Macro Analysis /

AU condemns military takeover in Guinea, Moody's leaves Ghana's rating unchanged

  • Forex: Ethiopia’s real rate moves deeper into negative territory as inflation tops 30%

  • Fixed Income: Moody’s leaves Ghana’s sovereign credit rating at B3 and maintains a negative outlook

  • Macroeconomic: Sub-Saharan Africa PMI average rises in August

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
6 September 2021
Published byETM Analytics


Global markets were fixated on the latest US jobs report on Friday. Investors' expectations going into the release were bearish on the USD, and rightfully so. The US economy added 235K jobs in August, the lowest in 7 months and well below forecasts of 733K. The latest reading compares with an upwardly revised reading of 1053k in the month prior. The initial market response was to price out the prospect of a taper this month. Investors took that as a sign that the economy would be stimulated for longer and stock markets found further support. However, there is a risk that financial markets run too far ahead of the economy. The spread of the Delta variant and various lockdowns across the globe continue exerting a restraining effect on the economy. With valuations high, stock markets will be vulnerable to a correction from current levels if the disappointing performance in the data does not prove temporary.

Following the payrolls number last week, the USD took a beating. However, it struggled to sustain the retreat and closed only marginally down from its open. This morning, those losses have been fully recovered, with the Chinese authorities reportedly buying up USDs vs the CNY to try and weaken their currency. The fact that the USD did not come under more selling pressure than it did, despite the shocking payrolls numbers, will leave investors wary that the USD retreat may have run its course for now. Coincidentally, the USD index has also run into tough support around Friday's lows to offer further downside protection.


Africa: Data from the Chinese Ministry of Commerce showed that trade between China and Africa rose 40.5% y/y in the first seven months of 2021, reaching a record high of $139.1bn. Chinese Vice-Minister of Commerce Qian Keming said that African products have enjoyed increasing recognition in the Chinese market, with imports from Africa increasing 46.3% to $59.3bn during January-July. In addition, imports of agricultural products such as rubber, cotton, and coffee doubled over the same period last year. Keming also reported that foreign direct investment in Africa rebounded. Specifically, China's industry-wide FDI IN Africa reached $2.07bn in the first seven months, exceeding pre-COVID 19 levels in 2019. Meanwhile, the contract value of newly signed projects and the volume of contract business by Chinese enterprises in Africa increased by 8.2% and 7.8%, respectively, during the January-July period.

Guinea: Special forces yesterday ousted long-serving president Alpha Conde and informed the country that they had dissolved its government and constitution and closed its land and air borders. The Army’s elite head Mamady Doumbouya said that “poverty and endemic corruption” had driven his forces to remove Conde from office.” Doumbouya, a former French legionnaire, further said, “we have dissolved government institutions……We are going to rewrite the constitution together.” Meanwhile, the United Nations has condemned any takeover by force, and the West African region’s economic bloc has threatened reprisals. The United Nations further demanded the immediate release of President Conde. A statement by AU chairman and Democratic Republic of Congo President Felix Tshisekedi and AU Commission head Moussa Faki Mahamat called on the body’s Peace and Security Council to meet urgently to examine the situation and take appropriate measures.

Democratic Republic of Congo: DRC's Environment Minister has said that the country will seek compensation from the owners of an Angolan diamond mine after a tailings dam leak polluted drinking water, causing 12 deaths and making thousands of people ill. The late-July leak from Angola's biggest diamond mine turned a tributary of the Congo River red following a rupture in a spillway for the mine's tailings dam, which stores mining industry waste meant to stay undisturbed. According to minster Bazaiba, Angola will seek compensation in line with the "polluter pays" principle, where those who produce pollution should bear the cost of mitigating it. The minister, however, stopped short of saying how much in damages the country would seek.

Kenya: Kenya's attorney general has reportedly appealed against a judgment last month that halted the process of potentially changing the nation's constitution ahead of next year's general election. The appeal at the Supreme Court challenges eight findings by a seven-judge bench, which faulted the president's role in calling for constitutional changes. The case is about proposals backed by President Uhuru Kenyatta and opposition leader Raila Odinga to amend the constitution to expand the executive in what they said would help end ethnic violence during elections. The AG disagrees with the Appeals court ruling and wants it reviewed.

