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Nigeria’s economy faces a double threat from the coronavirus pandemic and lower oil prices. With almost 3000 confirmed Covid-19 cases in Nigeria, Taiwo Oyedele, Partner and West Africa Tax Leader at PwC Nigeria joins CNBC Africa to explore how Nigeria can cope with the strain on the revenue targets.

COVID-19: What are Nigeria’s revenue options?

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The International Energy Agency says the global oil demand declined by 5 per cent in the first quarter of the year. The IEA also says it expects global oil demand to drop by 9 per cent or 9 million barrels per day on average across this year. Uchenna Minnis, Managing Partner at BluFX joins CNBC Africa to discuss this and more.

IEA: Oil demand down 5% in Q1

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Moody’s says Nigerian banks’ exposure to the oil and gas industry is substantial, at around 27 percent of total loans as at the end of 2019. Moody’s also stressed that the quality of banks&#8217; oil and gas loan portfolios will further deteriorate as a majority of these loans were extended to the upstream and service segments, where borrowers are more sensitive to oil price movements than downstream. Bongo Adi, Senior Lecturer at the Lagos Business School joins CNBC Africa to discuss the impact of the lower oil prices on Nigeria’s oil industry and the banking sector.

COVID-19: How exposed are Nigerian banks to the oil sector?

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As markets prepare for the first phase of the historic supply cut by oil producer club OPEC and its allies this Friday.

COVID-19: How the global oil cuts deal impacts Nigeria

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With news on the markets being dominated by the fall of oil prices, we take a look at what kind of impact this will have on East Africa&#8217;s biggest economy, Kenya. George Bodo, Director at Callstreet Research and Analytics Ltd joins CNBC Africa for more.

COVID-19: How the oil price crash impacts Kenya’s economy

Report by Tanvir Gill



Key Points:



<ul><li>While a plunge in U.S. crude oil prices this week reverberated across global financial markets and fueled renewed worries over the beleaguered shale oil industry, billionaire investor Howard Marks told CNBC that the price action “is completely rational.”</li></ul>



<ul><li>Marks said the weakness in prices was steeped in fundamentals as energy demand has cratered due to the coronavirus pandemic and buyers are struggling to stockpile crude.</li></ul>



<ul><li>“Right now storage is scarce and thus expensive, so it’s not worth it to buy oil today and store it. The cost of storing exceeds the value today; thus the price is negative,” Marks said.</li></ul>



A <a href="https://www.cnbcafrica.com/east-africa/2020/04/21/covid-19-what-the-oil-price-crash-means-for-african-economies/">plunge in U.S. crude oil prices</a> this week reverberated across global financial markets and fueled renewed worries over the beleaguered shale oil industry. Yet billionaire investor Howard Marks isn’t panicking.



Marks, who co-founded Oaktree Capital Management, told CNBC in an email interview that the <a href="https://www.cnbcafrica.com/videos/2020/04/21/how-the-oil-market-fall-impacts-angolas-economy/">weakness in crude oil prices</a> was steeped in fundamentals as energy demand has cratered due to the <a href="https://www.cnbcafrica.com/videos/2020/04/16/covid-19-pandemic-presents-an-opportunity-for-african-health-innovations-heres-why/">coronavirus pandemic</a> and buyers are scrambling to stockpile crude oil due to <a href="https://www.cnbcafrica.com/videos/2020/04/21/covid-19-global-oil-markets-collapse-due-to-oversupply/">storage space</a> becoming scarce.



“It’s not a panic. The move is completely rational,” Marks told CNBC in an emailed statement.



 “The ultimate complication is that storing oil costs money, and storage facilities aren’t unlimited.  Right now storage is scarce and thus expensive, so it’s not worth it to buy oil today and store it.  The cost of storing exceeds the value today; thus the <a href="https://www.cnbcafrica.com/videos/2020/04/21/behind-the-oil-price-collapse/">price is negative</a>,” Marks said.



The comments from Marks come after West Texas Intermediate crude for May delivery fell more than 100% to settle at negative $37.63 per barrel on Monday, which meant that traders were effectively having to pay to get oil taken off their hands. That marked the first time that the price of an oil futures contract had turned negative.



The May WTI contract, which expired on Tuesday, settled at $10.01 a barrel. Futures contracts trade by the month.&nbsp;



The June contract is currently trading around $11 per barrel. Meanwhile, international benchmark Brent crude stood at $17.01, nearly 12% lower.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1110" height="624" src="https://www.cnbcafrica.com/wp-content/uploads/2020/04/106469315-15857116313ED1-ASB-HowardMarks-033120-1110x624.jpg" alt="" class="wp-image-368766" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2020/04/106469315-15857116313ED1-ASB-HowardMarks-033120-1110x624.jpg 1110w, https://cms.cnbcafrica.com/wp-content/uploads/2020/04/106469315-15857116313ED1-ASB-HowardMarks-033120-300x169.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2020/04/106469315-15857116313ED1-ASB-HowardMarks-033120-768x432.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2020/04/106469315-15857116313ED1-ASB-HowardMarks-033120-1536x864.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2020/04/106469315-15857116313ED1-ASB-HowardMarks-033120-696x391.jpg 696w, https://cms.cnbcafrica.com/wp-content/uploads/2020/04/106469315-15857116313ED1-ASB-HowardMarks-033120-1068x601.jpg 1068w, https://cms.cnbcafrica.com/wp-content/uploads/2020/04/106469315-15857116313ED1-ASB-HowardMarks-033120.jpg 1910w" sizes="(max-width: 1110px) 100vw, 1110px" /></figure>



The <a href="https://www.cnbcafrica.com/news/2020/04/15/poor-wealth-forecasts-for-south-africa-due-to-covid-19-sa-wealth-report/">coronavirus pandemic</a> has dealt a severe blow to economic activity around the globe and sapped demand for oil. While OPEC and its oil-producing allies finalized a historic agreement earlier this month to cut production by 9.7 million barrels per day beginning May 1, experts reckon that the reduction in supply won’t be enough to offset the diminution in demand.



The International Energy Agency, for instance, warned in its closely-watched monthly report, that demand in April could be 29 million barrels per day lower than a year ago, hitting a level last seen in 1995.



“Oil production can’t just be turned off, because for production some wells depend on pressure that a shut-off complicates. So, oil is coming out of the ground that exceeds the amount needed for consumption,” Marks said.



The gloominess in the oil market has also put the spotlight on US shale oil producers that are grappling with feeble demand on one hand and a lack of storage on the other, a conundrum that is making desperate oil companies “pay” traders for taking oil off them.



&nbsp;However, there are potential signs of relief. Some far-dated contracts this year are showing average oil prices of $20 a barrel and above while contracts expiring in 2021 are reflecting a modest bounce in demand taking prices to near $30 per barrel. Marks spotted a semblance of rationality in those prices.



&nbsp;“Oil can be bought for delivery by month. The negative price for oil reflects the excess of supply over demand, plus the cost of storage.&nbsp; The price for oil in future months (when consumption may have rebounded) is at more normal levels,” he said.



— CNBC’s Sam Meredith, Pippa Stevens and Eustance Huang contributed to this report.



This article was first published on CNBC <a href="https://www.cnbc.com/2020/04/22/billionaire-investor-howard-marks-calls-oil-crash-completely-rational.html">https://www.cnbc.com/2020/04/22/billionaire-investor-howard-marks-calls-oil-crash-completely-rational.html</a> and is republished with its permission.



