As global economic growth prospects improve, Africa is following suit. Inflationary pressures are easing, albeit unevenly, and GDP is gradually expanding. In Ghana, inflation has dropped to a two-year low of 21% (y/y), while real GDP growth surged to 6.9% (y/y) in Q2 2024, marking the fastest pace in five years. Kenya also experienced a slowdown in inflation, with September’s headline rate at 3.6% (y/y), steadying at the lower band of the Central Bank of Kenya’s (CBK) target of 3-8%. Meanwhile, in Nigeria, despite inflation slowing for the second consecutive month to 32.15% in August, risks persist, particularly after the recent 50% increase in petrol prices.
With inflation rates varying, interest rate decisions were also mixed across key African countries. In line with our expectations, South Africa and Ghana reduced interest rates by 25 and 200 basis points, respectively, while Egypt held its rate steady at 27.25%. Surprisingly, the Central
South Africa
Currency risk
The South African rand steadily appreciated in September, gaining 2.9% to close at R17.1/$ compared to August, marking its third-best monthly performance since January. A weaker US dollar drove this positive currency movement following the Fed’s interest rate reduction on September 18. Growing investor confidence in South Africa's economy, buoyed by a more stable political and policy environment, also supported the rand. Total foreign investment increased by 3% between Q1 2024 and Q2 2024.
Higher earnings from gold exports further bolstered dollar inflows, strengthening the rand. Gold, which accounts for roughly 15% of South Africa’s export earnings, witnessed an over 20% increase in price to a record high of $2,635/t.oz in September, potentially supporting dollar inflows. On the Stears Africa FX monitor, the South African rand was the second-best-performing currency in September, after the Nigerian naira.
A stable currency and improved power supply will support business activities in the coming months by reducing import costs, likely sustaining positive growth. In Q2 2024, South Africa’s economy expanded by 0.4% (q/q), marking the fastest quarterly growth rate since Q2 2023. Deputy President Paul Mashatile expects the economy to grow by 1.5% (y/y) in 2025, which, if achieved, would be the strongest performance in the last decade.
South Africa's growth prospects remain favourable, with the coalition Government of National Unity (GNU) focusing on infrastructure and targeted sector investments like financial services (digital payments infrastructure) and renewable energy. Notably, job-elastic sectors like manufacturing and agriculture posted significant growth in Q2 2024, suggesting a potential reduction in unemployment, currently at 33.5%.
Considering these developments, we expect the South African rand to remain relatively stable, potentially trading at our revised Q4 2024 forecast of R17.2/$. We adjusted our quarterly end-point estimate upwards from R18.4/$. This currency performance will likely sustain investor confidence, particularly among long-term investors, driving positive dollar inflows in the near term.
Inflation and interest rates
Inflation fell for the third consecutive month to 4.4% in August 2024, below the South African Reserve Bank's (SARB) midpoint target of 4.5%. Easing price pressures signal a gradual rebound in consumer disposable income, which we expect to support business growth and overall economic recovery. After two months of contraction, private sector activity expanded further from 50.5 points in August to 51 points in September. Better access to input materials, faster supplier delivery times, and increased new orders drove this improvement. Business confidence is also rising.
In response to sustained inflation declines and positive GDP growth, the SARB cut its repo rate by 25 bps at its September meeting, bringing it down to 8% from 8.25%. This aligns with the global trend of interest rate cuts among advanced economies. The lower interest rate environment has led to declining yields across fixed-income instruments, with 91, 180, and 364-day T-bill yields down by an average of 0.06 percentage points compared to August.
At the same time, lower interest rates have increased the attractiveness of equities, driving the JSE All Share Index to its best performance in the last three months. The bourse has gained over 5% between June and September. While T-bill yields have declined, the rising stock prices suggest improving dollar inflows, mainly from short-term portfolio investors seeking to capitalise on falling global interest rates.
