2021, to 10.00%.

Chart 1: Nigeria Consumer Prices & Key Rate

Sources: CBN, NBS, Refinitiv, Capital Economics

South Africa Interest Rate Announcement Thu. 19th Nov.

Forecasts

Time (GMT)

Previous

Consensus

Capital Economics

Repo Rate (%)

13.00

3.50

3.50

3.50

Close call, but rates likely to be left unchanged

In what is likely to be a close call, we expect South Africa’s Reserve Bank (SARB) to keep its repo rate unchanged at 3.50% at Thursday’s MPC meeting.

The SARB refrained from further easing by leaving policy settings unchanged at its last meeting in September as the balance on the MPC has gradually become less dovish. Since then, the latest data show that headline inflation edged down in September to 3.0% y/y, the lower bound of the SARB’s 3-6% target range. And we expect inflation to remain weak for the foreseeable future. (See Chart 2.)

Weak inflation and the sluggish economic recovery would argue in favour of additional monetary easing. But Governor Kganyago has argued before that there are limits to how much support monetary policy can provide in the current environment. And we doubt that the economic outlook has changed sufficiently for the SARB to determine that more stimulus is needed. The decision will be a close call – up until very recently, markets had priced in a rate cut next week. Either way, monetary conditions are likely to remain loose for a number of years.

Chart 2: South Africa Consumer Prices & Repo Rate

Sources: Stats SA, Refinitiv, Capital Economics

Economic Diary & Forecasts

Upcoming Events and Data Releases

Date

Country

Release/Indicator/Event

Time (GMT)

Previous*

Median*

CE Forecasts*

16th Nov

Nga

CPI (Oct.)

(+13.7%)

(+14.1%)

(+13.8%)

17th NovNo Significant Data Released
18th Nov

SA

Retail Sales (Sep.)

(11.00)

+4.0%(-4.2%)

+1.5%(-2.5%)

Zam

Interest Rate Announcement

8.00%

8.00%

19th Nov

SA

Interest Rate Announcement

3.50%

3.50%

3.50%

20th Nov

No Significant Data Released

Also expected during this period:

11th – 17th

Tan

CPI (Oct.)

(+3.1%)

12th – 19th

Bot

CPI (Oct.)

(+1.8%)

15th – 22nd

Nam

CPI (Oct.)

(+2.4%)

15th – 22nd

Ang

CPI (Oct.)

(+23.3%)

Selected future data releases and events

23rd Nov

Nga

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

(-6.1%)

Gha

Interest Rate Announcement

14.50%

24th Nov

Nga

Interest Rate Announcement

11.5%

25th Nov

SA

CPI (Oct.)

(08.00)

+0.2%(+3.0%)

Mau

Interest Rate Announcement

1.85%

26th Nov

Zam

CPI (Nov.)

(+16.0%)

Ken

Interest Rate Announcement

7.00%

27th Nov

Ang

Interest Rate Announcement

15.50%

30th Nov

Uga

CPI (Nov.)

4.5%

Ken

CPI (Nov.)

1.0%(+4.9%)

SA

Trade Balance (SAAR)

(12.00)

+33.5bn

SA

Budget (Oct., SAAR)

(12.00)

-42.9bn

1st Dec

SA

Absa Manufacturing PMI (Nov.)

(09.00)

60.9

3rd Dec

Ken

Markit/Stanbic Bank PMI (Nov.)

(07.30)

59.1

SA

Electricity Production (Oct.)

(11.00)

(-3.1%)

Bot

Interest Rate Announcement

3.75%

7th Dec

Mau

CPI (Nov.)

(+3.2%)

8th Dec

SA

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

(10.30)

-51.0%(-17.1%)

9th Dec

Nam

Interest Rate Announcement

3.75%

SA

CPI (Nov.)

(08.00)

SA

Retail Sales (Oct.)

(09.30)

SA

Real Retail Sales (Oct.)

(11.00)

10th Dec

SA

Current Account (Q3, ZAR)

(09.00)

-104bn

SA

Manufacturing Production (Oct.)

(11.00)

+3.2%(-2.6%)

*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

0.80

4.4

2.2

-4.0

3.0

2.5

11.4

13.0

12.5

12.0

South Africa

0.57

1.5

0.2

-8.5

4.0

2.0

4.1

3.3

3.8

3.5

Ethiopia

0.20

9.7

9.0

6.1

2.0

9.5

15.7

20.0

14.0

12.0

Kenya

0.18

5.6

5.4

-0.5

6.5

6.0

5.2

5.0

5.0

4.5

Angola

0.17

2.4

-0.9

-5.0

3.0

2.0

17.1

22.0

19.0

16.0

Ghana

0.13

7.0

6.5

3.0

6.5

6.0

8.7

10.0

9.5

8.5

Tanzania

0.12

6.5

5.8

1.5

6.0

6.0

3.4

3.5

4.0

4.5

Côte d’Ivoire

0.10

6.1

6.5

2.5

7.0

7.0

0.8

2.5

1.0

1.0

Uganda

0.08

5.3

6.7

-1.5

6.5

5.5

2.9

4.0

4.5

5.5

Zambia

0.05

5.6

1.4

-4.5

3.5

4.0

9.1

15.0

12.0

10.0

Botswana

0.03

3.7

3.0

-10.5

6.0

3.5

2.8

2.0

3.5

3.0

Mozambique

0.03

3.7

2.3

-0.5

4.0

4.5

2.8

3.0

3.0

3.5

Rwanda

0.02

7.2

9.4

-4.0

10.0

9.0

2.4

8.5

5.5

4.5

Mauritius

0.02

3.7

3.0

-15.0

9.0

4.5

0.4

2.5

3.0

3.0

Namibia

0.02

3.4

-1.0

-5.5

4.0

3.0

3.7

2.5

3.5

3.5

Sub-Saharan Africa

2.5

4.2

3.0

-3.2

4.2

4.0

8.3

9.5

8.8

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

(13th Nov.)

Last Change

Next Change

Forecasts

End

2020

End
2021

Nigeria

MPR

11.50

Down 100bp (Sep. ’20)

Down 100bp (Jan. ’21)

11.50

10.00

South Africa

Repo Rate

3.50

Down 25bp (Jul. ’20)

None on horizon

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)

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
(13th Nov.)

End

2020

End

2021

Stock Market

Latest

(13th Nov.)

End

2020

End
2021

Nigeria

NGN (Official)

381

400

400

NGSE

35,037

36,000

43,000

NGN (Nafex)

386

400

425

South Africa

ZAR

15.6

15.5

14.5

JALSH

57,183

58,950

74,250

Angola

AOA

661

680

700

Kenya

KES

109

110

115

NSE 20

1,790

1,850

2,250

Ghana

GHS

5.78

5.80

5.90

GSECI

1,828

1,900

2,300

Uganda

UGX

3,690

3,750

3,850

UGSE

1,335

1,375

1,650

Sources: Refinitiv, Capital Economics


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