• York Investment & Finance

Global Markets Overview: Africa

By Rory Ellis, Analyst at the York IFS Global Market Telegraph

Zambia’s Stock Exchange reacted with great hostility this week when news broke that the central bank governor, Denny Kalyalya, was unexpectedly fired [1]. Following the announcement, the Zambia Stock Exchange (LuSE) dropped twenty points before recovering in the following days. Political and economic uncertainty has caused the LuSE to contract by 10% in the last year to date [2]. The unforeseen dismissal of Kalyalya comes at a time when the Southern-Central African country is struggling to repay more than $11 billion in government debts [3], with the Zambian government in the middle of critical bailout discussions with the International Monetary Fund (IMF). It has been widely argued from economists that being granted access to the IMF’s loan funds would enable one of the fastest growing economies in Africa to default on its debts.

Further north, the World Economic Forum (WEB) has conducted a startling report that finds that the Nigerian economy contracted by 6.1% year on year in the second quarter of 2020 [4]. Whilst Nigeria has achieved thirteen years of low, sustainable growth rates, this colossal contraction means it is their worst economic contraction in a decade. The shrinkage of GDP highlights just how heavily the country relies on its oil exports and how the price of oil dictates the shape of the overall economy. In this case, weak global demand for oil in the second quarter of 2020 is the major culprit for this contraction. Crude makes up half of the Nigerian government revenue, with oil production falling from 2.07 million barrels a day to 1.81 million from the previous quarter, the lowest quarter the country has had since 2017 [5]. In addition, the WEB report also found that 27% of Nigeria’s labour force are now unemployed. This is inextricably linked to the plunging demand of crude worldwide, as Europe prepares itself for a ‘second wave’ of Covid-19 [6].

In African infrastructure news, the African Export-Import Bank (Afreximbank) has this week approved a $400-million credit agreement for the Export Trading Group (ETG) which is one of the quickest growing agriculture conglomerates in Africa [7]. The agreement is designed to drive agriculture in the region as many African countries continue to adopt advanced forms of technology, whilst connecting African farmers to essential markets to help expand the agricultural reach amongst African farmers [8].

By Rory Ellis, Analyst at the York IFS Global Market Telegraph

This article was first published in University of York Investment and Finance Society's Global Market Telegraph (GMT) Edition 6 in early September 2020

Reference list:

[1] https://www.bloomberg.com/news/articles/2020-08-23/zambian-leader-criticized-for-firing-central-bank-governor?cmpid=BBD082820_AFRICA&utm_medium=email&utm_source=news letter&utm_term=200828&utm_campaign=africa)

[2] https://www.african-markets.com/en/stock-markets/luse

[3] https://www.ft.com/content/47896075-7590-4e59-a2ea-1c36961df655

[4] https://www.weforum.org/agenda/2020/08/africa-largest-economy-worst-contraction-in-a-decade

[5] https://www.bloomberg.com/news/articles/2020-08-24/nigeria-gdp-contracts-6-1-in-second-quarter-as-oil-output-drops

[6] https://www.bbc.co.uk/news/uk-53566043

[7] https://allafrica.com/stories/202008290083.html

[8] https://www.busiweek.com/afreximbank-provides-400m-to-drive-agricultural-productivity-and-resilience/

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