However, inflation risks loom over the medium term. Eskom, South Africa’s primary electricity provider, plans to raise tariffs by a cumulative 57% between 2025 and 2028, with a significant 36% hike expected between April 2025 and March 2026. This will likely strain consumer spending as households adjust to higher energy costs, shifting their expenditure towards essentials. As a result, a strong recovery in consumer demand may be delayed, which investors should consider when adjusting their investment models, particularly for businesses dependent on consumer spending.
Overall, South Africa's economic outlook offers both opportunities and risks for investors. The country’s relatively stable currency, bolstered by higher gold export earnings and improved investor sentiment, provides a positive near-term outlook. Additionally, easing inflation and interest rate cuts support business growth and investment opportunities, particularly in sectors like renewable energy, financial services, and infrastructure.
However, medium-term inflation risks from rising electricity tariffs and potential consumer demand slowdowns remain concerns. Investors will need to assess these risks carefully.
Egypt
Currency risk
The Egyptian pound appreciated mildly in September by 0.67%, closing the month at E£48.3/$ on September 30 from August’s close of E£48.7/$. This marks the currency’s second-best monthly performance since the devaluation in March.
The positive performance of the exchange rate was driven primarily by increased foreign exchange inflows from investors, Special Drawing Rights (SDR) disbursements from the IMF worth $40 million, and rising gold reserves. Egypt received access to $820 million from the IMF in September under its Extended Credit Facility (ECF) program. This influx of dollars supported the increase in gross foreign exchange reserves, from $46.6 billion in August to $46.7 billion in September.
The performance of the Egyptian pound signals a phase of relative currency stability in the coming months as the volatile effects of the March devaluation begin to subside. For businesses and investors, this provides a more predictable environment for strategic investment planning, particularly in import-heavy sectors that stand to benefit from reduced costs due to lower exchange rate volatility.
The appreciation will likely ease some pressure on import costs, which could positively impact consumer prices in the near term. However, the government's ongoing reforms and efforts to phase out subsidy payments might offset these gains by maintaining upward pressure on prices, especially for energy and other subsidised goods.
Looking ahead, Egypt's currency performance at the end of Q3 2024—where the pound traded at E£48.3/$, below our estimate of E£50.3/$—signals the potential for the currency to perform similarly in Q4 2024. We expect the Egyptian pound to trade at E£48.9/$, slightly below our initial forecast of E£51.4/$ during this period.
The Egyptian pound's stabilisation will likely bolster investor confidence, particularly in light of the US Federal Reserve's recent rate cuts. As global interest rates cool, Egypt's attractiveness as an investment destination may improve, especially with its higher yields in fixed-income markets.
The Egyptian pound’s relative stability is crucial for the country’s debt repayment. Total government debt as a percentage of GDP (95.9%) as of 2023 remains above the IMF’s threshold of 55%. As a result, a stable or appreciating currency will ease Egypt's burden of repaying its external debt.
Inflation and interest rates
Price pressures resurfaced in Egypt, as headline inflation rose for the first time in five months in August to 26.25%, up from 25.67% in July. The monthly inflation sub-index, which tracks more immediate price changes, also climbed to 2.05%, driven by sharp increases in regulated items like batteries. Core inflation similarly rose on a month-on-month basis, underscoring the persistence of structural challenges that continue to fuel inflationary pressures.
Energy costs were a significant contributor to the inflation uptick. As part of the Egyptian government’s reform program under the IMF’s $8 billion Extended Credit Facility (ECF), petrol and diesel prices increased by 10-15%, while electricity tariffs surged by nearly 40%. These hikes affected transportation costs, with bus and metro ticket prices rising alongside them. Additionally, the government raised the price of subsidised bread by 300% in June and increased local wheat prices by 10%.
These rising costs reflect a fragile consumer landscape, with wallets likely to remain squeezed in the short to medium term as the cost of living climbs. There are also risks of social tensions, which could disrupt reform efforts if public dissatisfaction leads to protests. While Egypt’s improving investor sentiment draws new investments, weak consumer demand will challenge business profitability and economic growth.
