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Q1'23 SSA Update - Wiggling through the maze

From the pandemic lows of 2020 to the post-COVID resurgence of 2021 and the Russia-Ukraine war in 2022, the global backdrop continues to dictate the economic developments in African economies. With the most recent global economic driver being the policy normalization by the US Fed, this has sparked global risk aversion, capital flight from emerging economies, balance of payment imbalances, and exchange rate weaknesses. Amid lower oil prices, this could reduce the oil import bill and inflation in non-oil economies. Irrespective, the sustained hawkish posture of the US Fed could keep SSA economies out of the international debt market.

 

Our coverage economies have their peculiar challenges. While Ghana is undergoing debt restructuring, Kenya and South Africa are trudging the path of fiscal consolidation. With Eskom debt relief set to delay South Africa’s debt reduction plans, Kenya is negotiating government-to-government contracts to ease the FX burden from fuel imports. While Angola has been able to maximize the oil rally, Nigeria has been unable due to costly subsidies and crude theft.

 

The outlook for Sub-Saharan Africa remains mixed amid uncertainties around the global interest rate environment, fears of a contagion in the western financial ecosystem, and the clamour for de-dollarization. While China is a key trade partner to most of our coverage economies, the recent decision of BRIC countries to trade in the Chinese Yuan could lead to significant changes in reserve accumulation by central banks. Nevertheless, we recognize that this could spark uncertainty in the coming quarters. As a result, investors could look to gold, should there be further escalations between China and the West.