macroafricaintel | Nigeria: GDP forecasts (2018-19)

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

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  Q1 2018F Q2 2018F Q3 2018F Q4 2018F 2018F
% qq -12.3 3.0 7.0 3.0
% yy 3.1 2.7 0.8 -0.4 1.4

Source: Macroafricaintel Research

  Q1 2019F Q2 2019F Q3 2019F Q4 2019F 2019F
% qq -10.0 3.5 6.0 3.5
% yy 2.2 2.7 1.7 2.2 2.2

Source: Macroafricaintel Research

  Q1 2017 Q2 2017 Q3 2017 Q4 2017 2017
% qq -13.3 3.4 9.0 4.3
% yy -0.9 0.7 1.4 1.9 0.8

Source: NBS, Macroafricaintel Research

2018 Africa Outlook | South Africa, Nigeria & Kenya

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

Kindly see links below to articles authored in this regard for African Business magazine.

South Africa



macroafricaintel | South Africa – Revision of forecasts

By Rafiq Raji, PhD

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South Africa Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 2017 2018 2019
GDP Quarterly % Change (saa)   1.2 0.6 2.8 -1.2 2.0 0.4 2.0      
GDP Annual % Change 0.5 0.9 1.7
CPI Quarterly % Change   5.2 5.0 5.1 3.8 3.9 4.1 3.5      
CPI Annual Average % Change 5.3 4.0 2.9
C/A Quarterly Average % Change -4.1 -4.3 -4.5 -4.6 -4.4 -4.1 -4.4 -4.2      
C/A Annual Average % Change -4.4 -4.3 -4.1
PPI Quarterly % Change yy   4.5 5.2 4.5 4.1 4.1 4.2 4.3      
PPI Annual Average % Change 4.8 4.2 4.3
Repo Rate Long Term Forecast   7.0 6.8 6.5 6.0 6.0 6.0 6.0      
Repo Rate Long Term Forecast 6.5 6.0 5.0

Country Note | Kenya – Drought & rate cap to weigh on growth

By Rafiq Raji, PhD

Click to download full report (includes monthly inflation forecasts, etc.)

We cut our 2017 growth forecast to 5.1 percent (from 6 percent). Drought troubles re-emerged in Q1-2017, with an almost immediate impact on inflation. (Food inflation was 21 percent in April.) Rains have fell short by more than a quarter of the average this year, weighing significantly on agricultural output (24 percent of GDP, 50 percent of export earnings and 60 percent of employment). Food and cash crops have been affected. An imminent maize shortage would only be averted with ramped-up imports. The authorities’ maize reserves have been almost totally depleted, and thus would need re-stocking. The late and meagre rains are also delaying the flowering of coffee bushes. Sugar and tea production are envisaged to decline quite significantly (more so for sugar) this year as well. Considering it is election season (polls on 8 August), nerves are a little frayed; with the opposition and indeed millers blaming the government for not heeding earlier shortage warnings. It is estimated the maize harvest this year could fall short of the 4.3 million tonnes needed by more than 1 million tonnes. Together with slower private sector credit extension on the back of the authorities’ interest rate cap (put in place in September 2016), growth is set to be constrained consequently. A counter-argument is that the interest rate cap is not primarily responsible for lower credit to key sectors of the economy. That is, just because it is slower does not mean growth would be significantly impacted. The Central Bank of Kenya did a study on this, governor Patrick Njoroge says in a recent interview with CNBC Africa. It found for instance that retailers in the trading sector, due to their own unfavourable circumstances, have now come to depend more on supplier credit. And that even as agriculture is a dominant sector of the economy, bank credit constitutes just 4 percent of its financing. Still, there has been an opportunity cost to the government’s interest rate cap, with banks prefering to divert the relevant portion of their risk buckets to risk-free government securities. Private sector credit extension is currently about 4-4.5 percent, a far cry from 21 percent in August 2015. Add to that the earlier highlighted looming drought-induced food crisis. Unsurprisingly and with elections only months away, the Kenyatta government has been forced into action. Authorities announced in mid-May that about KES6 billion would be used to subsidize food imports. A supplementary budget is in the works in this regard. The Central Bank of Kenya (CBK) would almost certainly not be able to ease policy this year. Good thing it took the chance when it did in September 2016. Lower interest rates was a factor behind our higher growth forecasts in September.

Kenya Macro Forecasts 2017 2018 2019
Real GDP, % change 5.1 5.5 6.0
Inflation, % change 11.8 8.4 5.8
Current Account Balance (% GDP) -6.0 -5.5 -5.1
Fiscal Balance (% GDP)* -7.1 -5.7 -4.5
USD:KES** 103.5 103.0 101.0
Source: Macroafricaintel Research, *fiscal year begins July 1, **year-end

Violent and chaotic party primaries raise concerns about August elections
Party primaries in April were marred by violence and rigging. Both the ruling Jubilee party and newly formed opposition coalition National Super Alliance (NASA) party had one form of disruption or the other. However, the fracas at that of the Jubilee party was more serious. 62 people were charged to court in early May for either bribing voters or inciting violence during the primaries. Incidentally, as quite a few intending candidates were not able to secure party nominations before the 10 May Independent Electoral and Boundaries Commission (IEBC) deadline, the August elections are set to have the highest number of independent candidates on record. Preparations for the polls by the IEBC itself have ran into some holdups. For instance, the IEBC cancelled the contract for the electronic voting system in March, raising opposition fears that a forced manual voting amendment of the electoral law by the ruling Jubilee party may become the main voting mechanism, instead of the backup it is supposed to be. Although the IEBC says it is considering other options, indications suggest the election may be significantly contentious should voting be done manually. Thus, fears about violence during the elections are not misplaced. But would it likely be as intense as the 2007 elections? We do not think so.