The Central Bank of Egypt (CBE) must carefully weigh these factors at its October meeting. In September, the CBE's monetary policy committee held interest rates steady, as expected, to support economic growth and sustain market confidence.
Overall, Egypt faces a delicate balance between implementing necessary reforms and managing their impact on inflation and consumer welfare. Investors are likely to remain cautiously optimistic as the government navigates these challenges, but weak domestic demand could limit profitability and growth potential in the short term. The CBE will continue to play a pivotal role in managing inflationary pressures while supporting economic growth through careful monetary policy adjustments.
Nigeria
Currency risk
The Nigerian naira remained highly volatile across official and parallel markets in September. At the official market, the currency traded within a wide range of ₦1530-₦1690 per US dollar, while at the parallel market, it depreciated sharply, crossing ₦1,700/$. The spread between the official and parallel market rates widened from 2% in August to 11% in September. However, towards the end of the month, the naira began to recover due to a sharp increase in forex supply at the official window.
Between September 23 and 27, daily forex turnover at the official market surged from $100 million to $300 million, resulting in a 3.7% appreciation by the end of the month, with the naira closing at ₦1,542/$ from ₦1,598/$ at the end of August. Among the nine currencies tracked, the naira recorded the best monthly performance in September. Despite this recovery, the naira’s volatility during the month presents elevated currency risks for investors, especially in the near term.
The persistent forex supply-demand gap drove the naira’s fluctuations. Demand pressures emanated from the ongoing 150-day import waiver, travel demand ahead of the festive season, and payments for international school fees. While foreign portfolio inflows and increased crude oil production helped bolster supply, demand pressures still exceeded available forex, applying downward pressure on the currency.
In response, we expect the Central Bank of Nigeria (CBN) to take additional measures, including conducting another Retail Dutch Auction (RDA) to address the rising forex backlogs and ease demand pressures. In August, the CBN conducted an RDA that cleared over 50% of the $1.1 billion forex needs with commercial banks. Following the RDA was a $543.5 million forex sale to authorised dealer banks in September. Additional forex sales to Bureau De Change (BDCs) are also anticipated to help bridge the gap between parallel and official market rates. There were two forex sales by the CBN to BDCs at $20,000 each on September 6 and 25 to meet retail demand, which supported the naira’s appreciation.
The naira closed slightly above our Q3 2024 forecast of ₦1,569/$ at ₦1,542/$. For Q4 2024, we now project a revised rate of ₦1,572/$, compared to our initial estimate of ₦1,500/$. However, continued structural challenges, including insecurity and the need for sustained increases in oil production above the OPEC+ benchmark of 1.5 million barrels per day (mmbpd), will be critical for further stability. In the near term, currency risks will likely impact companies' operating expenses and investor portfolio performance, making it essential for investors to remain cautious.
Inflation and interest rates
Despite inflation falling for the second consecutive month in August to 32.15% due to lower food prices buoyed by the harvest season and the expansion of GDP growth by 3.19% in Q2 2024, the CBN’s monetary policy committee unanimously voted to hike the policy rate by an additional 50 basis points to 27.25% in September. This was a surprising move as 14 of the 15 economists surveyed by Stears anticipated a pause on rate increases at the September meeting. The CBN also increased the Cash Reserve Ratio (CRR) from 45% to 50% for commercial banks.
The interest rate adjustments point to a further rise in lending rates, already over 30%, increasing the borrowing costs for businesses and potentially slowing output growth from critical sectors of the economy like agriculture, manufacturing, and trade. The expected slowdown in growth poses significant threats to employment. The unemployment rate increased to 5.3% in Q1 2024 from 4.1% in Q1 2024. Lower employment rates will further worsen the harsh living conditions in the country, especially as petrol prices have increased by over 50% in the past month.
