Currency weakness, higher oil prices hit African economies, PMIs show

Gauges measuring sentiment in the private sector fell in four of six sub-Saharan African economies tracked in September, as currency weakness and higher oil prices fanned cost pressures in some countries.

Crude surged past $90 a barrel last month for the first time in almost a year after OPEC+ leaders Saudi Arabia and Russia extended oil supply curbs of more than 1 million barrels a day to the end of the year.

Importers Kenya, Zambia and South Africa, whose currencies have also been weakening against the dollar due to a range of domestic factors, were particularly negatively hit.

Their purchasing managers’ indexes all showed readings of below 50 in September, signaling a deterioration in business conditions with the most pronounced decline occurring in Kenya.

After signaling an upturn in operating conditions for the first time in seven months in August, Kenya’s PMI compiled by S&P Global and Stanbic Bank returned to contraction territory.

“Kenyan firms reported another marked rise in input prices in September, with the rate of inflation even accelerating to the second-highest on record,” the companies said in a statement. “Anecdotal evidence indicated that currency weakness and higher fuel bills were mainly behind the rise. Output charges were raised sharply accordingly, albeit to a slightly lesser degree than August’s 14-month high.”

Shilling depreciation has been stoked by diminishing foreign-exchange reserves, deteriorating balance of payments, concerns over repayment terms for a $2 billion eurobond maturing in June 2024 and rising global interest rates, which have increased the cost of servicing debt. The unit has declined almost 17% against the dollar this year.

In Zambia, where inflation quickened to an 18-month high last month, building price pressures meant for a more challenging business environment, the companies said.

Higher purchase costs were the main driver of overall input-price inflation with the rate of increase the fastest in five months. That was due to a combination of exchange rate weakness and rising fuel costs, S&P Global and Stanbic Bank said.

Pandemic defaulter

The kwacha has depreciated 15% against the dollar in 2023, partly due to reduced copper production and sentiment because of the lack of progress in finalising a debt restructuring deal.

Africa’s first pandemic-era sovereign defaulter, which in June secured an agreement in principle to rework $6.3 billion of debt with its official creditors’ committee co-chaired by China and France, is yet to sign a memorandum of understanding. That’s now only expected by the end of the year.

After recording the first improvement in operating conditions for six months in August, the latest PMI reading for South Africa showed a broad stagnation, S&P Global said.

The main contributors were continuing power cuts and another marked jump in business costs across the private sector because of higher fuel prices and sustained rand weakness, it said.

South Africa’s electricity power utility, Eskom, increased the intensity of daily outages during September to the highest level in almost two months as generating plants tripped and others closed for maintenance.

The utility has been battling to keep the lights on for years due to frequent breakdowns in its aging fleet of mainly coal-fired stations, crimping economic growth.