Macro Analysis /

Egyptian bonds look set for another solid performance in 2022

  • Forex: Ethiopian Birr under the cosh as a bearish bias persists at the start of 2022

  • Fixed Income: Egypt’s bond market remains an attractive bet for investors

  • Macroeconomic: World Bank downwardly revises its 2022 growth forecast on renewed Covid concerns

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
12 January 2022
Published byETM Analytics


The base metals outlook continues to be supported by supply chain issues that are compounding on one another. Various LATAM sources of key base metals have reported lower output in recent data, while geopolitics in Europe and the threat of economic shutdown in China are also of significant concern. Recall that much of Europe’s industrial activity is conducted in Eastern Europe. The Olympics in Beijing could also add to the lower supply outlook for some time still, while the recent hike in Chinese power prices to industrial consumers disincentivize maximum capacity. Copper, aluminum, iron ore, nickel, steel, and coal are all higher on the session. The Bloomberg industrial metals subindex, which tracks key base metals prices, has risen to two and a half month highs against this backdrop, up nearly 3% month-to-date. The reaction to omicron in China and geopolitics seem likely to be the major changing drivers in the short term.


Africa: Data from the International Coffee Organisation (ICO) showed that Africa’s coffee exports decreased by 1.8% to 2.05mn bags in October-November 2021 compared with 2.09mn bags in the same period in 2020. According to the ICO, the decline in coffee sold by Kenya and Cote d’Ivoire to the international market were the two main drivers of the fall in the amount of crop African producers sell. Declines by Kenya (-49.7%) and Cote d’Ivoire (-34.1%) outweighed the 17.8% increase by Tanzania, which exported 1.01mn bags in the first two months of the current coffee year compared with 0.86mn bags shipped over the same period in 2020. A fall in coffee export earnings in Kenya has compounded dollar liquidity challenges and contributed to notable Kenyan Shilling weakness.

Ghana: Ghana is set to borrow GHS 3.78bn in the first three months of 2022 to finance part of its budget, according to the issuance calendar. In Q1, the government plans to issue a gross amount of GHS 24.5bn, of which GHS 20.7bn is to roll over maturities. Most of the funds to be mobilized will come from the 91-day Treasury bills, a move that has helped reduce foreign debt but rather crowded out the private sector from access to financing on the domestic market.

Morocco: World bank data showed that Morocco’s external debt increased from $55.058bn in 2019 to $65.683bn in 2020, marking a 19% y/y increase. Driven by sovereign Eurobond issues, Morocco’s external debt in 2020 reached an all-time high of 53.5% of GDP. According to the World Bank, despite rising external debt, Morocco’s debt obligations remain manageable due to a robust foreign direct investment inflow (FDI). The country’s FDI inflows increase by 9% in 2022 to $1.5bn. The World Bank also noted that Morocco’s stable FDI inflow coupled with the established presence of multinational companies in the automotive, textile, and aerospace industries mitigated the economic fallout of Covid-19.

Oil producers: Oil prices have rallied following yesterday’s remarks by Fed Chairman Powell, tracking equity markets higher and supported by a weaker USD as the rate hike cycle for the Fed is now largely priced in. The front-month Brent contract is currently trading above $83.50 per barrel, while WTI has breached the $81 per barrel level as a result. The API data released yesterday, meanwhile, showed that US crude inventories declined by just over 1mn barrels. This was below the 1.95mn that analysts had pegged, but still points to a tightening market. Traders will be looking to the official government data out today to confirm the drawdown, which will continue to keep prices propped up.

South Africa: Manufacturing production continued to recover through November. Specifically, manufacturing output growth fell narrowly short of returning to expansionary territory, coming in at -0.7% y/y in November compared with a downwardly revised decline of 8.5% y/y in October. The latest reading beat consensus expectations of less pronounced improvement to -3.6% y/y. It also marks the return of pre-pandemic production levels. As encouraging as the latest data is, the sector has numerous challenges still to overcome. The sector is grappling with a shortage of material across the various industries and high costs, which are severely hurting manufacturers and keeping production well below its capacity. Additional headwinds towards the manufacturing sector include SA’s lingering structural challenges that include unstable power supply, limited scale of structural reforms and high unemployment levels. As a result, the recovery of manufacturing output could stall in the near term, potentially detracting from a faster pace of economic recovery in the months ahead.