The high cost of living triggered another protest on October 1, Nigeria’s independence day. This is the second round of protests in three months. To improve economic performance over the coming quarters, President Tinubu intends to reshuffle his cabinet, letting go of ministers who are performing sub-optimally. As of now, it is unclear when this reshuffle will happen and who will be dismissed. Regardless, significant policy implications exist for the broader economy and investor confidence. If more competent persons are in office, there could be a potential turnaround in economic conditions, possibly comforting embattled Nigerians and pessimistic investors. Notably, the time lag between policy and outcomes will be crucial as the possible economic benefits will not be evident until next year.
Additionally, the CBN is increasing the CRR for deposit money banks as part of its efforts to stabilise prices. The increase in CRR means that 50% of banking liquidity will now be deposited with the central bank. This will likely slow down money supply growth (M2), which grew 163% y/y in August 2024. The increase in money supply is also a contributory factor to inflation. Tighter banking sector liquidity will shoot up interbank interest rates, meaning that the cost of banks borrowing from themselves will also increase. With the earlier adjustment to the asymmetric corridor in July from +100/-300 to +500/-100 basis points around the MPR, banks might be incentivised to deposit more cash with the CBN to garner higher interest rates.
For consumers, the tight banking sector liquidity potentially means that cash withdrawal limits of around ₦20,000 per transaction from commercial banks will be more rampant nationwide. This will increase the need for digital payment solutions, a significant investment sector within financial services for long-term investments in Nigeria. A pointer to this trend is the 83% y/y increase in the value of e-payment transactions across significant channels like NIP (instant transfers) and Point-of-Sale (POS) from ₦51.8 trillion in September 2023 to ₦94.7 trillion in September 2024.
Overall, inflationary pressures remain significant, primarily driven by higher energy costs, which have a cascading effect on transportation and food prices. As a result, consumer demand is expected to stay weak. However, the import waiver is likely to alleviate some of these pressures by increasing the supply of food items, such as rice, which could temporarily mitigate the pass-through effect of elevated energy costs on commodity prices in the short term.
The government, through its VAT Modification Order (2024), has also implemented VAT exemptions on some energy products like diesel, Liquified Petroleum Gas (LPG), and Compressed Natural Gas (CNG) to lower prices and ease the cost of living. The Oil & Gas Companies Order (2024) also outlines tax incentives for deep offshore oil and gas production to encourage crude production, potentially easing prices of refined petroleum products if effective.
Moreover, the pending outcome of the naira-for-crude oil deal between the Nigerian National Petroleum Corporation (NNPC) and Dangote Refinery could further ease the costs of Premium Motor Spirit (PMS) and diesel production. If successful, this deal could enhance supply and stabilise prices in the market, providing a much-needed buffer against inflationary pressures.
Ghana
Currency risk
Ghana’s economy is currently marked by the race to the December 7 presidential elections. Recent poll results indicate a tightly contested race between Ghana's two major political parties, the National Democratic Congress (NDC) and the incumbent National Patriotic Party (NPP). A poll by GlobalInfo Analytics predicts a win for the NDC, with 51.1% of the total votes cast, while another survey by Outcomes International shows the NPP’s candidate, Mahamudu Bawumia, securing 49.4% of the vote. These mixed results underscore the uncertainty surrounding the elections.
The presidential election's outcome has significant implications for the country’s macroeconomic stability. As suggested by some polls, a change in leadership could lead to shifts in economic policies, especially regarding fiscal discipline and debt management. These are critical issues for Ghana as it faces high public debt and rising inflation. A victory for the opposition NDC, led by former president John Mahama, also suggests high public dissatisfaction under the current ruling party. Our previous report highlighted that under John Mahama (2012-2017), Ghana witnessed high growth, sustainable debt, and manageable inflation, reinforcing the possible outcome of a win for the NDC. The resulting change in current economic reforms and spending priorities under an NDC-led government will potentially influence investor confidence in the short-medium term.