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

A second wave of COVID-19 will have ‘major consequences’ for the oil market, IEA warns

Billionaire Howard Marks calls the global oil crash ‘completely rational’

By Vuyani Ndaba



JOHANNESBURG (Reuters) &#8211; South Africa’s <a href="https://www.cnbcafrica.com/news/2020/04/15/poor-wealth-forecasts-for-south-africa-due-to-covid-19-sa-wealth-report/">economy will contract sharply this year</a> as activity is hit by the coronavirus outbreak, despite expectations the <a href="https://www.cnbcafrica.com/videos/2020/04/20/why-sarb-should-step-in-to-save-sa-companies-that-are-too-big-to-fail/">central bank</a> will cut interest rates again in May, a Reuters poll found on Monday.



The country is <a href="https://www.cnbcafrica.com/videos/2020/04/20/covid-19-martin-kingston-on-how-to-flatten-sas-recession-curve/">already in recession</a>, with the economy expected to have contracted 1.9% last quarter and to shrink an unprecedented 23% this quarter, the poll showed.



<a href="https://www.cnbcafrica.com/videos/2020/04/14/sarb-cuts-rates-by-100-basis-points-to-record-low/">Another rate cut from the central bank</a> &#8211; which cut 100 basis points from borrowing costs on March 19 and then again on April 14 &#8211; is expected to help the finance ministry, which has already ramped up borrowing.



Economists now expect the economy to shrink 4.9% this year before recovering with 2.0% growth next year. Last month’s survey had suggested 0.3% and 1.2% expansions, respectively.



The forecasts showed huge levels of uncertainty due to a <a href="https://www.cnbcafrica.com/coronavirus/2020/04/09/sa-extends-lockdown-by-two-weeks-until-end-april/">country-wide lockdown</a>. Even the most optimistic <a href="https://www.cnbcafrica.com/videos/2020/04/20/african-billionaire-christo-wiese-on-covid-19-crisis-and-its-impact-on-sas-economy/">economist forecast</a> a contraction of 1.0%, while the most pessimistic predicted a 14.6% contraction.



Base effects may play a role next year, with the most optimistic economist forecasting growth of 5.1%, but some respondents said the lockdown would make it costly and difficult to bring the economy back to normality.



With consumers staying home and global oil prices falling sharply, inflation forecasts were also cut. Prices are now expected to rise 3.8% this year and 4.5% in 2021, compared with 4.2% and 4.6% in a March poll.



That would give the South Africa Reserve Bank room to ease policy.



Nine of 15 economists polled in the past week expected interest rates to be cut by 50 basis points to 3.75% in May, while three said the Bank would cut by 25 basis points. Two expected no move, and one pencilled in a 100 basis-point cut.



“Given the scale of the SARB’s forecast revisions and that of its surprise rate cut, there is little doubt now that its hawkish reservations to cut rates have been lifted,” said Francesca Beausang, economist at Continuum Economics.



On April 14 the central bank slashed its repo rate by 100 basis points to 4.25% in an unscheduled meeting, similar to the U.S. Federal Reserve’s emergency cuts last month, to mitigate the impact of the coronavirus.



“It seems as though it is keen to cut more than any emerging markets bank to make up for its previous reservations,” Beausang added.



Meanwhile, the balance sheet of the South African Reserve Bank looks more healthy and counter-cyclical in dealing with exogenous shocks than that of the National Treasury.



Economists answering an extra question said South Africa asking for an <a href="https://www.cnbcafrica.com/news/2020/04/14/imf-approves-immediate-debt-relief-for-25-countries-amid-covid-19-crisis/">International Monetary Fund</a> rapid financing facility without conditions or the SARB increasing its purchase of bonds on the secondary market would be most effective in mitigating the country’s funding crisis during the lockdown.



Other measures favoured included the SARB issuing coronavirus or disaster bonds targeted exclusively for the lockdown period or issuing more shorter-maturity bonds.



Capital Economics said the chances of South Africa turning to the IMF were rising.



“Finance Minister Tito Mboweni ruled out the possibility of any multilateral support that comes with conditions. But the IMF’s Rapid Financing Instrument (RFI) or its new Short-Term Liquidity Line might fit the bill,” it said in a note.



The RFI provides rapid and low-access financial assistance to member countries facing an urgent balance of payments requirement, without the need to have a fully fledged programme in place.



Mboweni ruled out an IMF adjustment programme last week and said the country didn’t need budget support, despite acknowledging that there would be a deep recession this year because of the global COVID-19 pandemic.



Asking multilateral institutions, especially the IMF, for cash is deeply unpopular with a faction in the governing African National Congress and trade unions that the party uses to rally support before elections. The ANC and two allies warned Mboweni earlier this month against seeking IMF assistance.



(Additional polling by Khushboo Mittal in Bengaluru; Editing by Jonathan Cable and Hugh Lawson)



This article was first published on Reuters Africa <a href="https://af.reuters.com/article/investingNews/idAFKBN2221Z2-OZABS">https://af.reuters.com/article/investingNews/idAFKBN2221Z2-OZABS</a> and is republished with its permission.



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

South African economy to shrink 4.9% in 2020, SARB to cut rates in May – Poll

JOHANNESBURG (Reuters) &#8211; South African petrochemicals giant Sasol Ltd on Wednesday cut its guidance for synthetic fuel production and liquid fuel sales for this financial year due to a three-week nationwide lockdown linked to coronavirus.



Sasol is now expecting to produce approximately 7.3-7.4 million tons of synfuel against the previously guided range of 7.7–7.8 million tons, the company said in a statement to the Johannesburg Stock Exchange.



It is also targeting sales of 50–51 million barrels of liquid fuel for the financial year 2020, against 57–58 million barrels previously, it said.



Synfuel or synthetic fuel is a form of liquid fuel made from coal in South Africa. Sasol is the world’s biggest producer of motor fuel from coal.



South African President Cyril Ramaphosa imposed a nationwide lockdown at the end of March to contain spread of the deadly coronavirus, which has already <a href="https://www.cnbcafrica.com/news/2020/04/02/south-africa-needs-hundreds-of-thousands-of-covid-19-tests-health-minister/">infected 1,749 people in the country and killed 13</a>.



The lockdown, which prompted rating agency <a href="https://www.cnbcafrica.com/coronavirus/2020/04/03/fitch-downgrades-sa-2/">Moody’s to downgrade the country’s sovereign rating to junk</a>, crashed domestic demand at a time when the economy had already slipped into a recession.



It is projected to contract further in the current financial year.



“Sasol’s management team is in the process of proactively identifying further measures to provide an additional buffer against short-term volatility,” said the company in its statement, referring to the fall in demand in the country.



The group, which is also <a href="https://www.cnbcafrica.com/earnings/2020/03/17/sasol-plans-2bn-rights-issue/">facing high debt levels and falling oil and chemical prices</a>, said it has decided to suspend production at its inland crude oil refinery Natref from April 9.



“A decision was also made by Sasol to reduce daily production rates at our Secunda Synfuels Operations (SSO) by approximately 25%,” it said.



A further reduction in rates may be required depending on further developments in the fuels market, the company added.



However, Sasol said despite the suspension of output at the Natref refinery and lower production rates at SSO, the country’s current demand for fuels and chemicals, including sanitisers, will be met.



It had said on March 31 that its full-year results could be hit by potential disruptions to production, supply chains and construction as the coronavirus continued to spread across the world.



