ECONOMIC AND FINANCIAL RESEARCH

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Monthly Macro Overview: Africa

May 2016
Jos Cerdeira
jose.miguel.cerdeira@bancobpi.pt
Vnia Duarte
vania.patricia.duarte@bancobpi.pt

Monthly updates

Angola

Total oil tax revenue dropped 52.7% in March

International trade in goods in 4Q2015 showed a fall of 34.5% in imports

Annual inflation increased more than 300 basis points to 23.6% in March

Moodys downgrade Angolas rating by two notches, from Ba2 to B1

Mozambique

Year-on-year inflation rose again from 12.2% to 13.6%

The Bank of Mozambique restricted monetary policy, increasing interest rates

Rating agencies reviewed their assessments, in face of recent developments

South Africa

The IMF lowered the forecast for South African growth to 0.6%

Inflation decreased slightly from 7.0% to 6.3% in March

South Africa placed a Eurobond issue, amounting to USD 25.1bn

Monthly Macro Overview: African Markets

2016-05-09

Angola
Oil revenues falling, inflation remaining high, reserves holding out
The export of Angolan oil stood at 48.2 million barrels in March of this year, an increase of 1.2% compared to the same month in 2015. M eanw hile, the average price per barrel w as USD 30.25, 61 cents low er
than in the previous month. Thus, measured in dollars, revenues from oil taxes fell significantly: tax on oil income
revenue was about half than in March 2015 and tax on oil production collection fell about 25.1%. State-owned Sonangol reported less than half the revenues in 2015. In total, oil tax revenue stood at USD 445.4 million, a drop of
52.7%. Compared to 2015, international trade of goods in Q42015 showed an annual decline of 21.5% in
exports and a decrease of 34.5% in imports. This resulted in a surplus of AOA 425 billion, an improvement of 1.5% over the same quarter of 2014. The cover ratio also improved over the same period, standing at
187.1% (156.2% in Q4 2014). Most likely, despite the low oil prices limiting the performance of the Angolan economy, the import-reduction strategy may be taking effect.

The annual inflation rate in Angola, measured by the CPI of Luanda, continued to rise in March, reaching
23.6%, more than 300 basis points above the level of February. The rise in inflation has continued, mainly due to the
depreciation of the domestic currency, which associated to the removal of fuel subsidies has led to increases in the
prices of a wide variety of goods; on the other hand, the increase in food prices due to the drought in Sub-Saharan
Africa has also contributed to this problem. In April, the central bank held two slight devaluations of the Angolan currency against the dollar (1.34% and 1.84%), due to the continuing shortage of foreign currency, after
other two also slight devaluations in late March, with the USD/AOA now at 166.7, accumulating a loss of value of
22.6% since the beginning of 2016. Although international reserves have been decreasing, the USD 24.14 billion
posted in March still ensure 7 months of next year imports.

Moody's downgraded the rating of Angola on two notches, from Ba2 to B1, assigning a negative outlook
to the rating grade. The agency cited as reasons for downgrade the deterioration of the external and fiscal balances,
which both saw their surpluses in in 2013 turn to deficits last year. According to the agency, the external and fiscal
balances posted in 2015, respectively, deficits of 5.7% and 1.6% of GDP. On the other hand, Angola's dependence on
oil, combined with the prospects for a longer period of low commodity prices, do provide a scenario of significant reduction in the economic growth, which has been crucial to the most positive evaluation of Moodys in past evaluations.

Imports are reducing, but not enough yet to

close the gap
100%

120

70

2000
20

2,000
0

Trade balance (rhs)

Imports

Exports

Source: INE

Source: Bloomberg, Min. Fin.

