Macro Analysis /

African bonds remain resilient, lawmakers in Ghana reject 2022 budget

  • Forex: Currency volatility sky-rockets as traders digest the impact of the Omicron variant

  • Fixed Income: Emerging market bonds tank as new COVID-19 variant triggers a wave of risk aversion

  • Macroeconomic: Lawmakers in Ghana reject the 2022 budget over a new levy on electronic money transfers

Kieran Siney
Kieran Siney

Head of African Markets

ETM Analytics
29 November 2021
Published by


The Thanksgiving long weekend is behind us, and with it, Black Friday. For the first time on record, online shopping dipped compared to the previous year, with many opting to physically head back to the shops. That does not mean that the trend in online shopping has changed or that this has been a bad Black Friday sales experience. On the contrary, although the hoards of people were not physically present, this is still expected to be a record spending festive season which will offer the US economy a nice boost to end the year.

This week will be another important one for the labour market, with the usual end-of-month labour market data scheduled for release. The data recently has been strong, and the outlook has improved considerably. All indications are that the data will continue to improve and give the Fed all the justification it requires to press ahead with the current taper and maybe even accelerate it in a bid to combat inflation.

In the commodity market, it was a black Friday for oil, with Brent being discounted by just over 12%, while WTI’s price dropped over 13% when looking at the benchmark front-month contracts. The sharp declines came as new travel restrictions were put in place across the globe as fears over the new Omicron variant of COVID-19 spread rapidly. The drop for Brent was the seventh-largest daily decline, according to Bloomberg data, which highlights that some of the reaction may have been a bit overdone. As such, we have both oil benchmarks rallying this morning as traders buy the dip. Brent is trading back above $75.80 per barrel after touching a low of $72.14 on Friday, while the WTI front-month contract is back near $71.60 after trading at $67.40 at the close of last week.

The rebound is likely to persist over the coming sessions, especially as bets are rising now that OPEC+ will ditch their plan to keep raising output by 400k barrels per day each month. The initial plan was already being questioned after last week’s announcements that several countries will be releasing crude from their strategic reserves. With this newest demand shock, OPEC+ has room to keep production steady to support the market, which will also give some of its members more time to revive some of their output capacity for when they will need to begin raising production once again.


Kenya: Monetary policy remains in focus at the start of the new week with the Central Bank of Kenya set to deliver its rate verdict today. Consensus expectations are for policymakers to leave the benchmark interest rate on hold at 7.00% to support the economic recovery even as inflation risks have intensified. While inflation has risen sharply this year, headline inflation pulled back from its peaks in October, decelerating to 6.45% y/y. Headline inflation remains within the central bank’s inflation target of 5% +/- 2.5ppts. That said, the Kenyan Shilling has come under some stern selling pressure in recent weeks, and as such, inflation risks have intensified. Therefore, while our base case is for the CBK to keep rates on hold, there is a risk that the central bank could tighten policy by hiking rates.   

Southern Africa: There is palatable anger across the Southern African region as a result of many countries' response to the Omicron variant of the COVID-19 virus being identified in the region. The UK started the ball rolling by banning flights and placing South Africa, Namibia, Lesotho, Botswana, Eswatini and Zimbabwe on the red list from Friday last week. This has since been expanded to include Mozambique, Zambia and Angola. The fact of the matter is that even though the variant was identified in South Africa, there is no concrete proof that it originated in the region, in fact the variant is now being discovered in countries across the globe. Analysts, economists and even officials at the World Health Organisation were taken off-guard by the heavy response by the UK and countries that followed. The action of banning travel from the region will undoubtedly hit the tourism sector hard and make it even more fragile than it is currently. Equally, there is another issue that has been raised, and this is that countries may choose not to disclose new variants found in the future given the treatment the region has received.

Nigeria: Nigeria’s infrastructure, which desperately requires upgrading, will once again be sent to the back of the line as the government pushes ahead with a new subsidy. The Minister of State for Labour and Employment, and a Senior Advocate of Nigeria, Festus Keyamo, said in an interview on Sunday that the subsidies should be removed to free up room in the budget to bolster infrastructure spending. Minister Keyamo said that between 2006 and 2018, the government has spent NGN 10trn or around $25bn on subsidies, adding that the government spent a further NGN 3trn on subsidies over the past 2 years.

Egypt: National Treasury sold EGP 12.99bn of 273-bills maturing on August 30 2022, yesterday. Demand for the bills was relatively healthy, with the investors offering to buy 1.85 times the amount of securities sold. The bills sold at a yield of 13.013% and will settle on November 30. Note that the bills were last sold on August 26, where Treasury allotted EGP 21.72bn worth of the bills with a yield of 13.125%.  

Egypt: Minister of planning and economic development Hala El-Said that investments in the tourism sector are expected to rise 64% in the fiscal year 2021/22. Specifically, El-Said sees investments rising to EGP 8.5bn in the current fiscal year, up from EGP 5.2bn in the 2020/21 fiscal year. The tourism sector is an integral part of the Egyptian economy due to its high growth rates and large sectoral contribution to its GDP growth.