(Reporting by Promit Mukherjee; Editing by Jan Harvey)



This article was first published on Reuters Africa <a href="https://af.reuters.com/article/investingNews/idAFKBN21Q0WO-OZABS">https://af.reuters.com/article/investingNews/idAFKBN21Q0WO-OZABS</a> and is republished with its permission.



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

South Africa’s Sasol cuts production, sales target due to COVID-19 lockdown

By Victor Oladokun April 3, 2020



Two days ago, I received an urgent plea from Massimo, a good friend and a highly respected Italian journalist based in Rome. His message was simple, urgent and straight to the point.



 “Please Victor, pay attention” he urged. “This virus is not ‘just a flu’ as some still insist it is. Keep your distance. Wash your hands regularly. Don’t touch your face, eyes and mouth. Avoid crowded places where you cannot maintain the required social distance … pay attention my friend!”



Italy has given the rest of the world a tragic glimpse of what a lockdown needs to look, especially for countries that blink and fail to take action fast. Italy’s experience is an urgent wake-up call about the importance of swift and decisive action.



Massimo knows first-hand what’s at stake. A few hours earlier, he had lost a professional colleague. His country, which has a social culture very similar to Africa’s, now has more than 13,000 deaths from COVID-19. It is the highest number of fatalities anywhere in the world. And the body count is still rising.



Africa has had some lead time to learn important lessons and proactively engage&nbsp; the World Health Organization, the Centers for Disease Control and Prevention, and other multilateral institutions, to hell put containment and preventative measures in place.



While others have wasted precious early moments, some countries and cities have been exemplars of what it takes to counter the spread of COVID-19. Rwanda for example, was the first country to take swift containment actions by placing portable sinks with running water in public spaces in its capital city and backing it up with a public awareness campaign. The Governor of Lagos State, Nigeria’s commercial hub, was also quick to convert a local stadium into an isolation and recovery area. Last week, Nigeria’s President Muhamadu Buhari placed the Federal Capital Territory of Abuja, Lagos and two neighbouring States, under lockdown for two weeks. Ultimately, Nigeria with a population of 180 million, will have to lock down for an even longer period of time. 



Several other countries are following suit. But many others are woefully lagging behind. There is still an unwillingness to acknowledge that not taking decisive and painful short-term action, will have devastating long-term consequences. 



Exposing systemic weaknesses



In spite of Africa’s best efforts, more must be done. The outlook for the continent is grim unless swift proactive actions are taken. For now, the pandemic is exposing deep cracks and systemic weaknesses across the board including a general lack of emergency preparedness, weak governance, and political, economic, social, cultural and health threats.



Millions of Africans live on less than two dollars a day. The implication is simple. A lack of access to money, food, water and electricity, means extended lockdowns will not be easy to implement. High levels of poverty and other communicable diseases were already impacting health and wellbeing long before the arrival of the coronavirus. A shortage of well-equipped and well-funded healthcare facilities is just the tip of the iceberg. Everything from doctors, clinics, hospitals, beds, medical supplies and intensive care units are in chronic short supply.



However, the Ebola outbreak in Sierra Leone and Liberia and collaborative action by African leaders and global partners, shows that where there is a will, there is always a way.



COVID-19 could not have arrived at a worse time for Africa. A crash in global commodity prices and a glut in the oil and gas markets has seen revenues drop precipitously. Further threats from nature, including the impact of devastating weather patterns such as Cyclone Idai and Henry and a recent plague of locusts, have to be managed alongside the pandemic.



Economically, the private sector and financial markets have taken a beating. The sudden reversal of fortunes is in stark contrast to a more positive projection in the African Development Bank’s 2020 African Economic Outlook when it was released in January 2020. The bandwidth of fiscal headroom is very thin. Commodity-sensitive economies are reeling under the effects of sudden price drops and the altered market reality of reduced global demand. Crude oil prices which now hover at $22 a barrel, have fallen more than 68% since January 2020. Non-oil commodity prices in natural gas and metals have also taken a nosedive.



Acting Fast and Thinking Authentically



Extended lockdowns carry inherent potential threats of their own and these must be managed. Along with underlying systemic weaknesses, the pandemic could unleash social unrest, the explosions of which will be as unprecedented as the virus itself.



We must therefore act fast and think authentically. Africa has its own particularities and to a certain extent, local contexts will require locally suited solutions, while drawing from global lessons. Recent videos of local communities forcefully resisting law enforcement and sanitation teams are already emerging. Such scenes are inevitable, for reasons of poverty, a lack of knowledge, and a chronic mistrust of authorities.



Concerns about informal settlements, some of the largest in the world, are a cause for worry, as is terrorism, economic and social exploitation and fragility.



Psychological impacts of a pandemic



Along with business and financial challenges, Africa’s leaders must prepare to address the social, physical and mental health fallouts from unavoidable lockdowns, social disruptions, the loss of basic human dignity, threats to civil life, and worse, the loss of life itself.



Several governments have grasped this and are stepping up, although time is not on their side. In many cases they have imposed limited two-week lockdowns in the first instance. The goal is not to alarm citizens. But this is unlikely to be sufficient as the virus apparently has its own agenda, pattern and timing! Realistically, beating COVID-19, is likely to require 6-10 weeks of total nationwide lockdowns, at a minimum.



 To not do so, is to sell an illusion. To not do so, is to delay the inevitable. To not do so, is to raise false hopes. To not do so, is to be complicit and irresponsible in the spread of this most virulent and devastating virus. Worse, it will be suicidal, not just for countries but for the continent.



Dealing with harsh realities



We must therefore deal with hard reality, scientific facts, current simulations and real global lessons. Cosmetic approaches will not work when surgical precision is required. We must marshal every resource in order to save lives … every life and especially those already living on the margins of society. The underlying ethos of Ubuntu which says – “I am, because you are,” must be unleashed with full force to save lives. We have to be brutally honest, in order to be kind to ourselves! The bottom line is that this is not a time for test runs.



Urgent action is needed now, not tomorrow. This includes –



<ol type="1"><li>Making tough and seemingly unpopular leadership decisions that will ultimately save lives and society.</li><li>Using every communication platform possible to increase public awareness and promote containment and preventative measures.</li><li>Stepping up testing and reducing the wait time between tests and test results.</li><li>Mobilising the support of public influencers including traditional, religious, civil society, entertainment celebrities, women and youth leaders.</li><li>Introducing measures to secure food and medical supply channels, fixing basic food prices, and curbing hoarding and panic-buying.</li><li>Re-purposing public spaces including conference centres, stadiums and open spaces for use as isolation and recovery centres.</li><li>Leveraging every available advantage, by focusing on low hanging fruits. For example, regional economic communities could re-organise manufacturing and target the supply of critically needed medicines, equipment and medical supplies, as well as food packaging and processing.</li><li>Delaying debt obligations and buying time with global creditors through forbearance or payment postponements. Prior to the COVID-19 pandemic, an estimated one third of African countries were at risk of debt distress. Post-crisis, the numbers will be significantly higher.</li></ol>



Pandemics and other global crises do not respect boundaries, titles or positions, creed, faith, gender, culture or hierarchy.



Abiy Ahmed, the Ethiopian Prime Minister and 2019 Nobel Peace Prize Laureate rightly tells us: “COVID-19 teaches us that we are all global citizens connected by a single virus that recognises none of our natural or man-made boundaries.” We are in this together, regardless of where we call home. “Umuntu ngumuntu ngabantu.” I am because you are.



Dr. Victor Oladokun is the former Director of Communication and External Relations, African Development Bank Group.



