Inflation And Interest Rates In Africa: A Big Deal For Investors?

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Friday, February 21, 2020   / 02:00PM / United Capital Research / Header Image Credit: Brand Spur

 

Recently, several African economies released inflation figures for Jan-2020. The region's largest economies, Nigeria and South Africa, recorded inflation rates of 12.1% y/y (22-months high) and 4.5% y/y (7-months high) respectively. This was due to a respective pressure in food and energy prices. Similarly, inflation rates in Rwanda (7.3%) and Mauritius (2.0%), grew compared to Dec-2019. However, Ghana (7.8%), Tunisia (5.9%) and Namibia (2.1%) recorded lower y/y rates.

 

As a compensation to investors, nominal yields on fixed income securities in African countries are expected to remain above inflation. Using the 10-year bond as a proxy for nominal yield, across the countries covered, Ghana, Tanzania and Egypt offer the highest real return at 11.2%, 10.7% and 8.8% respectively. However, Mauritius (2.2%) and Morocco (1.5%) offer the lowest cover for inflation. For the continent's heavyweights, South Africa offers 4.5% real yield, while Nigeria's real yield at -1.4% is very worrisome, implying a negative real return for investors.

 

Looking at the performance of these economies in attracting capital, the positive real yields in Ghana and Egypt, coupled with strengthening local currencies (7.0% and 2.3% YTD respectively), has buoyed foreign portfolio inflows. As a result, foreign reserves for these countries has been on the rise. However, the policy uncertainties in Nigeria seemed to be slowing the pace of foreign capital flows, amid sustained pressure on external foreign reserves.

 

Top African Stories

 

  • Egypt posts GDP growth of 5.6% in 6 months to Dec: Egypt's economy grew by 5.6% in the six months to December, a government statement said on Wednesday. Read More

 

  • Namibia to repeal two tax policies, partly to appease EU: Namibia will repeal two controversial tax incentive policies for exporters and manufacturers, partly to meet a 2021 deadline set by the European Union to avoid being blacklisted as a tax haven, Finance Minister Calle Schlettwein said on Thursday. Read More

 

  • Kenya to issue 150 bln shillings roads bond by June -report: Kenya will issue a 150 billion shillings ($1.48 billion) roads bond by June. The bond will be the first whose proceeds are dedicated to building and maintaining the East African nation's road network. Some roads were damaged by heavy rains last year. Read More

 

  • Malawi maize output to climb 8.8% as rains return: Malawi's maize production will increase by 8.8% in the 2020 crop season as much-needed rainfall helps to raise yields, its agriculture ministry said on Thursday. Read More

 

  • East Africa: United States Announces U.S.$8 Million to Locust Control Operations: In response to the outbreak of desert locusts in East Africa, the United States, through the U.S. Agency for International Development (USAID), has announced that it will provide US$8 million in humanitarian assistance to support regional operations to control locusts in the Federal Democratic Republic of Ethiopia, the Republic of Kenya, and the Federal Republic of Somalia. Read more

 

  • South Africa consumer inflation rises to 4.5% y/y in January:  South Africa's headline consumer price inflation quickened to 4.5% year on year in January, from 4.0% in December, data from Statistics South Africa showed on Wednesday. Read more

 

Looking Forward

 

Angola

Jan-2020 Inflation Rate - February 24th

Jan-2020 Net Reserves - February 28th

 

Ghana 

Jan-2020 Money Supply YoY - February 27th Jan-2020

 Gross Reserves - February 27th

 

Kenya

Dec-2019 Money Supply YoY - February 29th

Q4-2019 PPI YoY - February 27th

 

Mauritius

Policy Rate Decision - February  26th

 

Morocco

Jan-2020 Inflation Rate - February  21st

Q4-2019 Unemployment  - February  29th

 

Nigeria

Dec-2020 Private Sector Credit YoY - February 

22nd Q4-2019 GDP - February  24th

 

Senegal

Q4-2019 GDP QoQ - March 3rd

 

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