South Africa: In a speech last night, President Cyril Ramaphosa said on Sunday that authorities were considering making COVID-19 shots compulsory for certain places and activities. SA is the latest African country deliberating mandatory vaccinations in a move aimed at curbing the pandemic for good. President Ramaphosa said that experts have warned that the country could soon enter the fourth wave of the pandemic. Recall that the Kenyan government recently announced that Kenyans would be required to show proof of COVID vaccination in order to receive key government services as of December 21. Health Secretary Mutahi Kagwe told a press conference that the government had resorted to the radical move to support its COVID-19 vaccination program to ensure that all Kenyans are safe from the pandemic.


Forex: Currency volatility sky-rockets as traders digest the impact of the Omicron variant

It was a wild week for currency markets last week as the discovery of a new coronavirus variant sent shock waves across financial markets. Gauges of currency volatility surged last week amid fears that the new Omicron variant could be more transmissible than other variants. It is also worth noting that liquidity conditions were thin in the latter part of last week due to the Thanksgiving holiday in the US.

The announcement of fresh lockdowns and travel restrictions roiled financial markets as recovery hopes were watered down. Traders are clearly concerned that the new variant could derail the economic recovery, despite the fact that scientists haven't said whether the Omnicron variant is more contagious or lethal than other variants.

The discovery of the new variant comes on the back of the financial market turmoil in Turkey, which had already hit triggered a sell-off in emerging market currencies. The South African Rand was one of the hardest-hit last week, with the ZAR losing 4.32% against the USD last week. 1-month implied volatility in the USD-ZAR meanwhile surged to just under 17%, levels not seen since March. While some calm has been restored at the start of the new week, given all the uncertainty relating to the Omicron variant and implementation of fresh travel restrictions, the broader bearish bias in emerging market currencies is expected to persist this week.

Fixed Income: Emerging market bonds tank as new COVID-19 variant triggers a wave of risk aversion

It was a tumultuous time for emerging market bonds last week as the possibility of a more dangerous coronavirus triggered a flight to safety amongst investors on fears of new global lockdown restrictions. This came amid fears that the Omicron coronavirus variant could be vaccine-resistant and more transmissible. A number of countries in Europe and Asia tightened travel restrictions to southern Africa, where the variant was first reported.

The flight to safety saw emerging market bonds come under severe selling pressure as investors rotated to safe-haven assets. For context, the JP Morgan EMBI Global Total Returns Index, which we use as a proxy for the broad-based performance of emerging market bonds, fell 1.56% last week to its lowest level since April. While emerging market bonds sold off sharply last week, it is worth noting that African bonds were particularly resilient last week with the AFMI Bloomberg Africa Bond Index (ex SA) closing the week marginally higher.

It has become clear this year that African bonds are far more resilient to the adverse external conditions than emerging market bonds. Since the start of the year, the African bond index has risen 2.11%, while the emerging market bond index has lost -3.05%. Going forward, with the Omicron coronavirus variant spreading across the world with new cases found in the Netherlands, Denmark and Australia, we expect the risk aversion across global markets to persist. Experts have said that understanding the level of severity of Omicron will take days to several weeks. Therefore, we are likely to see African bonds outperform emerging market bonds in the final weeks of 2021.

Macroeconomic: Lawmakers in Ghana reject the 2022 budget over a new levy on electronic money transfers

Ghana’s 2022 national budget presented to parliament by Finance Minister Ken Ofori-Atta was rejected last week after the majority of lawmakers walked out in protest over a new levy on electronic money transfers. Recall that the Finance Minister has included a 1.75% levy on digital transactions, including mobile money payments. This has become an essential part of how Ghanaians pay for goods and services using their cellphones.  

Commenting on the matter, Parliamentary speaker Alban Bagbin said, “for the first time a majority has walked out from its own business.” Note that the proceedings have been adjourned until tomorrow. According to Bloomberg, mobile-money transactions surged 82% to GHS 564bn or around $91.9bn last year. Ghanaians can also use the mobile-money platform to get loans and buy insurance without needing to open a bank account. Note that less than 60% of adult Ghanaians have a bank account.

Majority Leader Osei Kyei-Mensah Bonsu said before the walkout that the e-levy is the cornerstone of the 2022 budget. Bonsu said to parliament that the levy is required to raise the funding needed for infrastructure. The proposed levy on electronic money transfers, meant to take effect from February, aims to reduce the deficit from an estimated 12.1% of GDP in 2021 to 7.4% in 2022. The uncertainty surrounding the bill has added to fiscal concerns in Ghana. As such, Ghanaian bonds extended their losing streak last week with the 2026 Eurobond bond yield, for instance, climbing more than 90bps to 11.49%, its highest level in more than a year.