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

AFRICA LOCKS DOWN: No Time For Lockdowns

Op-Ed: Africa locks down: No time for test runs

By Stephán Engelbrecht, Fund Management



The world is entering an unprecedented time and there is no historical playbook for what happens next. While not our base case, calamity risk is increasing (mass infections across South Africa [SA], with dire economic consequences), and nobody knows how to quantify this risk. We have many requests from clients asking for investment opportunities in this crash and we are happy to share our fundamental views. However, investors in any equities must bear in mind that, in the shorter term, cheap shares can get even cheaper and wild swings are likely. Our views are based on a 12-to 24-month timeline, with a base case scenario of the world normalising during this time period. So, risks have to be taken into account and any investment in equities should be considered in this context. Shares only become this cheap when risks are extremely high.



In times of extreme market volatility (and corrections), it is often unnecessary for investors to look far down the quality curve to find attractive opportunities that will generate significant returns in future. This is oftentimes the correct strategy as those economic uncertainties causing market volatility can have far more dire consequences for lower-quality businesses. This can make a company look inexpensive on the surface, but the upside might be limited as the business first has to struggle through an earnings trough, or raise equity to shore up its balance sheet which will, in turn, dilute current shareholder returns.



However, sometimes it is worth taking the risk. During market corrections, fundamentals are often ignored, and some market participants will sell a share at any price. It is at these prices where, we believe, the risk-return profile is so attractive that these counters deserve a small allocation in a diversified portfolio. These calculated risks may just turn out to be some of the best performers in an investor’s portfolio.



With that as background, we have scoured the SA market for some very exciting investment opportunities. We concede that these opportunities do come with some risks, whether it be debt, currency, regulation, liquidity or, in some cases, a combination of these factors, associated with them. Nevertheless, we believe that, at current valuation levels, the investor is more than compensated for such risks. So, put your hard hat on and prepare for some volatility although, at the end of the day, we are confident that a portfolio of these shares will reward investors handsomely.



MTN Group



If one were to draw up a list of countries where it is notoriously difficult to do business, and that also have extremely volatile regulatory and economic environments, the chances are that a large number of these nations will be among the 21 countries in which MTN operates. Initially, with major global mobile operators reluctant to enter these markets and regulations being fairly light, these countries held the appeal of attractive emerging market (EM) growth potential, with limited competition, for MTN. While this worked well in the beginning, over recent years MTN has appeared to stumble from one exogenous shock to the next – wars, extreme currency volatility, sanctions, exorbitant regulatory penalties and various lawsuits – but the company has weathered all these setbacks. MTN’s vulnerability to these exogenous events means that it is typically sold off, particularly aggressively during periods of risk aversion. This time around, the market sell-off was amplified by the collapse in the oil price, to which a number of MTN’s markets are vulnerable (especially Nigeria). With MTN’s share price falling below R40, the counter has now declined &gt;85% from its 2014 peak and it is currently trading at levels last seen in 2005.



In an industry where scale is critical, the significance of MTN being a top-two market share operator across all the markets in which it operates should not be underestimated. Where the telecommunications sector globally has largely been consigned by investors to the status of an ex-growth utility, MTN stands apart for several reasons. First, many of the Group’s markets still have further opportunities to increase penetration of mobile telecommunications and the potential to migrate those users to smart devices and drive data adoption. Second, while most developed market (DM) operators are confined to the provision of commoditised voice and data services, MTN is capitalising on opportunities to also add digital and mobile financial services.



Although MTN CEO, Rob Shuter has announced that he will be leaving the company at the end of his contract in one year’s time, he assembled a very competent management team during his tenure. Shuter has set the Group on a self-correction course. This includes the disposal of non-core assets, with proceeds being used to pay down debt (R14bn in sales were raised in the first year, with guidance of a further R25bn to be realised over the next few years) and paying particular attention to turning around some of the Group’s underperforming business units.



Since many of MTN’s new revenue streams do not require significant capital investment and are delivered through over-the-top platforms already in place, it has enabled the company to provide guidance of low double-digit revenue growth, margin expansion and relatively flat capital expenditure over the next 3-5 years. With the strong double-digit growth in free cash generation that this guidance implies, MTN is targeting annual dividend growth of 10%-20%.



Even at the bottom of the dividend guidance range, the prospective dividend yield is 15%, while the price as a multiple of expected earnings in 12 months’ time is 5x. No doubt, Brent Crude oil at below $30/bbl poses risk in the short term of foreign exchange availability and currency devaluation in Nigeria (MTN’s largest profit generator in FY19, accounting for c. 40% of group EBITDA). However, we are mindful of the oil industry saying, “the best cure for low oil prices, is low oil prices” and it is unlikely that the current situation will be sustained long term. At current levels, we believe there is now enough of a margin of safety in MTN’s share price to compensate for the risks it presents, with the potential for a strong recovery as current headwinds abate.



Investec



Over the past four decades, Stephen Koseff and Bernard Kantor created an institution. Built on the foundation of entrepreneurship and being agile and nimble to service its customers, the distinctive zebra logo became one of the most widely recognised symbols in SA financial markets.



In the early 2000s, Investec started to expand offshore with the UK being a key target market. Unfortunately, the UK’s highly competitive banking environment, ever more draconian and complex regulation and a global financial crisis (GFC) that hit just as Investec started to expand aggressively in the UK, made the experience far more lacklustre than the firm’s local successes. However, the company stayed the course, and, over time, Investec has built a strong UK presence.



Nevertheless, the UK remains a considerable drag on the Group’s profitability and ROE. Since the disastrous acquisition of Kensington in 2007 and the harsher regulatory environment post the 2008 GFC, Investec’s UK division has struggled to achieve a ROE greater than its cost of capital. This has resulted in Investec rightfully trading at a discount to its book value for significant periods since the GFC.



This discount to book value reached extremely low levels during the current sell-off, trading at close to 0.3x book. In addition, it coincides with some real positive changes taking root at Investec. The old guard has moved on and the new management team have taken decisive steps to improve the profitability of the bank.



Management unbundled the asset management division to make the structure less complex, committed to improving the cost-to-income ratio in the UK and promised that there were no sacrosanct segments of the business that will not be cut in the event of underperformance. We are still at the initial stages of the new regime and it will be interesting to see whether management can indeed improve the UK division’s ROE.



Although we acknowledge that Investec is not the highest-quality bank in the world and its earnings growth and ROE profile are far more volatile than its SA peers, we believe that the current share price provides an opportunity to enter at depressed multiples that more than sufficiently reflect the lower quality. And, the investor may yet benefit from an improvement in operating metrics as the new management team start their work.



Redefine



In recent years, many SA (and global) conservative investors squirrelled their savings away in property shares to earn an attractive, growing income. This bubble burst over the last few months and even the highest quality property companies have seen their value decimated. Selected YTD (to 25 March) declines among local property counters include Growthpoint (-45%), Redefine (-74%), Resilient (-46%), Nepi Rockcastle (-40%), Vukile (-63%), Attacq (-58%) and Hyprop (-60%). This follows already steep share price drops across the board in 2019.



