Macro Analysis /

Fitch upgrades Mozambique, Nigeria's Q2 GDP surpasses expectations

  • Forex: Loan inflows to provide support for the weakening Ghanaian cedi

  • Fixed Income: Fitch upgrades Mozambique’s credit rating as LNG boom bolsters the country’s fiscal outlook

  • Macroeconomic: Have global food prices really reached peaked?

Kieran Siney
Kieran Siney

Head of African Markets

Takudzwa Ndawona
Takudzwa Ndawona

Financial Markets Analyst

ETM Analytics
29 August 2022
Published byETM Analytics


This weekend's Jackson Hole symposium always held the potential to drive a strong market reaction, and it did not disappoint as Fed Chairman Powell came out with a strong message to investors that the Fed would not back down in its inflation fight. In warning Americans that they need to brace for a difficult economic climate, the Fed raised its commitment to continue hiking until inflation is brought back under control. It will hold significant consequences for economies worldwide and impact valuations on equity markets, as was evident on Friday. The trade-weighted USD proceeded to surge to a 20-yr high, and most currencies have come under considerable pressure. Risk appetite has fallen away, higher beta currencies may respond today with greater force, and some rotation to safety is now likely. The EUR collapsed towards the 0.9900 handle, while the GBP has pulled back to just 1.1650 at writing.

US Treasury futures are under pressure this morning with yields skyrocketing as last week’s Jackon Hole central bank event supported the view that further rate hikes are coming despite what we are seeing in terms of slowing economic growth momentum. The 2yr UST yield has surged to its highest since 2007 this morning and is nearing 3.500%, while the benchmark 10yr yield is back above 3.100%. The market was braced for a hawkish Powell, but he exceeded expectations, and thus, we should see bond markets remain under pressure over the near term. These higher yields will also continue to translate into weakness and volatility for risk assets, with the dollar to remain supported.

This early trade direction suggests that yields are set to soar in European trading, with the bund and gilt curves likely to experience some flattening pressure at the get-go this week. The UK yield curve, therefore, will invert further while the German curve will continue to see spreads narrow.


Africa: Over the weekend, Japanese Prime Minister Fumio Kishida said that the country will provide $30bn for developing countries on the African continent. According to Kishida, "Japan pays great attention to such areas as investment in human resources, and quality of growth; therefore, the government and business will jointly invest in Africa a total of $30bn over three years. According to Kishida, $4bn will be spent on the development of green technologies, $5bn will be spent on promoting reforms to improve the debt of African countries, as well as on investments in support of start-ups, on training 300k specialists in the field of industry, healthcare, education, agriculture over three years. A $300mn loan will be allocated to strengthening the food production system.

IMF: The International Monetary Fund has warned that more countries are likely to seek debt relief as a stronger dollar makes repayments tougher, and the program that rich nations have to help poorer ones needs to be faster and broader. According to First Deputy Managing Director Gita Gopinath, "we will likely see more countries needing debt relief. Depreciation of emerging-market currencies relative to the dollar has inflationary consequences. That's making monetary policy for them much more challenging at this time, and there are countries that have borrowed in dollars, this makes it difficult for them to repay." The worsening debt burden comes after the expiration in December of the so-called Common Framework adopted by the G-20 to suspend or revamp debt repayments by low-income countries during the coronavirus pandemic. According to Gopinath, "a lot more speedy action is needed, and the framework's scope has to be expanded to middle-income countries."

Nigeria: In an attempt to avert a crisis in the aviation sector amid warnings of flight suspensions from operators, including Dubai's Emirates Airline, Nigeria released some funds owed to international air carriers. The Central Bank of Nigeria said it released $265mn to settle ticket sales owed to operators on Friday. Last month, the International Air Transport Association (IATA) said that Nigeria owes carriers $464mn. IATA has previously warned that Nigeria's failure to repatriate airline revenues will hurt connectivity. Last month, Emirates airlines said it would suspend flights to Nigeria from September, while British Airways reportedly stopped travel agents in Nigeria from selling its tickets over the weekend. 

Nigeria: Nigeria recorded a growth rate of 3.5% y/y in the three months to June from 3.1% y/y in Q1, surpassing consensus expectations of a slowdown to 2.9% y/y. The Q2 GDP reading marked the seventh consecutive quarterly expansion and was underpinned by growth in the non-oil sector. Meanwhile, the oil sector detracted from the overall GDP reading as it shrunk by 12%. Oil production declined to 1.43mn barrels per day in the second quarter, compared with 1.49mn barrels in the previous three-month period. Nigeria has been unable to meet its OPEC+ quota this year, partly because of crude theft. Compared to the corresponding period of 2021, GDP growth, however, slowed from 5.01% y/y, suggesting that the economy has to some degree, been weighed down by the high inflationary trend.

Uganda: The Finance Ministry has reported that four Chinese firms were among seven companies cleared to express an interest in developing Uganda's idled Kilembe copper mines. The cleared companies are China Railway No. 10, Gingko Energy, Sinomine Power China, and Liaoning Hongda, trading as Wagagai Mines, which is developing Uganda's biggest gold discovery. As part of President Museveni's ambitions to expand the exploitation of the country's mineral wealth, which includes gold, base metals, uranium, rare earths, iron, titanium, vermiculite, and diamonds, to help boost growth, Uganda is seeking to restart the vast copper mine in the country's west that also holds significant cobalt deposits. According to the Mining and Finance Minister, "the redevelopment of Kilembe Mines will catalyze industrialization, offer significant employment opportunities, and increase revenue.