Reserves keep their falling trend, although not

too steep

20.0%

million U SD

4.0%
3.0%

16.0%
12.0%

2.0%

8.0%

1.0%

4.0%

y-o- y %

4,000

-60%

Inflation - Luanda

Mar/ 15

6,000

-80%

24.0%

Sep/14

8,000

0%

-40%

Annual inflation increased again in March

0.0%
Mar/14

20%
-20%

0
-30
Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16
Sonangol revenue
ITP
IPP
IRP
Brent Angola 14-45D Fwd (rhs)

10,000

40%

Sep/15

m-o-m % (RHS)

40,000

180

35,000

160

30,000

140

120

25,000

100

20,000

80

15,000

60

10,000

40

5,000

0
Apr-14

0.0%
Mar/ 16

20

Oct-14

Apr-15

Oct-15

x kwanzas per U SD

1000

12,000

60%
yoy %

3000

14,000

80%

U SD per barrel

million U SD

4000

U SD millions

Oil fiscal revenue continues to fall

0
Apr-16

Net International Reserves

Monthly average of Exchange rate - BNA (RHS)

Source: INE

Source: BNA

Monthly Macro Overview: African Markets

2016-05-09

Mozambique
Increase in interest rates in face of inflationary pressures
Mozambique is still facing inflationary pressures, due to the depreciation of the metical, weather conditions and political instability. The inflation rate in March increased again, from 12.2% in February to
13.6%, an upward trend recorded for 10 consecutive months. Nevertheless, the mom change was less significant than
in the previous month, settling at 1.33% in March, compared to 2.24% in February, with food and non-alcoholic beverages again as the main drivers of the monthly change in prices (1.13 percentage points). This occurred mainly because of the effects of adverse weather conditions, aggravated by political and military tensions, which affected movement of goods and people in major roads; additionally, the currency depreciation increased food import prices.

In response to inflationary pressures, the Monetary Policy Committee of the Bank of Mozambique decided
to restrict monetary policy. The marginal facility interest rate rose 200 basis points to 12.75% , w hile the
facility deposits rate climbed from 4.25% to 5.75%. In addition, the Committee amended the rules of compulsory reserves, disaggregating the reserve base in local currency and foreign currency and differentiating the respective coefficients: the coefficient of reserves in national currency remained at 10.5%, while the ratio of foreign currency reserves stood at 15%, to be held in US dollars. This change comes at a time when the net international reserves are
declining, settling in March at USD 1.9bn. Meanwhile, the IMF cancelled a visit to the country after the discovery of
more than USD 1bn in government-backed external debt not previously disclosed. I n December 2015,
Mozambique had requested a USD 285 million loan to the IMF to shore up reserves, of which USD 165 million have
not yet been disbursed.

The rating agencies have reviewed their assessments of Mozambique, in line with recent developments.
Moody's believes that the exchange debt of USD 697 million bonds of EMATUM by USD 727 million in public debt is
seen as a signal of a lower level of willingness to service future debt when faced by rising macroeconomic and external pressures, which led the agency to reduce the B3 rating to Caa1, with stable outlook. Still, the agency acknowledges the benefits of the debt exchange, namely the reduction in pressure to the countrys public accounts. S&P, on
the other hand, upgraded the foreign-currency long term rating from Selective Default to B-, following the conclusion
of the debt exchange. More recently, Fitch downgraded the countrys rating, from B to CCC, referring the debt hiding
consequences on the level of public debt and its sustainability.

...leading the central bank to raise the reference interest rate

Annual inflation increased in March...

20

50
D eprec iation

15

10%

30

10

8%

20

5%

10

3%
Mar- 13

Sep-14

0%
Apr/13

Source: Datastream

The use of international reserves has prevented

larger volatility in the exchange rate

Apr/15

Oct/15

9.0
8.0

7.0
6.0

% GDP

2,500

1.0

Net International Reserves

Gross Public D ebt

2020

2019

2018

2017

0.0

2016

Mar-16

2015

Jun-15

2.0

2014

Sep-14

3.0

2008

500

4.0

2013

1,000

5.0

2012

1,500

2011

2,000

Dec-13

Apr/16

Source: Bank of Mozambique

100.0
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0

3,000

million U SD

Oct/14

The IMF expects a slowdown in growth along

with an significant increase of public debt

3,500

0
Mar- 13

Apr/14

Lending rate
Deposit rate
Required reserves ratio

Nominal Exchange Rate (eop) - yoy% change

Annual inflation rate% (RHS)