The dire economic outlook for SA had already impacted Redefine’s share price hard when the novel coronavirus (COVID-19) hit and the whole property sector is now in crisis. These are unprecedented times and the world has changed in the last few weeks. Some tenants (especially in the retail sector) will earn little or no turnover for some time, and we have no doubt that they will want to renegotiate rentals with landlords. Some smaller tenants will go bankrupt. It is clear to us that the property sector will be reset after panic around the virus has subsided. Thus, the fate of many property companies is largely dependent on SA banks, who have very strong balance sheets and who, we believe, will be very co-operative in working with these companies to navigate the way through the current crisis. Although loan-to-value (LTV) ratio levels are all stated in the debt covenants for property companies, we think that the credit providers’ focus will turn from LTV ratios to interest cover, cash flow and sustainability. It is not in the interests of the banks to “pull the plug” on some of their biggest clients. We expect Redefine to work its way through this scenario together with the banks, with “reset” value emerging.



Management have acknowledged that they have no idea where rentals will settle, and they will largely depend on the health of the economy and the tenant. About 30% of retail turnover is from “safe” companies such as food retailers, cellphone companies and banks. Many office tenants will remain robust and industrial/logistics rentals will depend on tenant quality. So, it is not a disaster across the board, but months of hard negotiations will follow.



However, for investors, LTV ratios will remain a key metric and something which Redefine will have to address. At its last results presentation (FY19), Redefine had an LTV ratio of 43%. To highlight the spiral, if we assume the company had R100 of book value and R43 of debt – that 43% LTV is only just within its debt covenants. If the book value is written down by 25%, the LTV ratio goes up to 57%! Asset sales are usually a partial solution, but this looks increasingly unachievable. Withholding dividend payments becomes the next, and most likely, scenario. If a company can generate an 8% yield on book value (we are assuming no tax payable, which may be contentious), ploughing this back into debt repayments (as opposed to dividends), with a two-year dividend holiday, can reduce the LTV ratio from 57% to 41% – back into the covenant zone. We note that Redefine has already announced a delay in its interim dividend payment.



A big issue with withholding dividends is taxation. REIT (Real estate investment trust) legislation allows companies designated as such, to not pay tax and to distribute income to shareholders who receive the distribution as taxable income. If REITs do not distribute 75% of their income, then the current rules say they must pay tax on their income. We believe the property sector is in the process of negotiating with Treasury in an attempt to waive this rule – at least for a once-off time period.



We conclude that in a base-case scenario, the adjusted book value will be well below current book values, but higher than the share prices. We calculate that Redefine is fundamentally worth 50%-100% more than its current share price (unless Armageddon prevails!). But there is a high risk of shareholders not getting dividends for one, or even two, years. The share price is factoring in a far worse scenario than our base case. But investors should focus on the balance sheet and track closely the progress the firm makes in degearing.



There is a long road ahead, but we believe that, in the end, we will look back at this as a great opportunity to buy the share.



Northam Platinum



The platinum group metals (PGM) miners were the talking point of 2019. After being priced for bankruptcy in 2018, the price of the PGM basket recovered in 2019 resulting in the share prices of these miners rallying by 250% or more. The higher basket price helped these miners reduce their leverage with some of the mining companies going into a net cash position. It was a remarkable turnaround and highlighted just how cyclical the fortunes of these businesses are. Which begs the question, do you want to buy into such a cyclical industry in these uncertain times?



It is a fair question, and the answer very much depends on the risk tolerance of the investor. The reason why we are comfortable with a small position in Northam is due to the precarious demand-supply balance which the industry faced going into the COVID-19 crisis.



Prior to 2019, the threat of electric vehicles (EVs) caused the PGM basket price to remain below the breakeven price for mining companies and they battled to survive. Capital expenditure was cut across the board, with mining firms struggling to pay for maintenance capex, not to even mention expansionary capex.



Then, in 2019, the combination of a greater focus on carbon emission worldwide, the more enhanced testing after the VW scandal and the lack of R&amp;D in combustion engines over the preceding few years forced vehicle manufacturers to just add more and more PGMs in their respective catalytic converters as emission standards became more onerous. With the costs of PGMs &nbsp;a small fraction of the total vehicle production cost, they had the luxury to do this. Demand for these metals surged and the miners were not in a position to increase supply. This caused PGM prices to rally, with rhodium and palladium hitting all-time highs.



In our view, this situation will not change in the short- to medium-term, despite the COVID-19 outbreak and the subsequent decline in global vehicle sales. We expect demand to remain strong due to higher emission standards. Importantly, the threat of EVs, which are expected to be close to 50% of global vehicle sales by 2030, will prevent PGM miners from investing in new mines, thus keeping a constraint on the supply response.



Northam is one of the few PGM miners that will see strong volume growth over the next few years. Due to some tough decisions taken by management during the lean years, the company was able to shore up its balance sheet and it continued to invest in operations. As a result, we expect Northam’s annual production volumes to increase from c. 600k ounces this year to 1mn ounces over the next few years. Northam’s mines are also of a very high quality, operating at very low operating costs due to mechanisation. Trading at very attractive valuations and offering significant earnings (at spot PGM prices) and production growth, Northam is a high-quality operator in a very cyclical industry.



Alviva Holdings



Alviva Holdings is not an exciting company! But it is one of the Africa’s largest providers of information and communication technology (ICT) products and services. The Group has three business segments – ICT Distribution, which imports ICT hardware and software and sells it into sub-Saharan Africa via resellers, Services and Solutions, which provides system integration and ICT solution services, and Financial Services, which provides leasing finance to small-, medium- and micro-sized enterprises (SMMEs) for their ICT products.



The risks to this business are real. It is difficult to see Alviva continuing to operate in the same verticals and products as it is currently working, in five years’ time. This is due to the ever-changing industry in which it operates. For example, cloud storage and processing will, likely, fundamentally change the role ICT service providers play in the lives of their customers. To survive, ICT service providers will have to adapt their business models quickly and also ensure that they have a balance sheet strong enough to absorb any shocks.



We believe that Alviva has both these traits. It has a very experienced and conservative management team, which have navigated through some very turbulent times in the past and we maintain that management should be able to continue to do so in future. In addition, management have also been conserving cash. Over the past few years, they have adopted a very conservative dividend policy, paying out only 10% of earnings in dividends.



At our last engagement with management, they conceded that the operating environment is very tough at the moment, adding that they were very disappointed in the company’s performance but that it should improve in the second half. Management have guided that they will first look to retire around R400mn in preference shares, after which they will engage with shareholders regarding potential share buybacks. Admittedly, this was before the COVID-19 outbreak.



However, Alviva’s valuation is ridiculous – it is currently trading at a historic PE ratio of c. 2x and a normalised free cash flow yield of 50% (and we believe that we are being conservative here), so the risk-reward profile for investors is very much skewed to the upside. Liquidity is a concern and we highlight that investors should be patient if investing in this counter.

Our top share picks for the brave investor: Finding opportunities in times of adversity

New York, March 31, 2020 &#8212; Moody&#8217;s Investors Service (&#8220;Moody&#8217;s&#8221;) has today placed Angola Government&#8217;s B3 long-term issuer ratings and senior unsecured rating and its (P)B3 senior unsecured MTN rating under review for downgrade. The short-term issuer rating is affirmed at Not Prime (NP).



The decision to place Angola&#8217;s ratings on review for downgrade is prompted by the magnitude of the shock from the sharp drop in oil prices and an acute tightening in global financing conditions on Angola&#8217;s already weak public finances and external position, and elevated government gross borrowing requirements. Weak governance, notwithstanding a number of reforms implemented in recent years, undermines the government&#8217;s capacity to respond to this shock and is a driver of this rating action.



The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets. The combined credit effects of these developments are unprecedented. For Angola, the shock mainly transmits through a further weakening in the currency that raises the debt burden and debt service; a significant drop in revenues that is likely to prevent the government from pursuing its debt management strategy of paying down short-term debt and reducing rollover risk; and pressure on an already fragile balance of payments.



