African private sector activity continues recovery in June

PwC survey shows ‘business as usual’ will take more than six months if pandemic ends today

Data released in recent days by global information provider IHS Markit indicates that private sector economic activity in Africa continued to recover in June. Business activity declined in March and bottomed out in April as the worst adverse impacts from global lockdowns weighed on African business. Most of the continent’s Purchasing Managers Index (PMI) readings improved in May (with the exception of South Africa and Zambia) and all eight of the country indices showed month-on-month improvements in June. This turnaround in business activity aligned with an earlier statement by the International Monetary Fund (IMF) about disruptions to African economic activity being concentrated in 2020Q2.

PMI reports are based on the results of questionnaires sent to purchasing managers at private sector companies. The PMIs are some of the earliest data releases for a given month and are usually released within the first week of a new month. (For example, most PMIs for June were published in the first seven days of July. These surveys provide crucial information on economic activity – including business operations, production prices, supply chain performance, and employment trends, amongst others. In general, PMI readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

IHS Markit publishes comparable PMIs for 45 economies, including eight African countries: Egypt, Ghana, Kenya, Mozambique, Nigeria, South Africa, Uganda and Zambia. This group of African countries include the largest economies on the continent – Nigeria, South Africa and Egypt being the top three – and account for 55% of Africa’s GDP. The group of eight also account for 50% of Africa’s exports and 45% of imports by value. In other words, the grouping is representative of a large section of Africa’s private sector activity.

During June, the African average was at the same level as calculated for March. In other words, the recovery in May and June has not yet seen business activity return to levels seen in February when workplaces in most African countries were still unaffected by domestic disruptions. Internet giant Google has released data reflecting the change in visits and length of stay at places of work from users who have opted-in to location history tracking on their Google accounts. This data – which tracks activity on a daily basis compared to a reference period of January 3 - February 6 – show a continued decline in workplace activity during June. On average, workplace activity in the eight African economies included in the above graph was 14.7% lower compared to the reference period. For Africa as a whole, the International Labour Organisation (ILO) estimated a 12.1% decline in working hours during 2020Q2 compared to 2019Q4.

Part of the decline in workplace activity is associated with domestic work restrictions while another component is the challenges posed to African companies by a decline in global demand. The global PMI indicated that output and employment around the world contracted for a fifth month in June with financial services the only sub-sector in positive (growth) territory. Jobs were cut in all 45 countries included in the global PMI aggregate. International trade volumes declined for the 22nd straight month in June. The IMF said in June it expects the global economy to shrink by 4.9% this year – 1.9 percentage points worse than its projection in April. In Africa, economic recessions are expected to be worst in tourism-dependent and resource-intensive countries.

Optimism about business climate over next 12 months

There were positive trends in June’s PMIs regarding the outlook for business activity over the coming 12 months. While this does not suggest positive business confidence, and in most cases only an improvement on the pessimism recorded in April and May, there is some hope that economies will continue to reopen, and companies will see business activity return. Many African PMI reports indicate that businesses expect their operating environment to look better over the next year. Coming from a position that is already better than the global average, this sends positive signals for African economies towards the middle of 2021.

In Egypt, for example, optimism for future activity was also the highest seen in the year so far as companies found promise in the government planning to relax restrictions further. Optimism amongst Ghanaian businesses was near the 18-month high seen in May on the back of hopes for a continued gradual return to normality. The majority of Mozambican firms indicated that they still expect to grow over the next 12 months if the lockdown is lifted soon. The future output index was the only indicator in South Africa to rise into positive territory in June. Firms in Uganda were confident that business activity would increase in the coming 12 months.

In contrast, the outlook for business activity in Kenya dropped in June to its weakest level since August 2016. Survey respondents note that output and new orders declined while customer demand was also down due to reluctance to travel. In West Africa, confidence amongst Nigerian businesses dropped to the lowest in the survey's six-and-a-half-year history. Operating conditions in the country worsened throughout the second quarter as both output and new orders continued to fall. On the copper belt, Zambian companies had a neutral outlook on business activity in the coming year. The future-looking indicator was below the long-term average due to widespread uncertainty around the outlook.

PwC survey reveals the plans African executives are making

The majority of African executives surveyed in PwC’s recently released COVID-19 CFO Pulse Survey say it will take more than six months for their business to get back to normal if the virus ended today. Every day the realities of the pandemic sink in a little deeper and the scope of its impacts stretch a little wider. For many African CFOs, and the companies they run, this is leading to greater caution and an acceptance that there are many things they do not know. As they consider the future, companies are eager to rebuild or enhance revenue streams. Most African CFOs cite offering new or enhanced products or services as most important to this pursuit — underscoring the fact that innovation will be a driving factor during the recovery period.

Leaders of African nations and companies accept that economies will reopen and function alongside a virus that remains a constant threat. Many companies have weathered the immediate crisis and have implemented safety measures. Some have transitioned to remote work and other new ways of working. Most are currently thinking about what they need to survive and thrive moving forward. PwC’s surveying finds that, for now, the primary concern as they implement these plans is the financial impact on their business. The other top concerns are impact of the global economic downturn and a new wave of COVID-19 infections.

At the same time, African companies will be more resilient and agile in the long term due to the adoption of various mitigating strategies in dealing with the pandemic. In fact, African CFOs are more positive than their global peers about how the interventions they have made in response to the pandemic will benefit them in the long run. The findings of our latest CFO survey suggest that African companies are increasingly coming to grips with conducting business in this uncertain environment. For example, concerns over a loss of productivity due to remote working conditions have declined — from 45% in May to 27% in June. Work flexibility and technology investments are amongst the top factors that will make companies better in the long term.

Article by Lullu Krugel, Chief Economist for PwC Strategy& Africa, and Dr Christie Viljoen, PwC Strategy& Economist

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Sanchia  Temkin

Sanchia Temkin

Senior Manager, Media Relations, PwC South Africa

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