Forex: Ethiopian Birr under the cosh as a bearish bias persists at the start of 2022

The notable selling pressure experienced by the Ethiopian Birr in 2021 has shown no signs of abating at the start of 2022. Recall the ETB was Africa’s worst-performing currency against the USD in 2021, among those tracked by Bloomberg. The ETB lost almost 22.0% and surpassed 2020’s losses in 2021. The ETB was weighed down by factors such as a deeply negative real rate, heightened fiscal risks, geopolitical uncertainty, risks of US sanctions, several rating downgrades, and civil war. Civil war has been raging in Ethiopia for the past 14 months, pitting Prime Minister Abiy Ahmed’s federal forces against dissident troops loyal to the Tigrayan People’s Liberation Front. The conflict has swung in Abiy’s favor in recent weeks, with the Tigrayans retreating to within their home province from the neighbouring Amhara and Afar regions. Scores of people have been killed in Airstrikes in Northern Ethiopia since October.

At the start of the new year, the bearish bias has persisted with the ETB among the laggards in the Africa FX complex tracked by Bloomberg. For context, the ETB is down by -0.26% on a month-to-date basis and is ranked as the sixth worst-performing currency. Amongst East African currencies, the ETB is ranked second from last, with only the Rwandan Franc faring worse. Yesterday, the ETB traded at a record low north of the 49.50 mark as sentiment soured in Ethiopia amid ongoing hostilities, including the latest airstrikes.

Given that the challenges mentioned above continue to persist at the start of 2022, the outlook for the ETB remains decidedly bearish in the near-term. Risks, therefore, exist that the ETB could continue to reach fresh lows in the coming sessions.

Fixed Income: Egypt’s bond market remains an attractive bet for investors

Following a world-beating performance in 2021, Egypt remains an attractive investment destination for international investors, given the high real yields on offer. Egypt’s bond market is expected to receive an influx of capital this year from passive fund managers, with JP Morgan set to add Egypt, which has around $26bn of eligible government bonds, to its bond indexes this month.

While global bonds have come under a fresh bout of pressure following the hawkish shift from the Federal Reserve, Egypt remains an attractive play for investors, given that investors can still extract a significant amount of Alpha from Egyptian bonds. According to Bloomberg data, local currency Egyptian bonds have returned 1.7% since December, making it one of only a handful of emerging markets that’s delivered a positive return.

While the global dollar liquidity tide has turned following the U-turn from major central banks, Egyptian bonds are expected to offer investors another solid return in 2022. Recall that Egyptian bonds returned 13% last year, the second-best performance in the world and well above the emerging market average of -1.2%. The view that Egyptian bonds will fare well this year is underpinned by the fact that the disinflation process in Egypt remains intact, while the Egyptian Pound is expected to remain particularly resilient in the year ahead.

Macroeconomic: World Bank downwardly revises its 2022 growth forecast on renewed Covid concerns  

Growth dynamics are back in focus as the combination of a new wave of Covid-19 outbreaks, diminished policy support, and ongoing supply chain issues continue to weigh on the global economic outlook. Against this backdrop, the World Health Bank cut its 2022 global growth forecast to 4.1% from 4.3% previously.

In an interview following the release of the World Bank’s semi-annual Global Economic Prospects report on Tuesday, chief economist of the Prospects Group at the institution Ayhan Khan said, “there is there a serious slowdown underway.” Khan added that the global economy “is basically on two different flight paths: Advanced economies are flying high; emerging-market, developing economies are somewhat flying low and lagging behind.”

Meanwhile, World Bank Group President David Malpass said that the global outlook is clouded by exceptional uncertainty. According to the World Bank, downside risks include renewed Covid-19 outbreaks, the possibility of de-anchored inflation expectations, and financial stress in context of record-high debt levels. The international lender said that the pace of recovery for emerging nations has been further damped by waning policy support and a tightening of financing conditions.