Coronanomics (8) – African Economies

Sunday, June 14,
2020 /  06:45 AM / by Proshare Content/ Header Image
Credit:  EcoGraphics

 

There has been a frog leap
increase in the spread of COVID-19 in Africa. Major African economies have seen
a large jump in the numbers of reported cases of the virus. South Africa,
Egypt, Morocco, Algeria and Nigeria have the highest number of recorded cases
of 27,403, 20,793, 7,697, 8,997 and 8,915 respectively (see Table 11).

 

Table 11: African
Countries Hit With Coronavirus

 

Major African Economies Growth Rate

The spread of the coronavirus
is expected to hit major economies such as South Africa, Nigeria, Egypt and
Algeria.

 

Table 12: Major
African Economies Growth Rate and Forecast

Asterisks (*) =
H1 2019

Asterisks (**)
= Q3 2019

 

The gradual increase and
spread of the coronavirus on the African continent are forecast to further
dampen the economic growth and developmental outlook of the continent.
According to the World Bank’s year 2020 projections the top four economies in
Africa which are Nigeria, South Africa, Egypt and Algeria are projected to grow
at -3.22%, +1.5%, +5.8% and +1.9% respectively
(see Table 12).

 

The majority of African
economies such as South Africa, Nigeria, Ghana, Chad etc have already
restricted movements into their respective countries. The decision to restrict
movement across country borders by various African governments can be expected
to cripple economic supply channels and trading activities across the
continent, further worsening growth prospects in the course of the year.

 

Major African Economies Debt to GDP, Debt to Revenue and
Revenue to GDP

Among the five economies (5)
examined, the Egyptian economy recorded the highest debt to GDP ratio of 103.3%
in 2018 while Ghana recorded the second highest debt to GDP ratio of 71.8%.

 

Nigeria and Egypt were the top
two countries with the highest amount of debt to revenue ratio in 2018. Nigeria
and Egypt recorded debt to revenue ratio of 61.4% and 54.4% respectively in
2018.

Concerning the revenue to GDP
ratio, South Africa and Egypt were the two countries with the highest revenue
to GDP ratio of 29.1% and 20.9% respectively.

 

The spread of the coronavirus
in Africa is likely to cripple economic activities and negatively affect
revenue generation. The majority of the African economies are likely going to
record an increase in their debt to GDP ratio, debt to revenue ratio and a
reduction in revenue to GDP ratio (see Table 13).

 

Table 13: Major
African Economies Debt to GDP, Debt to Revenue and Revenue to GDP

 

Manufacturing Activities in Major
African Economies

Chart 21: Manufacturing
Activity in Major African Economies

Source: Trading
Economics, IHS Markit, CBN, Proshare Research

South Africa’s Absa Manufacturing PMI fell to 35.1 in April of 2020 from 48.1 in
the previous month. The reading pointed to the eighth consecutive month of
contraction in factory activity, though at the slowest pace since last October,
as slower delivery times boosted the supplier deliveries sub-index. Absa
and BER said that delays are usually an indication that suppliers
are busier under normal circumstances but this time it was mainly linked to
coronavirus-induced disruptions in global supply-chains. Meanwhile, the
business activity and new sales orders indices stayed around 11-year low levels
in March, partly due to the start of a 21-day lockdown imposed by the
government to curb the spread of the coronavirus.

Egypt’s non-oil
private sector economy failed to escape the COVID-19 pandemic in April, with
disruptions to tourism and consumer spending causing marked falls in both
activity and sales. Employment declined further, while confidence for future
output dropped to a record low. On the bright side, input cost inflation
remained subdued. The headline seasonally adjusted IHS Markit Egypt Purchasing
Managers’ Index – a composite gauge designed to give a single-figure snapshot
of operating conditions in the non-oil private sector economy – fell from 44.2
in March to 29.7 in April, to indicate a sharp deterioration in business
conditions at the end of the first quarter of the year and the lowest recorded
since April 2011.

