Analyzing Absa's Inflation Outlook for Sub-Saharan Africa

 I'm joined by Raidel Marker's Africa strategy, said, absent CIB. Raidel, let's begin with Nigeria, where you in the camp, that say the 100 basis points or where you out and was that overdone or undercooked? I got to see you again. So I certainly expected a policy rate hike and I anticipated 50 basis points hike. Of course, they went with 100 basis points hike, but it's really that time of the economic cycle where there's a lot of risk and uncertainties around the potential action that central banks are taking or could be taking. One of these is of course, its growth concerns. So Nigeria has already seen short-distance fuel that disrupted economic activity, the rising insecurity, diesel prices and unregulated fuel prices have increased. So on the one hand, they had the growth concerns, but now they had some serious inflationary pressures. So it was always difficult to try and predict what a central bank is going to do. And it's a typical case of a policy dilemma being face-by central bankers. And the central bank of Nigeria's NPC actually admitted to the policy dilemma that they are facing. So we are of view that inflation is rising, and it could potentially rise to above 20%. So while we do not expect another rate hike in Nigeria, as always, that likelihood that they could decide to act again, should inflation surprisingly upside. OK, talk to me about the other central banks, the goal of Mozambique Ghana. Kenya, I think. Yeah, of course, the Ghanaian central banks NPC meeting started today. We also have Kenya and Gola and Mozambique, et cetera, over the next week or so. In Mozambique, we've seen inflation also increasing. So I'm certainly a view there that after they've hike by 200-based months early in the year, that potentially another 75 basis point, maybe even 100, is very likely, especially because inflation is heading for probably close to 12% in Vietnam before it's sort of eased off towards the end of the year. Kenya has also seen a sharp rise in inflation. At this point in time, I'm very unsure that they're going to wait until after the elections. Maybe hike on September, but I think it's 50-50. There are two some growth concerns. And as I said, there's elections coming up, so they could wait potentially a deep into the year before they hike. Ghana's central bank meeting, we only know by Monday, when the policy rate is announced, what they're going to do, but I certainly feel 100 basis points days very likely, but I would not be surprised if we see a third consecutive 200-based point hike in Ghana before it is seen in March and May. And now, again, a very strong likelihood of a rate hike in Ghana. And Gola, I don't think so. I think the inflation heading south, or at least easing, is unlikely we'll see a policy rate hike. But I think we're getting to that point after we had a first half of strong inflationary pressures where we saw several central banks hiking the policy rate, that in the second half of the year, with all prices now coming off, a little bit, food prices coming off, I think central banks will start to think about posing, and maybe in high hope that we don't see as many policy rate hikes as we need in the nature. Yeah, fascinating. Do you think we're going to have anyone challenge this in Bobwarae code of hiking rates to 200%. Look, as I said, I really do think that we're entering that cycle where central banks are starting to feel very concerned about growth. Yeah. And we may not necessarily see further large substantial hikes for me on. Of course, we are waiting the IMF's media update, and they've already indicated that they may downgrade or done with the revised global growth focus, and that could also have a dampening effect on commodity prices. So I think we may have seen the worst in policy rate hike in cycle, but they may be one or two countries, economic conditions such that inflation is such that you could see still steep hikes. OK, we shall see. We shall see about that. So you look at the African-Flection Picture in far more detail than I do. So I wanted to tap your expertise and ask if Africa, in general, when you look across the whole continent, has an inflation problem, or we've got a currency witness problem that we need to address because we need to contain inflation on that front. Yeah, look, I mean, the currencies have been vulnerable since the start of the COVID pandemic. And I think with the stronger US dollar currencies are generally on the back foot, and it is a contributor in some of our markets to inflation. But I think the biggest worry so far has really been around the fuel prices and also the food insecurity across the continent. The only part also by adverse weather conditions in East Africa, for example, we've got the drought that has been probably the worst in 30 to 40 years. And in part of West Africa, we've got damage in floods again. So food production has certainly been impacted in a serious case in security. So the way I look at it is even if transport prices, or at least fuel prices come off in a second half of the year, the food security situation remains top of mind and could continue to be a problem. And of course, as you mentioned, rightly, exchange rates are also a problem. So those could continue to drive inflation, but I do think the pace of increasing inflation should start to the ease of deepening to this year on better working with the scene so far. OK, so let's extend the discussion into the growth picture you have touched on part of it. How seriously, when you look at the reaction of the central banks, are the monetary authorities looking at the growth picture and begin to say, we're beginning to get worried, but what we're seeing. So it might be necessary to check a little bit of pain on the currency, the weakness front, i.e. hold off the high king, as you have just been suggesting, and worry more about the long picture around