Rising debt profile worrying
Key concern is that the authorities are increasingly relying on relatively expensive syndicated loans. As at end-2016, Kenya’s external debt was US$17.7 billion (26 percent of GDP). Since then, the authorities have taken on at least US$2.55 billion in syndicated loans. In March, authorities took US$1.55 billion in syndicated loans: $800 million from Standard Chartered, Standard Bank, Citi, and Rand Merchant Bank; $500 million from Afrexim and TDB; and $250 million from TDB. And in May, the authorities took another US$1 billion syndicated loan split between commercial banks and development financial institutions. These alone add 3.7 percent of GDP to the debt stock. It is doubtful the authorities’ 6.0 percent of GDP fiscal deficit target for 2017/18 FY (starts 1 July), from 9.0 percent of GDP in 2016/17, would be met. We have raised our fiscal deficit forecasts consequently. President Uhuru Kenyatta tried to be reassuring on the rising debt profile in his state of the nation address in mid-March. But the government’s actions have not been in tune with its rhetoric: On 1 May, Mr Kenyatta raised the minimum wage by 18 percent. It is not all too surprising though. (We highlighted in our last note how upcoming elections might spur disproportionate public spending.)

CBK to pause expansionary stance
Drought conditions in Kenya have caused a spike in food prices, with inflation in toe. Annual consumer inflation was 11.5 percent in April. (compare that to 7 percent in January.) Our current forecasts put inflation higher subsequently; and definitely outside of the Central Bank of Kenya’s (CBK) 2.5-7.5 percent target band for the remainder of 2017. In March, the price of a 90kg bag of maize rose by 5 percent, and is set to spike even more as sellers hoard their stock. Army worms were also reported to have ravaged over 140,000 hectares of maize crops in western and southern Kenya in May, potentially adding to food price pressures down the line. With elections due in August, the government can ill-afford a food shortage crisis. So after depleting its maize reserves to less than a day’s worth (4,500 tonnes) in mid-May, following a release of about 36,000 tonnes to ease the supply shortage, the Kenyan government plans to subsidise wholesale food imports to stabilize prices. But for the drought-induced food crisis, the bank would have remained in a good position to cut rates further this year, after a 50 basis point cut to 10 percent in September 2016. Now, that is totally out of the question. And it would not make sense for it to hike rates either.

Kenya Q2 2017 Q3 2017 Q4 2017 Q1 2018
Policy Rate, % 10.0 10.0 10.0 10.0
Source: Macroafricaintel Research

Country Note | South Africa – Toxic politics

By Rafiq Raji, PhD

Click to download full report (includes monthly inflation forecasts, etc.)

We upgrade our 2017 growth forecast to 0.7 percent, from 0.4 percent. (The IMF is more optimistic though, raising its 2017 growth forecast to 1 percent from 0.8 percent in May.) Still, the South African economy remains delicate somewhat. Some of the wear and tear came out in the Q4 2016 GDP growth data, coming out negative: -0.3 percent (seasonally adjusted and annualised). Since then, especially in Q2 2017 thus far, and amid negative political noise, it has shown remarkable grit. The positively surprising resilience can be evidenced in recent mining (7 percent of GDP) and manufacturing (13 percent of GDP) production data (March), which both beat expectations, coming out at 0.3 percent (year-on-year) and 15.5 percent respectively. (A contraction was expected for the former and the latter was significantly higher than expectations of about 4 percent.) Recent retail sales data was also quite good – turned positive in March after a year-on-year contraction a month earlier led to expectations of a continued negative trend – despite an increasingly debt-weary consumer class. There are other considerations for the upward review. Some of the constraints (load-shedding, political noise, rand weakening and volatility, drought-induced food imports and price spikes) which bogged down the economy last year have either diminished or become non-existent. 

