East Africa leads post-COVID resilience
After the worst recession in over half a century, Africa’s economy is poised for a rebound, underpinned by an expected resumption of tourism, gains in commodity prices, and a rollback of pandemic-induced restrictions. The African Development Bank predicts 3.4% GDP growth for 2021, in a report this week. It also sets out the considerable economic damage inflicted during 2020: an economic contraction of 2.1%, reduction of income per capita by 10% in nominal terms, and a doubling of fiscal deficits to a record high 8.4% of GDP. Debt burdens are likely to jump by 10 to 15 percentage points in the short to medium term. Exchange rate fluctuations have been elevated, inflation has inched up, and external financial inflows have been heavily disrupted, according to the AfDB.
Against this backdrop, East Africa emerges as the most resilient region, thanks to less reliance on primary commodities and greater economic diversification. The decline in real GDP was lower than the continent’s average, at 0.7% for 2020 (it jumped by 5.3% in 2019). The recovery of GDP growth in 2021 is likely to be led by Djibouti (9.9%), Kenya (5%), Tanzania (4.1%), and Rwanda (3.9%), AfDB predicts. Southern Africa, the region that was hardest hit by the pandemic, with an economic contraction of 7% last year, is projected to grow by 3.2% in 2021. West African GDP is set to expand by 2.8% this year as lockdowns are eased and commodity prices rebound, after contracting by 1.5% in 2020. Some West African countries maintained positive growth in 2020 thanks to more targeted and less restrictive lockdowns —including Benin (2.3%), Côte d’Ivoire (1.8%), and Niger (1.2%).
Nigeria’s inflation spikes to 4-year high
Nigeria’s inflation rate rose to its highest level in four years at 17.33% in February, from 16.47% a month earlier, according to the National Bureau of Statistics. This had little impact on the Naira, which remained stable at 485 to the dollar on the parallel market. Since February 26, the official exchange rate has stood at 410, a 7.6% devaluation from 379 previously published on the Central Bank of Nigeria’s website. Any further devaluations leading to a convergence of the official and parallel market exchange rates could encourage the World Bank in its discussions with the Nigerian government. The Bank is withholding a $1.5 billion loan until the government implements currency reforms in order to attract foreign investment. A liquidity crisis in the foreign exchange market was highlighted by a $1.86 billion decline in external reserves over the past seven weeks to $34.66 billion on March 10. The reduction is in spite of the rising trend in crude oil prices, with Nigeria’s Bonny Light jumping to $69.35 per barrel on March 11 from $46.67 per barrel on November 30. In the coming week, we expect the currency to remain stable on both the parallel market and the NAFEX window while we await any major news that could drive the currency in either direction.
Ghana tax hike raises growth concerns
The Cedi weakened to 5.7500 to the dollar from 5.7265 levels last week. Finance Minister Ken Ofori-Atta announced a set of new taxes on fuel, health, and financial services in his annual budget presentation on March 12, imposing a 1% rise in the National Health Insurance Levy and a 1% increase in the VAT Flat Rate. There is also an Energy Sector Recovery Levy of 20 pesewas and a Sanitation and Pollution Levy of 10 pesewas per liter of petrol and diesel. The tax rises risk slowing economic growth and deeply impacting personal spending as incomes have been severely affected by the pandemic. We expect the exchange rate to slip further towards 5.76 levels.
Rand buoyed by Fed and falling infections
The Rand gained ground this week, trading at 14.70 to the dollar compared to 14.94 at last week’s close, as international investors were prepared to take on riskier assets following the US Federal Reserve’s assurances that interest rates will remain near zero. A steep decline in COVID-19 cases in the country to 1,000 a day on March 17 from a daily 22,000 in mid-January also brightened the country’s economic prospects significantly. The reduction has surprised most experts, as there has not been a stringent lockdown or a mass vaccination programme. Weighing against the positive mood, Eskom, South Africa’s state-owned electricity company, indicated that further power outages are on the cards. The country’s electricity generation infrastructure has a current 4,000MW deficit. This could disrupt industrial and manufacturing production and impact the balance of trade, putting a strain on the Rand in the near term. We expect the exchange rate to hover short-to-medium term in the range of 14.70 to 15.10.