growth and see if we can rebuild from where we are. Of course, policies do not just look at the own domestic growth picture when they make decisions. They look at the global backdrop as well. And as I said, we are waiting for the R&F's latest growth forecast numbers. And that really dictate policy to some extent going forward. But it really depends on the country by country basis. However, in general, I do think that many of our economies at a very strong start to the year, the one was quite good. But I think what I've seen is economic activity started to level off a little bit in the second quarter of the year. And driven, of course, by the high inflation, high living costs, rising policy rates, which impacted on demand, et cetera. So much more difficult conditions generally across our meetings, sorry, our countries. And we are, of course, seeing several governments actually downgrading their growth forecast. Nigeria's case, the most recent one just yesterday, didn't provide a forecast that certainly told us that they are very concerned about the growth outlook and they are already seeing evidence that growth is coming off. So I do think that that will be quite an important consideration in policies discussions over the next couple of months. Yeah. The other risk, of course, that central bank, monetary policy authorities are having to look at is the debt situation. I was reading one earlier. And I saw a couple of African countries that are entering the debt distress territory. When you look across the African picture, where are we standing? Are we seeing a deterioration here? All. We still, perhaps, in that space where we're still comfortable and we're able to pay our bills. You're not asking very easy questions today, Clothing. So what we have on that front is, I think everyone was hoping that 2022 will be a year of fiscal consolidation and where growth will start to come through as the recovery gains further momentum. And that, you know, the combination of smaller fiscal deficits and higher growth will see also that levels coming off, you know, at least that ratio is coming off. But the fiscal consolidation process has been delayed. Weaker growth suggests perhaps weaker revenues. And also because of the higher fuel prices and the need to continue to support vulnerable communities and citizens, many of our countries have actually introduced fuel subsidies or some kind of support program. And that has just pushed expenditure higher. So generally, the fiscal investigation has not been great. And there's a couple of markets that, of course, continued to see increasing in the debt ratios and also that burden in general, you know, that's everything, coinciding to increases, apparently above 80% of revenues in Nigeria, which is very, very high. So I think the focus from here on, of course, we try and contain expenditures much as possible. But it is a difficult environment and many of the markets will be looking to gradually pull those subsidies and try to find ways to improve revenues and address the high debt burdens. Yeah, one of the countries that was mentioned in terms of that just distress potential scenario was Kenya. And I was surprised by that. Is that a country that concerns you when you look at the fiscal metrics and you look at the debt situation? Yeah, well, I mean, Kenya's been one of the markets is seeing over the past couple of years, you know, a steady increase in debt and that pace of the increase in debt burden has obviously increased since the COVID pandemic started. And we now have a debt ratio of around 70% of GDP and the debt servicing causes now and nearly closing in on one third of revenues. So we are increasingly seeing concern around Kenya's debt situation. In fact, the World Bank IMF has classified Kenya as a being at the highest of debt and stress as well. But I don't think that, you know, Kenya has got a strong growth outlook. So I do think that they've got the ability to turn it around. They've also got the 2.4 billion IMF program. So the IMF provides a policy anchor as well. So I'm not too concerned. But of course, whoever comes into power after the August elections in Kenya will need to address those. We've seen some of the candidates already talking about the debt situation and I think, you know, starting to think about various ways to address those. But I believe that Kenya will do what is necessary to prevent, you know, a fluid stress issue called it in there. Yeah. And that's a risk, of course, those upcoming elections are next month. Very quickly, what about Zambia? We've seen activity around trying to solve that debt situation, but we haven't seen the hard decisions being taken. Yeah, of course, we are waiting the outcome of, I believe that there was a credit this committee, the second meeting in the past a couple of weeks. Earlier this week, we were waiting the outcome of what was decided during that meeting. The IMF, of course, is waiting for some financial assurances from this meeting or from a credit to this at least before they unlocked the IMF program, which I believe I think is around 1.4 billion dollars or around that. And, the most important thing is that we could all have this wrapped up by September, maybe the fourth quarter. And I think that would really be very positive for Zambian outlook. As, you know, for two reasons, one, that the destruction process would have gained significant momentum and progress. And two, of course, the ability to access the funds from the IMF and the IMF program and kicking in and helping with the economic recovery in that market.

For a pan-African discussion on inflation and interest rate meetings on the horizon, CNBC Africa is joined by Ridle Markus, Africa Strategist at Absa CIB.  

Absa's inflation outlook for Sub-Saharan Africa

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Absa's inflation outlook for Sub-Saharan Africa

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