 

The decline was
driven by marked downturns in both output and new orders at Egyptian
businesses. The level of activity fell at the sharpest pace in over three
years, with panellists highlighting that lower volumes of new work curtailed
output. Disruption largely arose due to the COVID-19 outbreak, with firms often
noting that tourism activity was heavily impacted by the reduction in-flight
travel. Other businesses cited an ongoing effect from the closure of Chinese
factories, leading to reduced input availability. As a result of the virus
outbreak, domestic markets slowed, causing a marked drop in new orders at
Egyptian firms. Sales were also reportedly weakened by low employment, while
export volumes decreased at the quickest pace in over seven years. The slowdown
led to a further contraction in input purchases during March, with the rate of
decline accelerating
to the fastest in more than three years. Stock levels subsequently dropped,
albeit at a softer and marginal pace. Employment in the non-oil sector
meanwhile fell for the fifth month running in March.

 

Businesses were reportedly left short of workers
due to several employees leaving for other opportunities. With sales falling,
many of these positions were not replaced, causing a solid drop in workforces
overall. Nevertheless, firms were able to reduce backlogs in March, with the latest
data signalling the first monthly fall in outstanding work for 12 months.
Egyptian businesses meanwhile saw a decline in vendor performance, linked to
travel disruption from the COVID-19 outbreak and earlier Chinese factory
closures. The rate of deterioration was modest but still the quickest for 19
months. At the same time, cost inflationary pressures rose in March, mainly due
to an appreciation of the US dollar. Some firms also saw increases in raw
material prices. However, reductions in other prices, notably oil, meant that
the overall uptick in input costs was marginal. As such, companies were again
able to lower output prices, although the rate of decline softened in February
but had a deeper drop in April.

 

With the COVID-19 outbreak ongoing, firms were
often more downbeat about future output prospects in March. This brought
confidence levels down to the lowest in the series history, with many fearing a
lasting impact on the domestic and world economy. Nigeria’s Manufacturing PMI in May stood at 42.4 index
points, indicating contraction in the manufacturing sector for the first time
after recording expansion for thirty-six consecutive months. Of the 14 surveyed
subsectors, only the electrical equipment sector reported growth (above 50%
threshold) in the review month, while the remaining 13 subsectors reported
declines in the following order cement; petroleum & coal products; printing
& related support activities; furniture & related products; textile,
apparel, leather and footwear; paper products; fabricated metal products; food,
beverage & tobacco products; chemical & pharmaceutical products;
transportation equipment; plastics & rubber products; non-metallic mineral
products; appliances and components and primary metal. At 44.5 points, the
production level index for the manufacturing sector declined in May 2020 after
thirty-seven consecutive months of recorded growth. One subsector recorded
increased production level, 4 remained unchanged, while nine subsectors
recorded declines in production in May 2020

The Stanbic Bank Kenya
PMI slipped to 34.8 in April of 2020 from 37.8 in the previous month, pointing
to a deterioration in business conditions that was the strongest since October
of 2017. New orders declined significantly, amid reduced demand due to the
coronavirus pandemic. Firms consequently reduced activity and employment, while
demand for inputs fell at the quickest pace since late-2017. On the price
front, input costs rose at the fastest pace since June of 2019, amid reports of
shortages of inputs mostly from China. However, selling prices went up only
marginally. Looking ahead, the overall level of business sentiment remained
strong, despite the impact of the pandemic. Firms cited plans to widen products
and services and open new branches, though some respondents noted these plans
were on hold until after the virus has been brought under control (see Chart 21).

 

Movements in 10-Year Government Bond
Yields of Major African Economies

Despite the increase in the
number of cases recorded in the African continent, the 10-year government bonds
in the major African economies such as Nigeria, South Africa, Kenya and Egypt
recorded a rise in their respective yields as of 25th May 2020. South Africa,
Nigeria, Egypt and Kenya recorded yields in government bonds of  8.9%, 11.1%, 14.4% and 12.59%
yields respectively. As the pandemic deepens in the African continent,
investors are likely going to shift to haven assets like government bonds. The
rush in demand for government bonds will likely lead to the rise in the price
of government bonds and a decline in the yields of respective major African
economies (see Chart 22).

 

Chart 22: Movements
in 10-Year Government Bond Yields of Major African Economies

Source: Trading
Economics, World Government Bonds, Proshare Research 

 

Related Reports (PDF)

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