Kenya: S&P affirmed Kenya’s ‘B/B’ long- and short-term foreign and local currency sovereign credit ratings with a stable outlook. According to S&P, the stable outlook balances expectations of relatively strong economic growth and modest fiscal consolidation against the pressure of a more difficult global financing outlook. The stable outlook also assumes that the post-election handover will go relatively smoothly, without significant conflict or dislocation of institutional settings. The ratings could be upgraded if there is a significant and sustained improvement in Kenya’s fiscal and external accounts against a backdrop of strong growth while institutional mechanisms remain robust. Conversely, the ratings could be downgraded over the next year if institutional risks rise, Kenya’s economic growth prospects weaken, or access to foreign funding is curtailed, resulting in a sustained decrease in foreign currency.

Forex: Loan inflows to provide support for the weakening Ghanaian cedi

While the Ghanaian cedi remains under significant selling pressure, there should be some reprieve for the currency this week. USD inflows from a $750mn loan signed by the government with the African Export-Import Bank are set to shore up Ghana's foreign exchange reserves and begin to stabilize the cedi, according to the Minister of State at the Ministry of Finance. The official added that "the Afrexim facility should be here by Monday at the latest, and that should begin the first step toward making sure that stabilization occurs."

The comments from the Minister come on the back of a recent announcement by the Bank of Ghana that it would start buying dollars from mining and oil companies to support the cedi. The inflows are expected to help support the cedi, Africa's worst-performing currency against the USD this year. The cedi has lost over 60% since the start of the year due to Ghana's deteriorating macroeconomic outlook and dollar shortages amid declining foreign exchange reserves. Ghana is facing a shortage of dollars after losing market access to the international debt market. Since then, the BoG has been looking for ways to boost its foreign-exchange holdings, which have fallen by more than 20% since the start of the year to $7.7bn in June.

While the inflows may help ease some pressure on the cedi, it is worth highlighting that the market remains unconvinced and is pricing in for further weakness when looking at the non-deliverable forwards market. For context, the 12-month tenor is pricing for depreciation of almost 28%. That said, the 3m and 6m NDF outrights have pulled back considerably. As mentioned in previous commentary, the currency's biggest detractor comes from the fiscal side. Against this backdrop, securing a programme with the International Monetary Fund as soon as possible remains key to restoring stability in the cedi.

Fixed Income: Fitch upgrades Mozambique’s credit rating as LNG boom bolsters the country’s fiscal outlook

While many countries around the world are being hit hard by the energy crisis, the LNG price boom has resulted in a significantly improved macroeconomic and fiscal outlook for Mozambique. The energy crisis in Europe has sparked increased interest in Mozambique’s LNG sector and has accelerated efforts to get the LNG platforms online as soon as possible. The increased investor interest, improved economic outlook and expectations for a marked jump in foreign currency inflows have put the country on an improved fiscal path.

Mozambique’s sovereign credit rating upgrade by Fitch on Friday evening underpins the notion that the fiscal and macroeconomic outlook has improved. Specifically, Fitch upgraded Mozambique's Long-Term Foreign-Currency Issuer Default Rating (IDR) to CCC+ from CCC. The global ratings agency said in its rating update that it expects Mozambique's government debt to decline to 102.7% of GDP in 2022, from 110.9% in 2021, mainly driven by high nominal GDP growth, and to 97.7% of GDP in 2023. Fitch said it expects Mozambique’s GDP growth to accelerate to 7.7% in 2024 and remain high through 2026.

Fitch said that Mozambique's financing constraints had eased substantially with the agreement of a 3-year $456mn Extended Credit Facility with the IMF, with $91mn to be disbursed in 2022. The agency added that the IMF program is expected to unlock additional concessional funding from multilateral partners, including the World Bank, after years of restricted access to external funding sources following the "hidden debts" scandal of 2016. Going forward, Fitch said that a substantial decline in the public debt/GDP ratio and greater confidence in medium-term growth prospects, through the timely coming on stream of the LNG megaprojects, could result in more positive rating action. Conversely,  negative rating action could arise from the increased likelihood of a default or a restructuring of sovereign market instruments and a sustained deterioration in fiscal constraints.

Macroeconomic: Have global food prices really reached peaked?

The European Union has again lowered its projection for usable maize production to 59.3mn tonnes from 65.8mn a month ago. This is over and above the 8% reduction previously anticipated. Drought conditions throughout Europe have negatively impacted crop yields and compounded food price inflation risks. The drought comes over and above the reduction in yield from Ukraine, the higher fuel and energy costs and the removal of monetary support. There is little monetary policy can do about this, but try to contain second-round effects.

Meanwhile, after the announcement of how severely the corn crops in the western corn belt have been affected by the drought, all eyes have turned to Iowa and the US harvest. Yields in Iowa have been “underwhelming,” “disappointing,” according to the recent US crop tour that took place last week. Suppose Iowa does not have a bumper harvest, it is unlikely that the acres from the eastern half of the crop belt will be able to make up for the losses recorded earlier this week in the west.

Therefore, there is a possibility of a production deficit in terms of corn from the US and wheat from the EU. With Ukraine's grain exports still well below pre-war levels, the news of reduced yields from two of the biggest markets due to adverse weather could increase supply pressures. While we have seen a decrease in the United Nation’s FAO World Food Price Index, which suggests that food prices may have reached their peak, there are concerns that this may not be the case which could result in more global food inflation.