Tanzania: In the latest crackdown on a group pushing for constitutional reform in Tanzania, police arrested several members of the country's main opposition Chadema party over the weekend. The actions follow from the detention of Chadema leader Freeman Mbowe on terrorism charges that his party has suggested is a bid by President Hassan's government to muzzle the opposition. Note Mbowe has been behind bars since July 21 and is due to appear at the High Court again on Monday, although his trial has been held up by legal wrangling, with his defence team most recently challenging the legality of the charge sheet.

Botswana: The local debt capital markets will be keeping a close eye on how the government uses the additional allocation of reserves from the International Monetary Fund in the form of just over BWP 3bn in Special Drawing Rights. These Special Drawing Rights are an international reserve asset created by the IMF which supplement the official reserve assets of a country. Reserve assets are traditionally made up of gold, US Treasuries or other hard currencies. The IMF granted these additional SDRs on the 23rd August 2021. The SDRs can be converted into hard currency, however, Botswana will need to have an agreement another SDR holding country to provide the usable hard currency. While the SDR’s themselves are not treated as loans by the government, when they are converted, they attract interest charges from the IMF which currently sit at around 0.05%, but have been as high as 1.2% in 2019. The interesting part for the capital markets is that these SDR’s are a much cheaper source of funding for the government. Thus, these SDRs give the government further runway in terms of funding before they need to approach the debt capital markets, so the creation of a fully functioning secondary market may be pushed a bit further out.

Forex: Ethiopia’s real rate moves deeper into negative territory as inflation tops 30%

Ethiopia has made its way back into the spotlight as its real rate falls deeper into negative territory, further weighing on the outlook for the currency. Headline inflation in Ethiopia accelerated further in August, coming in at 30.4% from 26.4% in the month prior. This was the fastest pace of price growth since December 2012.  On m/m basis, inflation rose by 3.6% in August. A breakdown of the data from the Central Statistical Agency of Ethiopia showed that annual food inflation climbed to 37.6%  from 32% in July, while non-food inflation was 20.8% in August vs 19%. 

With food price inflation a major contributor to the headline inflation reading, State Minister for Finance Eyob Tekalign told reporters that Ethiopia has dropped taxes and duty on imported and locally produced wheat, sugar, oil, and rice with immediate effect in a bid to beat back soaring food prices. Meanwhile, Ethiopia’s central bank vice-governor Fikadu Digafe noted that the bank expects a raft of new measures to curb illegal foreign exchange trading and reduce local-currency supply to gradually bring down the inflation rate. Note that the central bank, at the start of the month, doubled the statutory reserve requirement for commercial lenders to 10% and increased the amount of foreign currency they must remit to the central bank in an effort to rein in inflation. It also issued a “due diligence directive” that seeks to indirectly curb inflation by preventing individuals from opening multiple bank accounts and conducting illegal transactions.

The continued rise in inflation, leading to a deeper negative real rate, has further weighed on the ETB from a currency perspective. For context, Ethiopia’s real interest rate (Policy – CPI) now sits at -23.4% and one of the lowest in the world. On a year-to-date basis, the ETB is down 15.25% against the USD. Therefore, risks to the ETB remain significant in the near term amid a persisting deeply negative real rate, security challenges, and a fragile fiscal position.

Fixed Income: Moody’s leaves Ghana’s sovereign credit rating at B3 and maintains a negative outlook

Focus in the fixed income market on Friday was centred on the announcement of two key Africa sovereign credit ratings, namely Kenya and Ghana. S&P refrained from publishing a sovereign credit rating update for Kenya. Moody’s did however publish an updated credit rating for Ghana. Moodyʼs affirmed Ghana’s B3 long-term issuer ratings while also leaving the west African nation’s outlook at negative. Moody’s said in its statement published on Friday evening that the B3 rating and negative outlook reflect Ghanaʼs high debt burden that is unlikely to fall rapidly, continued weak debt affordability, high gross borrowing requirements and ongoing liquidity challenges in the face of downside economic, social and financial risks in the aftermath of the coronavirus pandemic.

On a more positive note, Moody’s said that the rating affirmation also considers improving growth prospects, resilient external sector performance, and Ghanaʼs continued access to domestic and international capital markets, supported by the governmentʼs structural economic reform agenda improve export competitiveness and broaden the revenue base.