The review period will allow Moody&#8217;s to assess the overall policy response to the shock and the capacity of the authorities to manage: 1) the additional stress on public finances and the government&#8217;s balance sheet driven by the significant loss of oil-related revenues and a potential further depreciation of the currency; 2) the severity of the increase in external vulnerability given the expected sharp drop in oil export receipts putting pressure on foreign currency reserves; 3) the rising risks associated to large domestic and external debt service payments in a currently dislocated credit market.



Concurrently, all Angola&#8217;s country risk ceilings remain unchanged: Foreign Currency bond ceiling at B2, Foreign Currency deposit ceiling at Caa1, and Local Currency bond and deposit ceilings at Ba3.



RATINGS RATIONALE



RATIONALE FOR INITIATING A REVIEW FOR DOWNGRADE ON ANGOLA&#8217;S B3 RATINGS



As a result of the oil price fall in the face of depressed oil demand and a slow supply response, Moody&#8217;s now assumes that oil prices will average US$40-45 per barrel in 2020, and US$50-55 by 2021, around $20 and $10 below previous expectations in each year.



As a large oil exporter, Angola heavily relies on the oil sector as a source of government revenue (62% of total revenue in 2019) and exports (96%). Such a fall in oil prices heightens the pressure on Angola&#8217;s already weak fiscal and external metrics.



ANGOLA&#8217;S WEAK CREDIT METRICS ARE LIKELY TO DETERIORATE FURTHER, TO AN EXTENT PARTLY DETERMINED BY THE GOVERNMENT&#8217;S CAPACITY TO RESPOND



Angola&#8217;s credit profile is weakened by the oil price shock which negatively affects the government&#8217;s balance sheet and the country&#8217;s external position, through a significant loss of government revenue and export proceeds respectively. Also, the Covid-19 related spending to prevent the spread of the virus throughout the country is expected to further aggravate the fiscal deficit.



Already, Angola&#8217;s fiscal and external metrics are very weak. General government debt increased to an estimated 100.5% of GDP in 2019, from 81% in 2018, and debt-to-revenue was around 500% from 371% respectively. Similarly interest payment-to-revenue exceeded 25% in 2019 against 20.7% a year before. On the external side, vulnerability relates to low net foreign exchange reserves at $11.8 billion at the end of 2019, covering around 6 months of imports of goods and services and external debt amounting to about twice the level of current account receipts this year, according to Moody&#8217;s estimates.



Angola is unlikely to be able to significantly increase its oil production that has been in a secular decline for the last 4 years to offset the price drop. Moody&#8217;s estimates that a $10/barrel decrease in oil price leads to a $2$2.5 billion loss in government revenue (around 3% of 2019 GDP) and a $5 billion fall in exports receipts.



The 2020 budget which was designed to post a small surplus (0.8% of GDP), was passed with a $55/barrel oil price assumption. It would have contributed to a slightly positive balance of payments after International Financial Institutions&#8217; (IFIs) disbursements of concessional loans. As a result of the price fall, Angola&#8217;s fiscal and external accounts will be in deficit, raising pressure on the exchange rate and foreign exchange reserves and incentivizing economic transactions in the parallel exchange rate market.



A budget no longer likely to be in surplus and further pressure on the currency are likely to raise the already very high debt burden. In turn, the government&#8217;s borrowing requirements are likely to increase again in 2020 having fallen to 15% of GDP in 2019 (including clearance of arrears to goods and services suppliers), at a time when international and possibly domestic financing comes at very high costs. Given the current dislocation in credit markets, it will be increasingly challenging for the government to secure financing at affordable costs. Previous objectives, including an ongoing debt management strategy aimed at repaying short-term debt and lengthening its debt maturity and the maintenance of net international reserves above $10 billion have also become far less achievable.



The impact of the oil price shock will be attenuated by the fact that the government posted a small deficit on the budget estimated at 0.3% of GDP and a current account surplus estimated at 4% of GDP in 2019. This is due to the implementation of a vast array of reforms, and strong consolidation efforts under the $3.7 billion and 3-year IMF program, approved in December 2018. But during this transition period, where the authorities, with the support of the IFIs, are trying to spur the private sector, restore macroeconomic stability with a more flexible exchange rate and sounder public finances, having cleared large amount of arrears and improved the debt structure, Angola&#8217;s credit metrics remain highly vulnerable to shocks.



The review period, which may extend beyond the usual three-month horizon, will allow Moody&#8217;s to assess the credibility and sustainability of the government&#8217;s plans and its ability to mitigate the impact of significantly lower oil prices on Angola&#8217;s credit standing.



ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS



Environmental considerations are not material for Angola&#8217;s rating.



As an oil producer and exporter, Angola&#8217;s environmental risks derive from carbon transition. Angola&#8217;s credit profile would face downward pressure in a scenario of rapid global transition to lower reliance on hydrocarbons that would depress global hydrocarbon demand and prices. However, in light of the measures against climate change taken so far, this is not Moody&#8217;s baseline.



Social considerations influence Angola&#8217;s credit profile, given very low wealth levels and high levels of poverty. GDP per capita, at $6,851 on a PPP basis as of 2018, remains low. Additionally, the UN&#8217;s Human Development Index for 2018 ranked Angola 147 out of 189 countries. Social indicators have improved from a very low level since the end of the civil war in 2002, but income inequalities remain very high despite the oil wealth of the country. Since the oil shock and the election of President Lourenco, the authorities have been implementing an ambitious reform agenda despite the political cost and inherent execution risks. Risk of social unrest remains, especially stemming from jobless young people.



Governance considerations are material to Angola&#8217;s credit profile and are a driver of this action. Data transparency and availability are areas of improvements, as well as institutional capacities that remain limited. For example, Angolan banks lost their dollar-correspondent banking relationships in 2016 because of their failure to meet international standards relating to shareholder structures and money laundering, resulting in increased transaction costs and delays. There are also significant weaknesses related to the management of public finance, illustrated by the level of arrears accumulated over the last few years.



FACTORS THAT WOULD LEAD TO A DOWNGRADE OF THE RATING



Moody&#8217;s would downgrade the rating if the review were to conclude that Angola&#8217;s government was unlikely to be able to alleviate the damage to its balance sheet and the subsequent rise in liquidity risk resulting in a credit profile no longer consistent with a B3 rating. Increasing risks of a balance-of-payment crisis would also likely lead to a downgrade.



WHAT COULD LEAD TO CONFIRMATION OF THE RATING AT THE CURRENT LEVEL



Moody&#8217;s would confirm the rating if the review were to conclude that a credible fiscal and economic policy response from the government will efficiently manage the risks arising from the upward trend in government debt, government liquidity risks, and increased pressure on the exchange rate, leaving Angola&#8217;s credit profile consistent with a B3 rating.



GDP per capita (PPP basis, US$): 6,851 (2018 Actual) (also known as Per Capita Income)



Real GDP growth (% change): -1.2% (2018 Actual) (also known as GDP Growth)



Inflation Rate (CPI, % change Dec/Dec): 18.6% (2018 Actual)



Gen. Gov. Financial Balance/GDP: 2.2% (2018 Actual) (also known as Fiscal Balance)



Current Account Balance/GDP: 7% (2018 Actual) (also known as External Balance)



External debt/GDP: 44.4% (2018 Actual)



Economic resiliency: b2



Default history: No default events (on bonds or loans) have been recorded since 1983.



