Last year, while looking ahead to the future of international relations, several global leaders wondered if “winter is coming”. Well, it has come. It’s the winter of coronavirus. At a time where regional and global solidarity should be the norm, it is the exception. This crisis calls for more (and better) multilateralism; not less. The crucial issue at stake is the state of our global health system.
Debt, coronavirus and locusts create a perfect storm for Africa
The year began with promise for sub-Saharan Africa.
All the major institutions tracking African growth said so:
- The African Development Bank pronounced in its Economic Outlook that Africa’s economic outlook continues to brighten. Its real GDP growth, estimated at 3.4% for 2019, is projected to accelerate to 3.9% in 2020 and to 4.1% in 2021.
- The IMF said in its World Economic Outlook sub-Saharan Africa growth is expected to strengthen to 3.5% in 2020–21 (from 3.3% in 2019).
- The World Bank predicted ”Regional growth is expected to pick up to 2.9% in 2020”
Interestingly the World Bank added a caveat which was prescient:
A sharper-than-expected deceleration in major trading partners such as China, the Euro Area, or the United States, would substantially lower export revenues and investment.
A faster-than-expected slowdown in China would cause a sharp fall in commodity prices and, given Sub-Saharan Africa’s heavy reliance on extractive sectors for export and fiscal revenues, weigh heavily on regional activity.
Those forecasts are now defunct and it’s only March.
The Coronavirus has to date barely made landfall on the African continent with only 5 countries reporting infections but it is a virus in its essence non-linear, exponential and multiplicative and it would be a Shakespeare-level moment of hubris if policy makers were to pat themselves on the back.
Diagnostic kits were only recently availed and if South Korea had tested the same number of People as the entire African Continent, they too would be reporting single digit cases.
We all know now ”what exponential disease propagation looks like in the real world. Real world exponential growth looks like nothing, nothing, nothing … then cluster, cluster, cluster … then BOOM!” and therefore we will know soon whether we really have dodged the #Coronavirus Infection Bullet.
The issue at hand now is around the violence of the blowback from the China #Coronavirus feedback loop phenomenon.
The virus is not correlated to endogenous market dynamics but is an an exogenous uncertainty that remains unresolved and therefore, it is a ”Black Swan”.
Fantasy predictions of a V-shaped recovery in China have been dashed. In fact China cannot just crank up the ‘Factory’ because that will risk a second round effect of infections.
Therefore, I expect negative GDP Growth through H1 2020 in China as my base case.
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Standard Bank’s Chief Economist has calculated that a one percentage point decrease in China’s domestic investment growth is associated with an average 0.6 percentage point decrease in Africa’s exports.
Those countries heavily dependent on China being the main taker of their commodities are at the bleeding edge of this now negative feedback loop phenomenon. Commodity prices [Crude Oil, Copper, Coal] have crashed more than 20% since the start of the year.
You don’t have to be a rocket scientist or an Economist to calculate which countries in are directly in the line of fire. Angola, Congo Brazzavile, DRC, Equatorial Guinea, Zambia, Nigeria and South Africa spring immediately to mind.
Notwithstanding comments by the always upbeat and bright-eyed President Adesina of the African Development Bank that Africa is not facing a debt crisis.
He told Bloomberg, “Debt is not a problem, it’s very bad debt that’s a problem,”.
The point is this.
SSA Countries with no exception that I can think of have gorged on borrowing and balance sheets are maxed out.
Africa’s sovereign issuance in the Eurobond markets totaled $53bn in 2018 and 2019 and total outstanding debt topped $100bn last year.
Debt burdens have increased and affordability has weakened across most of Sub-Saharan Africa, while a shift in debt structures has left some countries more exposed to a financial shock, said Moody’s in November last year.
- Very few of the investments made are within spitting distance of providing an ROI [Return on Investment].
Rising debt service ratios are best exemplified by Nigeria where the Government is spending more than half of its revenue servicing its debt.
More than 50% of SSA GDP is produced by South Africa, Nigeria and Angola.
South Africa reported that GDP in Q4 2019 shrank by a massive 1.4%.
- Annual growth at 0.2% is the lowest yearly growth since 2009 and the tape is back at GFC times.
- The rand which has been in free fall has a lot further to fall in 2020.
And this is before the viral infection.
Nigeria’s oil revenue is cratering and there is $16bn of ”hot money” parked in short term certificates which is all headed for the Exit as we speak. A Currency Devaluation is now predicted and predictable.
South Africa, Nigeria and Angola are poised to dive into deep recession.
East Africa which was a bright spot is facing down a locust invasion which according to the FAO could turn 500x by June.
It is practically biblical.
“If I shut up heaven that there be no rain, or if I command the locusts to devour the land, or if I send pestilence among my people;” – 2 Chronicles 7:13-14
This is a perfect storm. Buckle up, and let’s stop popping the Quaaludes.