Coronanomics (8) - African Economies - An Emerging Market Fight Back


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

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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

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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

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Asterisks (*) = H1 2019

Asterisks (**) = Q3 2019

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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

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Manufacturing Activities in Major African Economies

Chart 21: Manufacturing Activity in Major African Economies

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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).

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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

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Source: Trading Economics, World Government Bonds, Proshare Research 

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Related Reports (PDF)

1.     Download the Full PDF Report - Coronanomics and the Nigerian Economy, June 06, 2020

2.     Executive Summary PDF - Proshare, June 06, 2020


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