At present, economies are changing at a fast pace. Economists are working hard to understand economies in lockdown and how this influences the outlook for e.g. production, employment and taxes. This endeavour requires up-to-date economic data that gives a view of economic activity as close to the present as possible. Data based on surveys can be very insightful in this regard. These kinds of publications include Purchasing Managers Index (PMI) reports: these are based on the results of questionnaires sent to purchasing managers at private sector companies.
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 April were published in the first seven days of May.) These surveys provide crucial information on private sector 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.
Global information provider 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 the continent’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.
Based on a simple average of the eight countries, African PMIs have been above the global reading since June 2019. In February 2020, when the global impact of what the International Monetary Fund (IMF) has called the ‘Great Lockdown’ was intensifying, all eight African PMIs were above the global reading. In March this year, seven out of the eight African PMIs were above the global average, with Kenya the exception. The East African country’s private sector experienced a large drop in consumer demand and client orders due to the slowing domestic, regional and global economy. Unsurprisingly, Kenyan businesses reduced activity and employment.
Figure 1: PMIs have been trending sharply lower since February 2020
Sources: IHS Markit, Trading Economics
In April, seven out of eight African PMIs again resisted falling to the depths of the global average. This time, Uganda was the exception, with Kenya retuning above the global index. Ugandan companies reported a lack of new orders and decline in output volumes. This, in turn, resulted in scaling back of purchasing activity and employment. Restrictions on domestic and international travel during the country’s lockdown resulted in lengthening delivery times on input orders. Subdued external demand - i.e. for exports – was also listed as a constrain on business.
The factors listed here in the Kenya and Uganda reviews were prevalent in many other African countries as well, with weak domestic and international demand weighing on production and new orders. On a positive note from a consumer perspective, and providing some support to headline PMI readings, many African countries experienced a decline in input costs during April. Lower commodity prices, less competition of inputs, and reducing employment numbers or working hours had a favourable impact on the cost of production. This, in turn, can be passed on to consumers who are suddenly facing uncertain income and economic prospects as countries move from total to eased lockdown status.
Why are many African PMIs doing better compared to the global average? Firstly, one of the key reasons is that Africa is a lot less integrated into the global economy and supply chain system compared to other continents. Research by the IMF found that Africa’s trade openness has increased significantly since the early 1990s and this has been a powerful engine for economic growth. However, the region still has ways to go to better integrate into global value chains (GVCs): the depth of African countries’ global integration has barely increased since the mid-1990s.
Secondly, disruptions caused by containment and mitigation measures are, in some cases, a month or two behind those of some developed economies. This is not for a lack of response from governments. Rather, first infections in African countries appeared much later compared to many other regions, while the level of confirmed infections are still quite low by global trends. Responses by African governments have been timely for the most part if later in the global timeline than in some other regions. As a result, many African countries had by mid-April seen only a small adverse impact on workplace activity.
Figure 2: Workplace activity trending below January-February levels (% change in seven-day moving average compared to the reference period)
Source: PwC calculations based on Google data
Despite African PMIs resisting the depths of the global average, workplace activity in the continent’s largest economies have declined significantly. 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 notable decline in workplace activity during late March and April in particular. On average, workplace activity in the eight African economies included in the above graph was 36.7% lower compared to the reference period.
How quickly can African business count on a recovery in their economies? The IMF said in mid-April its baseline expectation is for disruptions to African economic activity caused by containment and mitigation measures be concentrated in 2020Q2, and that the regional economy will start recovering in the second half of 2020. This leaves much of the coming 12 months as a period of recovery from the current situation. It also implies that a V-shaped recovery is expected in many African economies as opposed to a longer-lasting downturn in economic activity representing a U-shape. Of course, such a scenario projection is based on many assumptions that could still change..
There were some positive trends in April regarding the outlook for business. While this does not suggest positive business confidence, and in most cases only an improvement on the deep pessimism recorded in March, there is some hope that economies will reopen soon, and companies will see growth in business. The majority of 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 2021.
Senior Manager, Media Relations, PwC South Africa
Tel: +27 (0) 11 797 4470