Looking ahead, Moody’s said given Ghana’s negative outlook, a sovereign credit rating upgrade is unlikely in the near term. The agency said that the outlook could be returned to neutral were Moody's to conclude that the fiscal consolidation plan would rein in Ghana’s soaring debt pile and eventually lead to a markedly downward trajectory over time. Moreover, Moody’s said an effective domestic revenue mobilisation plan that bolsters debt affordability, creating more fiscal manoeuvrability for the government, and lowers government liquidity risks would likely lead to a higher rating. Ghana could face further negative rating action if liquidity pressures over a prolonged period were likely to create significant fiscal challenges. Moreover, increasing evidence that Ghana will be unlikely to be able to raise revenue and contain expenditure resulting from slow fiscal consolidation, evidenced by a rise in its fiscal deficit and debt, would also likely lead to a downgrade.

Macroeconomic: Sub-Saharan Africa PMI average rises in August

The Sub-Saharan Africa regional PMI average, which we use as a high-frequency proxy for economic conditions in the region, rose from 48.6 in July to 50.0 in August. Recall that 50 is the neutral level separating contractionary territory and expansionary territory. Note that the gauge had been anchored in contractionary territory for two straight months on the back of a resurgence in COVID-19 infections as well as some idiosyncratic challenges, including the deadly riots in South Africa, political uncertainty in Zambia and tightening of restrictions in Uganda.

The rise in the SSA PMI average reading was primarily driven by sharp increases in Uganda’s and South Africa’s headline PMI scores. Specifically, Uganda’s economy-wide PMI reading jumped 15.6 points from the previous month in August to a 3-month high of 50.2. Uganda’s PMI reading suggests that activity in the private sector returned to growth territory as lockdown measures were eased. Markit said in its report that both business activity and new orders returned to growth in August following the easing of some of the virus containment measures. Construction was the only sector to remain in contraction territory, with growth recorded elsewhere. Looking ahead, the easing of restrictions led to respondents becoming more optimistic about the 12-month outlook for the economy.

While still anchored below the neutral mark, South Africa's PMI score rose from 46.1 in July to 49.9 in August. Survey results show that the headline reading was broadly in line with the 50-point neutral mark, owing to much softer falls in output, new orders, and inventories, as well as a renewed increase in employment. While conditions appear to be stabilising in the private sector, the adverse impact of the looting and protests is likely to continue to be felt in the months ahead. Given the plethora of headwinds, including subdued business and consumer confidence, record-high unemployment, weak fiscal dynamics, and the absence of reforms, the private sector economy is, therefore, unlikely to record a meaningful and sustained recovery.

The most notable decline meanwhile was in Mozambique. Mozambique's private sector economy fell back into decline in August, as COVID-19 restrictions were tightened in response to a rise in cases. Specifically, Mozambique’s headline PMI score plunged to a 7-month low of 47.9 in August from a multi-year high of 51.8 in July. Note that a reading above 50.0 signals an improvement in business conditions, while a reading below 50.0 shows a deterioration. Details from the Markit report showed that output, new orders and purchasing all fell at the quickest rates since January, while employment levels rose at a much softer in August. On a positive note, notwithstanding the sharp decline in growth momentum in the private sector last month, firms remained confident that output will rise in the next 12 months amid optimism surrounding the vaccine rollout. On balance, the sharp drop in the PMI gauge suggests that economic activity in the third quarter of 2021 may have contracted. Recall that Q2 growth was relatively robust on the back of a solid rebound in the mining and agriculture sectors.

Zambia's PMI ticked higher in August, coming in at a 4-month high of 49.8 in August from 49.4 in the month prior. Survey results show that were signs of encouragement for the Zambian private sector in August. Specifically, new orders returned to growth while firms expanded their workforce numbers for the third month running. Although output decreased, anecdotal evidence suggested that this was largely due to a pause in activity during the election period. Meanwhile, there were signs of waning inflationary pressures, with both input costs and selling prices rising at the slowest rates since Q1 2021. Confidence in the year-ahead outlook for business activity strengthened but remained much weaker than the series average. While the PMI index remains below the 50-point neutral market, suggesting private sector conditions remain difficult, the recent appreciation of the Kwacha and easing of inflationary pressures are seen as potentially improving conditions in the coming months.