On the other hand, if the incumbent NPP, led by Mahamudu Bawumia, retains power, continuity in policy—especially regarding the current IMF program and debt restructuring efforts—may provide more predictability for investors and maintain market confidence.
It is unclear what the election outcome will be. However, we expect that regardless of who steps into power, Ghana will continue on its path of reforms and debt sustainability efforts under the G20 common framework to avoid a rating downgrade from agencies. Though political risks are looming, should the NDC win, we do not foresee a prolonged period of uncertainty or electoral violence that could potentially set back Ghana’s current favourable economic trajectory.
On October 3, the IMF concluded its third review under Ghana’s Extended Credit Facility (ECF) programme, unlocking $360 million in financing. This may temporarily relieve the Ghanaian cedi in the coming weeks. Still, we expect the markets to continue to price the current political uncertainty against the Ghanaian cedi, which has steadily lost steam since January.
The currency depreciated 3.9% in September, extending its 1.9% loss in August. The cedi closed the month at ₵15.8/$, down from ₵15.2/$ on September 1. From the Stears Africa FX monitor, out of the nine currencies tracked, the Ghanaian cedi was the worst-performing currency after the Ethiopian birr m/m. The currency depreciated despite the weaker US dollar and improved export earnings from oil and gold that should have supported currency value. By the end of Q4 2024, we expect the currency to trade at our revised forecast of ₵16.2/$, mainly due to political uncertainties.
Inflation and interest rates
Election spending poses risks to Ghana’s recent disinflationary trend. The potential increase in money supply growth, currently at 37% y/y as of August 2024, may nudge inflationary pressures higher in the coming months. This will be particularly visible in the m/m headline inflation numbers and driven by non-food factors.
In September 2024, inflation rose to 21.5% (y/y), reversing the downward trend that began in March 2024. Food and non-food inflation items, such as fruits, nuts, and transportation, drove this increase. Adverse weather conditions in major producing regions contributed to price hikes for food. Additionally, Ghana has adopted a protectionist stance by curbing exports of critical staples like rice and wheat. The exchange rate pass-through effect on commodity prices also fuels higher costs.
Despite these challenges, the Bank of Ghana (BoG) cut interest rates by 200 basis points from 29% to 27%, aligning with expectations. The BoG considered the global cooling interest rate environment and high commodity prices positively contributing to Ghana’s dollar earnings and y/y real GDP growth expansion (6.9%) in Q2 2024. This rate cut happened on September 27, before the release of September inflation figures on October 2.
The decline in interest rates will likely support output growth by lowering the cost of credit. Business activity levels declined in September, as evidenced by the 3.9% decrease in Ghana’s purchasing managers index (PMI) from 51.1 points in August to 49.1 points.
Like other key African economies—Nigeria, Egypt, South Africa, and Kenya—Ghana’s current inflation and interest rate dynamics suggest cautious consumer spending. Given that consumption accounts for over 80% of GDP, sluggish consumption growth will likely continue to drag on business performance.
Ghana’s macroeconomic outlook remains mixed as inflationary pressures resurface amid political uncertainty. While the central bank’s rate cuts may support economic growth, the looming elections, higher inflation risks, and potential fiscal policy shifts could dampen investor confidence and delay the country’s recovery. The political landscape will be crucial in shaping Ghana’s economic trajectory heading into 2025.
Kenya
Currency risk
Political uncertainty in Kenya, driven by the recent motion to impeach Vice President Rigathi Gachagua and dissatisfaction with President Ruto's handling of police brutality during the July protests, is significantly influencing the economic landscape. These motions follow a rather imbalanced policy environment driving bearish investor sentiments as Kenya’s sovereign credit rating has been downgraded to junk status.
In September, courts ruled against Kenya sailing through with the Privatisation Act (2023), a requirement for Kenya under its IMF Extended Credit Facility (ECF) program. The act ensures that about eleven defunct state-owned enterprises, including the National Oil Corporation of Kenya (NOCK) and Western Kenya Rice Mills Ltd (WKRM), became private and profit-making entities to reduce the financial burden on the government for state bailouts.