Egyptian remittances jump during COVID
The Egyptian pound traded steadily in the range of 15.69 to 15.71 to the dollar this week against a close of 15.69 last Friday, amid expectations for the Central Bank of Egypt to hold interest rates steady (the overnight deposit and lending rates are at 8.25% and 9.25%, respectively) at its Monetary Policy Committee meeting on Thursday. The Central Bank of Egypt reported that the country’s consumer price index recorded a monthly rate of 0.3% in February, compared to 0.5% a month earlier and 0.2% in February last year. Meanwhile, annual core inflation stabilised at 3.6% in February. Remittances from Egyptian expatriates surged by 10.5% or $2.8 billion during 2020 to a record $29.6 billion, according to the central bank. Between October and December 2020, remittances from Egyptian expatriates reached $7.5 billion, compared to $ billion during the same period of 2019. For the coming week, we expect the pound to remain steady, supported by low inflation.
Senegal anti-government protests target French businesses
Anti-French sentiment has been on the rise as protests continue in Dakar, the Senegalese capital. Scores of French-owned businesses across the city have had their windows smashed during the past couple of weeks, as angry youths and opposition protestors associate France with the government of President Macky Sall. French supermarkets, petrol stations, and mobile phone booths were torched as mostly peaceful protests against rampant inequality, government corruption, and stringent COVID-19 restrictions morphed into anger against the former colonial power.
Higher fuel price and extended lockdown dent Kenya optimism
The Shilling remained stable at 109.7 to the dollar this week. The country’s Energy and Petroleum Regulatory Authority (EPRA) on March 14 imposed a KES 7.63 price increase on a litre of petrol to KES 122.81, and KES 5.75 for diesel to KES 107.66. The regulator cited the cost of imported Super Petrol jumping by 14.97% since January. The hikes pose a challenge to Kenya’s recovery from the COVID-19 crisis. At the same time, President Uhuru Kenyatta has extended the nation’s COVID-related curfew by 60 days and banned political and social gatherings. Kenyatta said that the economy had lost around KES 560 billion ($5.6 billion) of GDP last year because of the pandemic and the lockdowns. With the African Development Bank forecasting, the country’s economy will rebound by 5% this year, and inflation projected to remain within the Central Bank of Kenya’s target range of 2.5% to 7.5%, we foresee a stable Shilling in the short-to-medium term.
Uganda receives $229.5m loans from African Development Bank
The Shilling dropped slightly during the week and traded at 3660/3670 to the dollar levels from 3655/3665 last week, mostly on the back of continuing demand for dollars on the part of companies. The government and the African Development Bank (AfDB) signed a $229.5m financing facility for the Kampala-Jinja Expressway, under a public-private partnership deal. The highway will facilitate faster movement of goods and services and support the economy by providing job opportunities and boosting trade and investment in the country. We expect the Shilling to continue to hold steady within the 3660/3670 range during the coming week as pressure from dollar demand by corporates is matched by inflows from lenders and agricultural product exports.
Tanzania in mourning as VP Hassan takes reins
We expect a slowdown in economic activities during the next few days as Tanzania mourns the death of President John Magufuli. He had been serving his second term after being re-elected in 2020. Vice President Samia Suluhu Hassan said the country would enter a 14-day period of mourning as arrangements for the burial are made. Magufuli, who spearheaded an anti-corruption drive, became notorious internationally for his skeptical stance on COVID. According to Tanzania’s constitution, Vice President Hassan was sworn in today and has assumed the presidency for the remainder of the five-year term. We foresee some pressure on the Shilling as the new administration and businesses adjust to the changes.