On 26 March 2020, a rating committee was called to discuss the rating of Angola, Government of. The main points raised during the discussion were: The issuer&#8217;s economic fundamentals, including its economic strength, have materially decreased. The issuer&#8217;s fiscal or financial strength, including its debt profile, has materially decreased. The issuer&#8217;s susceptibility to event risks has not materially changed.



The principal methodology used in these ratings was Sovereign Ratings Methodology published in November 2019 and available at <a href="https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631">https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631</a> . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.



The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.



The local market analyst for this rating is Aurelien Mali, +971 (423) 795-37.



REGULATORY DISCLOSURES



For further specification of Moody&#8217;s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody&#8217;s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBC_79004.



For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody&#8217;s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider&#8217;s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.



For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.



The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.



These ratings are solicited. Please refer to Moody&#8217;s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.



Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.



Moody&#8217;s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at <a href="https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569">https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569</a> .



At least one ESG consideration was material to the credit rating outcome announced and described above.



The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody&#8217;s affiliates outside the EU and is endorsed by Moody&#8217;s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody&#8217;s office that issued the credit rating is available on www.moodys.com.



Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody&#8217;s legal entity that has issued the rating.



Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.



Samar Maziad



Vice President &#8211; Senior Analyst



Sovereign Risk Group



Moody&#8217;s Investors Service, Inc.



250 Greenwich Street



New York, NY 10007



U.S.A.



JOURNALISTS: 1 212 553 0376



Client Service: 1 212 553 1653



Marie Diron



MD &#8211; Sovereign Risk



Sovereign Risk Group



JOURNALISTS: 852 3758 1350



Client Service: 852 3551 3077



Releasing Office:



Moody&#8217;s Investors Service, Inc.



250 Greenwich Street



New York, NY 10007



U.S.A.



JOURNALISTS: 1 212 553 0376



Client Service: 1 212 553 1653

Moody’s places Angola’s B3 ratings on review for downgrade

NKC African Economics expects the coronavirus-related knock to economic
growth in Africa’s three largest economies alone to shave off 1 ppt from the
continent’s GDP growth this year, from 3.8% to 2.8%. 



Preliminary estimates point towards the weakest continental growth
since the early 1990s.



The continent’s three largest economies, South Africa, Nigeria and
Egypt – together accounting for just under 60% of African GDP – will see a
significant weakening in economic growth this year. 



This slowdown in economic activity will permeate through the
continent as these countries are salient drivers behind economic growth in
their respective regions.&nbsp; 



In addition to the indirect effects stemming from weakness in the
largest economies, other African nations will also have to deal with a much
more volatile external economic environment. 



The collapse in tourism will weigh on economic growth in many
countries (particularly the island nations, Morocco, Egypt, and Tunisia), while
a reduction in both export demand and commodity prices will weaken fundamentals
in Africa’s more export-oriented economies (most notably the oil producing
nations).&nbsp; 



The escalation in the Covid-19 outbreak in Africa implies there is
a lot more at stake than foregone economic production. 



Most African countries will not be able to effectively implement
the severe restrictions on movement that we have seen globally. The
impracticality of implementing widespread self-quarantine in shantytowns or
informal settlements means that this will not be an option. Mismanagement of
the situation could lead to human costs far exceeding economic losses.



Tourism is a key forex generator and employment creator across the
continent. Severe travel restrictions, border closures and lockdowns in key
source markets will result in a collapse in tourism during the first half of
the year, at least. 



Domestic and intra-Africa tourism have been key drivers behind
growth in overall tourism in recent years, but as more Covid-19 cases are
confirmed on the continent we will see an increase in domestic travel
restrictions and regional border closures. 



The island nations will be hardest hit, but the mainland will feel
the effects in the North (particularly in Tunisia, Morocco and Egypt), South
(Namibia, Botswana), East (Tanzania, Rwanda, Kenya) and West (Côte d’Ivoire,
The Gambia, Cameroon). 



Low barriers to entry have led to tourism becoming a key source of
employment. The island nations in particular are dependent on tourism to
generate employment, most notably the Seychelles (where tourism accounts for
around 44% of formal employment), Cape Verde (39%) and Mauritius (19%). 



Tourism has also become a salient job creator on the African
mainland, and a slump in the sector could result in rapid job losses given the prevalence
of micro- and small-sized enterprises operating in the sector.&nbsp; 



The slowdown in global economic activity will translate into a
reduction in demand, while lower commodity prices will compound this negative
effect on exports. 



Africa’s energy exporters will struggle to come to terms with a
much more hostile external environment. Countries such as Nigeria, Angola and
Gabon are highly dependent on oil exports not only to generate forex but also
to fund government spending. 



Countries including Namibia, Zambia, Botswana and Mozambique are
dependent on mineral exports for the same reasons. 



Generally speaking, countries that have a GDP structure orientated
towards exports will feel the pain of a weaker external environment.



Lower international energy prices will have a detrimental impact
on the continent’s oil exporters, but many other countries stand to benefit. 



A reduction in the oil imports bill will have a favourable impact
on external balances while also containing consumer price inflation. Lower
inflation will support consumer spending at a time when a weak external
environment increases the importance of domestic consumption in driving overall
economic growth.&nbsp; 



The South African economy had already entered 2020 on a very
fragile footing before the dramatic external developments related to the
Covid-19 pandemic. NKC forecasts a 5% real GDP contraction this year. Domestic
policy uncertainty and supply-side constraints have now been accompanied by a
deterioration in global business sentiment and a drop in demand for South
African goods, all weighing on the country’s economic recovery prospects. 



In addition, the three-week long nationwide lockdown, which
commenced on March 27, will result in a collapse in consumer spending. The
outlook could deteriorate further if the lockdown is extended.&nbsp; 



The coronavirus has not as yet, as far as we know, taken
significant hold in Nigeria. However, the weaker external environment and more
specifically, the recent collapse in international oil prices, will have a
marked impact on the economy’s performance this year.



Lower oil prices will result in tighter FX liquidity, rising
inflation, falling investment, lower fiscal expenditure and easing consumption
growth. 



As a result, NKC has revised its growth projection sharply lower
to 1.2% this year, with risks still firmly stacked to the downside. 



A more severe domestic outbreak of Covid-19 would cause
significant disruption to daily economic activity, particularly when
considering the population density in the country’s biggest cities. 



Despite the Egyptian government’s efforts, the number of confirmed
Covid-19 cases continues to rise considerably. 



The president has urged all citizens to stay at home for a two-week
period and a night-time curfew has been declared, while the possibility of a
formal lockdown in some regions is also circulating in local media. 



The fiscal deficit is set to widen significantly over fiscal year
(FY) 2019/20 and FY 2020/21 following the announcement of a stimulus and
bail-out package to the value of approximately E£100bn. 



Government revenues already came in far below budget during the
first half of FY 2019/20 and will take a massive knock during the second half
of the fiscal year, which ends in June. 



Lower economic growth reflects weaker consumption, investment, and
exports. 



The recently announced fiscal stimulus measures, however, should
prevent a collapse in domestic demand. 



The economic impact of the coronavirus epidemic will be
considerable, but the human costs will be higher yet. 



As of end March South Africa remains the hardest-hit African
country from a confirmed-case perspective and the expected economic hardship
reflects this. 



However, South Africa is also arguably the best-placed country on
the continent to deal with the pandemic. While it does have a large
immuno-compromised population due to its struggles with HIV, the country might
be able to leverage its sophisticated private healthcare sector to supplement
inadequate public services. 