The move to drop the Privitasiation Act comes after the withdrawal of the 2024 Finance bill. Between August and September, there was no substantial progress on the government tax amendment bill to support its fiscal deficit by sustaining its revenue generation efforts. The goal of the amendment bill was to generate Ksh30 billion ($233 million), 12x below the initial Ksh350 billion ($2.7 billion) to be raised from the 2024 Finance bill. These changes to reform efforts have delayed the expected $800 million IMF disbursement due in September. The Fund is set to review and monitor the situation closely, should there be room for adjusting the conditions of the loan agreements with Kenya.
Still, the uncertainty around Kenya’s fiscal coffers increases debt sustainability and repayment concerns. According to the IMF, Kenya’s total debt has grown 4x in the last decade, ballooning to over 70% of GDP, above the 55% threshold for developing economies. Kenya is at risk of high debt distress. Delays in IMF funding are triggering fresh borrowing conversations from other multilateral lenders, including the UAE. Kenya is in talks with the UAE for $1.5 billion to support its public finances. We expect these conversations to be successful, temporarily supporting government revenue. However, the risk of a possible fallout from the IMF’s reforms looms, pointing towards high interests attached to fresh loans as risk premiums in the case of a default.
The debt situation in Kenya amid lean government revenue is expected to impact the currency in the coming months, barring significant improvements. Notably, there is a chance that the 16% (y/y) increase in foreign exchange reserves will support the Central Bank of Kenya’s (CBK) efforts to defend the currency in the coming months.
Still, we foresee currency pressures, mainly because we do not expect sustained interventions in the forex market. After gaining 0.58% (m/m) in August, the Kenyan shilling marginally lost -0.02% to close the month at Ksh129.2/$ in September. YTD, the currency’s performance is still broadly positive at 21.45%. By the end of Q4 2024, we expect the Kenyan shilling to trade at Ksh130/$, down from Ksh129.2/$ in Q3 2024.
Inflation and interest rates
In September, Kenya’s headline inflation rate declined to 3.55% (y/y), the lowest since May 2019 (3.49%). Favourable base effects and lower energy costs drove the decline in prices. Electricity, kerosene, petrol, and diesel prices are down by an average of 14% (y/y), reducing household and business logistics, transportation, and operating expenses.
The improvement will likely support consumer disposable income in the near term, contributing positively to economic growth that slowed in Q2 2024 to 4.6% (y/y) from 5.6% (y/y) in Q2 2023. Lower costs will also continue to support business activities in the near term. Kenya’s purchasing manager’s index reading declined 2% from its three-month high of 50.6 points in August to 49.7 points in September.
However, the m/m inflation trend paints a different picture of Kenya’s inflation landscape. It rose to 0.2% in September due to higher food prices, indicating potential inflation risks in the coming months. We predict Kenya’s inflation within our base and bear forecasts of 3.32% and 3.52% in October.
Considering that over 70% of Kenyans are low-middle income earners, we expect consumption patterns to favour necessities like food over other expenses. It also points to the continuation of the Kadogo (sachet) economy. For business owners, especially within the consumer goods sector, this means that a substantial recovery in consumer demand towards pre-COVID or pre-Ukraine war levels is unlikely in the short term (3-6 months).
We anticipate the CBK to hold rates at 12.75% at its October 8 monetary policy committee meeting to curtail price pressures from higher food prices and anticipated currency pressures. The CBK cut its policy rate by 25 basis points from 13% in August. We expect the bank to be cautious with interest rate adjustments as the political environment remains fragile.
Overall, Kenya’s economic landscape will remain complex in the near term, especially as we anticipate the IMF’s funding decision amid unmet loan conditions. The outcome of the Fund’s review in September will largely shape Kenya’s economic prospects. There are bright spots to consider, especially as global commodities prices increase, possibly supporting export earnings from essential commodities like tea and coffee for the country.