South Africa Macro Forecasts 2017 2018 2019
Real GDP, % change 0.7 0.9 2.3
Inflation, % change 6.2 5.5 6.5
Current Account Balance (% GDP) -4.5 -4.4 -4.3
Fiscal Balance (% GDP)* -3.6 -4.1 -4.0
USD:ZAR** 13.7 12.5 12.7
Source: Macroafricaintel Research, *fiscal year starts on 1 April, **year-end

The maize harvest this year could almost double the last, albeit worries remain about a potential El Nino drought in July-September. Load shedding is now largely unheard of, with new power plants coming on stream by and large according to plan. For instance the Medupi unit 5 came online in April, adding 800MW to the grid. Such is the case now that Eskom, the state power utility, feels secure enough to pushback on green independent power producers; a negative for investor-friendliness but evidence of confidence. Political risk has increased, however, as the ruling African National Congress (ANC) prepares to replace Jacob Zuma as party president in December. Campaigns have begun in earnest. The two principal candidates, deputy president Cyril Ramaphosa and erstwhile African Union Commission chairperson and President Zuma’s ex-wife Nkosozana Dlamini-Zuma, have been reaching out to delegates ahead of the elections. With Mr Ramaphosa obviously a better candidate but out of favour with Mr Zuma, tensions abound. The coming months could be very tense indeed. In-fighting in the ANC, a determined but beleaguered Mr Zuma looking to ensure his ex-wife replaces him, and deputy president Cyril Ramaphosa’s ambition to be chosen instead, have caused a lot of ruckus within the party and wider South African polity. This would probably remain the case till December. Regardless, the South African economy would probably still pull ahead in 2017. Should Mr Zuma prevail at the party conference, however, a wait-and-see approach might be adopted by long-term foreign capital providers. Portfolio investors might not be so worried initially, we have found.

Populist politics may trigger further ratings downgrade
S&P Global Ratings and Fitch Ratings both downgraded South Africa’s credit rating to junk status in early April, after former finance minister Pravin Gordhan was removed from his post in late March. Moody’s is largely believed would follow suit, albeit opinions are divided over whether theirs would be a one-notch downgrade to just one level above junk status or two-notches down to junk status. Mr Gordhan’s replacement, Malusi Gigaba, has since proved to be a little controversial, however, after a widely acknowledged good performance at the World Economic Forum in Durban in May. Concerns revolve around a much touted ‘radical economic transformation’ that could include among other things land expropriation without compensation, nationalisation of the South African Reserve Bank (SARB), mines and commercial banks. Already, a developmentalist state-owned bank to be spinned out of the postal service is in the works. There has been some toning down of the socialist rhetoric lately though. More realistic but still populist options are now being considered it seems. For instance, Mr Gigaba plans to use the $40 billion procurement budget at his behest to aid black businesses. And he continues to assure investors that any supposedly populist initiatives would remain within the bounds of the 2017 budget parameters. So his real intentions (and that of his principal) would probably only become obvious in October when he presents the mid-term budget and probably more so in that for the 2018-19 fiscal year in February. In any case, some sense of what these could be are already becoming obvious.

There is clearly a determination by the Zuma government to build new nuclear power plants; estimated at US$30-70 billion. After a high court ruled in April that an earlier arrangement with Russia (the authorities have similar agreements with China, France, South Korea and the United States) was inappropriate, the government announced in mid-May that new and more transparent ones would be signed instead. The return of disgraced former Eskom chief executive Brian Molefe to the state power utility in May, after a reportedly botched attempt to be finance minister, bolster suggestions in some quarters that the authorities’ nuclear power plans would go ahead irrespective of the potential negative impact on the fiscus. Mr Gigaba has thus far suggested that any move on this front would only come about if the government can afford it. It is highly unlikely however that Mr Gigaba would be able to rule against any of Mr Zuma’s proposals, who it has been suggested seems quite inordinately enthused about the nuclear power programme. Fears about increased corruption in government from already deplorable levels have been raised consequently. These considerations inform our expectations of likely fiscal deterioration and the upward revisions to our 2017 and 2018 deficit forecasts.

Rates likely steady for remainder of 2017
Annual consumer inflation would likely remain outside of the SARB’s 3-6 percent target band (except for July perhaps) for the remainder of 2017. True, the headline figure declined in March to 6.1 percent from 6.6 percent in January and would probably be about 6 percent in April if our forecast is vindicated, it is likely to venture outside the band subsequently. Because even if food prices prove to be stable (on the back of a likely bumper maize harvest this year and hitherto ample imports to fill the gap from an earlier drought-induced decline in domestic production), power tariffs are likely to rise: Eskom secured approval in February from the electricity regulator to raise tariffs by 2 percent in the 2017/18 fiscal year. More relevant though is that the regulator also gave the power utility a carte blanche of sorts to make additional hike requests. And if crude oil prices rise as envisaged, fuel prices (and transportation costs in tandem) would probably rise as well. External factors would also weigh. The US Fed would probably raise rates twice more later in the year, after two hikes already in December 2016 and March 2017, further tightening global credit conditions. The ratings downgrade to junk status and highlighted domestic and external factors have motivated calls in some quarters for the SARB to hike rates. Governor Lesetja Kganyago has expressed scepticism about whether such a move would be differential to foreign portfolio and direct investments. More importantly, a rate cut is almost certainly out of the question this year. Thus, we expect the repo rate to remain unchanged at 7 percent for the remainder of 2017. Our inflation forecasts (at this time) support keeping it that way till end-2018.

South Africa Q2 2017 Q3 2017 Q4 2017 Q1 2018
Policy Rate, % 7.0 7.0 7.0 7.0
Source: Macroafricaintel Research