Most other African nations will not have this benefit. 



Confirmed Covid-19 cases will undoubtedly increase across the
continent in coming weeks, and timely and effective government responses will
be required to ensure that this does not become another African tragedy.



Jacques Nel – Head of Africa Macro



For more coverage on COVID-19 visit: <a href="https://www.cnbcafrica.com/covid-19/">https://www.cnbcafrica.com/covid-19/</a>

Clarification on COVID-19 “hotspots” as SA moves to level 3 lockdown

Op-Ed: African giants to stumble due to Covid-19 pandemic

JOHANNESBURG (Reuters) &#8211; South Africa’s Sasol aims to generate $6 billion by the end of the 2021 financial year through several measures, including a potential rights issue and asset sale, as the company looks to address debt levels after a crash in the price of oil.



Shares in the petrochemicals group rose 15% at the market open before reversing some gains to trade up 6.28% at 47.55 rand by 0716 GMT. 



Sasol saw its shares plunge last week, falling to a 21-year low after oil prices dived, raising concerns about its debt levels following delays and cost overruns at its Lake Charles Chemicals project (LCCP) in Louisiana. 



“The immediate focus is on the actions to stabilise the company and protect the balance sheet so that the underlying value of the portfolio is not compromised, and instead the potential realised in the interests of all Sasol’s stakeholders,” Sasol said. 



The world’s top manufacturer of motor fuel from coal said it would target immediate measures to deliver a cash improvement of approximately $1 billion by June,30 2020. 



Sasol said it could raise up to $2 billion in a potential rights issue after the 2020 financial year results. 



The company had already entered into a standby underwriting agreement with BofA Securities, Citigroup and J.P. Morgan Securities for a rights issue. 



Sasol, which has completed a review of its assets started in 2017, said it would accelerate disposals and expand the scope to realise proceeds above its previous target of $2 billion. 



The company said it would also seek a potential partner at Sasol’s U.S. Base Chemicals assets. 



Sasol said it was engaging its lenders under its debt facilities to discuss adequate flexibility on its financial maintenance covenant thresholds in its debt agreements. 



(Reporting by Tanisha Heiberg; Editing by Kim Coghill and Louise Heavens)



This article was first published on Reuters Africa <a href="https://af.reuters.com/article/investingNews/idAFKBN21419C-OZABS">https://af.reuters.com/article/investingNews/idAFKBN21419C-OZABS</a> and is republished with its permission.

Sasol aims to generate $6 billion to boost balance sheet

Key Points



<ul><li>The combination of an unfolding price war between oil production giants Russia and Saudi Arabia and concern over a potential demand shock from the global coronavirus pandemic have hammered oil prices in recent weeks.</li></ul>



Demand for oil will likely be negative in 2020, adding further downward pressure to plummeting prices, according to BP CFO Brian Gilvary.



Around the time of its earnings report in early February, the energy giant anticipated that demand would weaken by around 300,000 to 500,000 barrels a day.



But on Monday, Gilvary told CNBC’s “Squawk Box Europe”: “If you ask me that question today, it is more like flat demand year-on-year, maybe even negative demand &#8211; we will probably likely see negative demand this year.”



Negative demand for a particular product exists when consumers dislike it to the extent that they would be prepared to pay more than the price of the product in order to avoid having to buy it.



The combination of an <a href="https://www.cnbc.com/2020/03/12/oil-the-losers-of-the-price-war-between-saudi-arabia-and-russia.html">unfolding price war between oil production giants Russia and Saudi Arabia</a> and concern over a potential demand shock from the <a href="https://www.cnbc.com/2020/03/16/coronavirus-live-updates-italy-death-toll-jumps.html">global coronavirus pandemic</a> have hammered oil prices in recent weeks.



International benchmark <a href="https://www.cnbc.com/quotes/?symbol=@LCO.2">Brent crude</a> was trading down 9.3% at around $30.70 per barrel on Monday afternoon while <a href="https://www.cnbc.com/quotes/?symbol=@CL.1">U.S. West Texas Intermediate</a> (WTI) dipped below $30 a barrel to $29.50, down 6.8%. So far this year, Brent and WTI are down 53.8% and 52% respectively.



The tension between OPEC kingpin Saudi Arabia and non-OPEC leader Russia arose after a recent breakdown in negotiations over oil production cuts in response to the outbreak. Riyadh subsequently vowed to ramp up production at sharply discounted prices for April.



Gilvary suggested that activity beyond this year would depend on what “the new normal” becomes for businesses.



“We have got a demand side shock and then you also have the combined issue of a significant amount of oil now coming on the market in April, so the direction of the oil price can only go in one direction, and that is down,” he said.



Gilvary said that at present, BP was starting from a “much stronger financial position” in terms of costs and capital flexibility than when Brent prices fell to $28 per barrel in 2016.



“In our targets for 2021, we had the company balanced at around $40 per barrel Brent, which was the key five-year target we put in place four years ago. We are on track for that,” Gilvary said, adding that BP’s capital was currently running at around $15 billion and could be taken down by up to 20% this year if necessary.



This article was first published on CNBC <a href="https://www.cnbc.com/2020/03/16/as-oil-prices-tank-bp-cfo-warns-demand-could-be-negative-in-2020.html">https://www.cnbc.com/2020/03/16/as-oil-prices-tank-bp-cfo-warns-demand-could-be-negative-in-2020.html</a> and is republished with its permission.

As oil prices tank, BP CFO warns demand could be negative in 2020

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Oil prices are set for one of their biggest weekly drops since 2008 this week, while the global economy remains gloomy due to the impact of the coronavirus pandemic. So what options are there for Africa&#8217;s largest economy to cushion the impact? Oluwole Adelokun, Associate Director at KPMG joins CNBC Africa for more.

How can Nigeria soften the impact of coronavirus on economy?

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Oil prices have given up gains scored earlier today after Saudi Aramco said it had been directed by the energy ministry to raise its production capacity by a million barrels per day. Brent crude slid $1 and 20 cents to trade a $36 per barrel, while U.S. West Texas Intermediate crude dropped $1 and 12 cents to $33 and 24 cents. As global markets continue to respond to impact from the coronavirus, Lukman Otunuga, Senior Research Analyst at FXTM Market joins CNBC Africa for more.

More pain for oil markets as the Russia-Saudi price war escalates

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Nigeria’s Finance Minister, Zainab Ahmed says the country will cut its budget due to declining and volatile oil prices. Nigeria&#8217;s 2020 budget benchmark for oil was earlier set at $57 a barrel. Bismark Rewane, CEO of Financial Derivatives joins CNBC Africa to in on weigh the impact of latest dynamics on Nigeria’s economy.

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oil prices

COVID-19: What are Nigeria’s revenue options?

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COVID-19: How the global oil cuts deal impacts Nigeria

COVID-19: How the oil price crash impacts Kenya’s economy

Billionaire Howard Marks calls the global oil crash ‘completely rational’

South African economy to shrink 4.9% in 2020, SARB to cut rates in May – Poll

South Africa’s Sasol cuts production, sales target due to COVID-19 lockdown

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Our top share picks for the brave investor: Finding opportunities in times of adversity

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Sasol aims to generate $6 billion to boost balance sheet

As oil prices tank, BP CFO warns demand could be negative in 2020

How can Nigeria soften the impact of coronavirus on economy?

More pain for oil markets as the Russia-Saudi price war escalates

How the oil price collapse is impacting Nigeria’s 2020 budget

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