Oct/13

% c hange

Sep-11

0
Mar- 16

2010

0
Mar- 10

2009

40

Monetary Policy rates

13%

GDP growth
Source: IMF (WEO April 2016)

Source: Bank of Mozambique

Monthly Macro Overview: African Markets

2016-05-09

South Africa
Economic scenario revised downwards again
The International Monetary Fund (IMF) has lowered the forecast for economic growth in South Africa, in
line with the internal and external environment. For 2016, the institution has low ered the GDP grow th
rate by 0.1 percentage points (p.p.) in comparison with January forecasts, anticipating growth of 0.6%: low prices of
exports, heightened political uncertainty, tighter fiscal and monetary policies and the impact of the Chinese economic
slowdown on external trade (China is the main trading partner) are among the reasons for such tepid growth. For
2017, economic activity is expected to improve and expansion could reach 1.2%, according to the IMF. Nevertheless,
this is still below the historical average record (2.4%) and relatively low given the level of economic development of
the country.

The annual inflation rate in March decreased slightly to 6.3%, after reaching 7.0% in the previous month.
Prices of food products increased about 9.8% year on year (yoy), reflecting the drought currently affecting the country, whose impact has been large in the case of fruits and vegetables (the increase reached almost 19% yoy in both
cases). This was, incidentally, the only item where there was an increase in the contribution to the annual inflation
rate, from 1.3 p.p. to 1.5 p.p.. In the case of transport, growth in prices was smaller than in the previous month
(4.5% yoy vs. 8.7% yoy), reflecting the recovery of the exchange rate in March (yearly depreciation of 21% compared to 35% in February). Moreover, it should be noted that in February of this year transport price changes also
reflected the base effect of fuel prices, since in February 2015 fuel prices reached the lowest level for three and half
years, resulting in much less significant yearly price rise in March (3.8% compared to 20.7% in February).

The South African government issued Eurobonds, benefiting from the current context of low interest rates
in international markets. This issue amounted to USD 25.1 billion, w ith a maturity of 10 years and a coupon of 4.875%. This placement occurred in a context in which the Federal Reserve has shown more caution about the
new rise in interest rates and there has been a more expansionary monetary policy in the case of the euro zone and
Japan: this environment has increased the appetite of investors for more profitable assets (albeit with greater risk
implied), as are the assets in emerging markets. The success of this issue, for which demand exceeded supply by
more than twice, allowed for a recovery of the Rand, which at the beginning of the year had been trading at R 15.91
per USD, and in late April traded at around R 14:40.

The IMF has repeatedly lowered GDP growth

forecasts

Pace of inflation has decreased in March, comparing with the previous month...

G D P % c hange

2.5
2

8.0

1.5

7.0

1.2

6.0

0.9

5.0

0.6

1.5

4.0

3.0
2.0

0.0

0.5

1.0

-0.3

0.0
mar/14

0
2015
Oct. 2015

2016
Jan.2016

2017
Apr. 2016

0.3

2018

set/14

mom% (rhs)

Source: WEO IMF

PMI

16

18
16

14

14
12

12

10

10

USDZAR

points /index

20

60.0
x rands per E U R

x rands per U S D

18

8
Oct-15
EURZAR

core

PMI rose in April, the 2nd month in a row above

the 50-point mark

Exchange Rate

Jul-15

yoy%

-0.6
mar/16

set/15

Source: Bloomberg

in line with the recovery of the Rand through

March

8
Apr-15

mar/15

Jan-16

55.0

45.0
40.0
Apr/14

Apr-16

50 points

50.0

Oct/14

Apr/15

Oct/15

Apr/16

Source: Bloomberg

Source: Bloomberg

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and only partial reproduction is allowed, subject to mentioning the source. This research is
based on information obtained from sources
which we believe to be reliable, but is not
guaranteed as to accuracy or completeness.
At any time BPI or any affiliated companies
(or employees) may have a position, subject
to change, in these markets. Unless otherwise
stated, all views (including estimates or forecasts) herein contained are solely expression
of BPI Economic and Financial Research and
subject to change without notice.

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