In these weekly economic insights, we share our macroeconomic analysis from the previous week and how it affects our portfolio positioning and our current economic outlook.

South Africa

The Annual Budget Speech, which Finance Minister Enoch Godongwana was to deliver, has been postponed for the first time in South Africa’s history (post-1994). This was due to disagreements between parties within the Government of National Unity (GNU) after 11 hours of negotiation. It was reported that the VAT tax was to be increased by 2% from 15% to 17%, however, the Democratic Alliance (DA), announced that it would not approve of a budget that has a VAT increase. The DA is the 2nd largest party and relies on the DA’s approval to pass the budget. The decision to have a VAT increase may be driven by the worsening fiscal position as government spending exceeds revenues and weak economic growth persists.

South Africa's load-shedding crisis resurfaced, reaching its highest level in a year after multiple Eskom unit failures over the weekend. This marks the second blackout episode in 2025, following a 300-day power stability streak that ended on January 31. Analysts view the return of Stage 6 load-shedding as a major setback for the Government of National Unity and a threat to the economy.

This uncertainty led to further weakening of the South African Rand and a rise of the SA 10-year bond yield to nearly 11%, as the market prices in higher risk. This all follows the slower growth in retail sales this past December at 3.1%.

On the positive side, South Africa’s unemployment rate declined for the second consecutive quarter, reaching 31.9% in Q4 2024, the lowest since Q3 2023. The number of unemployed individuals fell by 20,000 to 7.991 million, while employment rose by 132,000 to 17.078 million.

Key job gains were in finance (+232,000) and manufacturing (+41,000), while community & social services (-63,000) and trade (-48,000) saw the biggest losses. The expanded unemployment rate remained unchanged at 41.9%, and youth unemployment (15-24 years) dropped to 59.6%, a one-year low. Despite these gains, structural labor market challenges persist.

Nigeria

Nigeria's central bank has maintained its benchmark interest rate at 27.5%, following six hikes in the previous year. This decision was due to a stabilising foreign exchange market and a gradual decline in inflation, which stood at 24.48% year-on-year in January after a statistical recalibration. This rate maintenance comes after six consecutive rate hikes last year which add up to a total of 875 basis points.

Governor Olayemi Cardoso expressed optimism about continued inflation reduction, aiming for single-digit figures, though food prices remain a potential risk. This inflation came after President Bola Tinubu's moves to end subsidies and devalue the naira currency after he came to power in 2023. Tinubu's reforms were aimed at boosting economic growth and shoring up public finances, however, growth has remained below the 6% target.

Botswana

The Bank of Botswana has kept its interest rate (MoPR - Monetary Policy Rate) steady at 1.90% for the third consecutive meeting, projecting that inflation will remain within the 3%-6% target range. Inflation increased to 2.5% year-on-year in January from 1.7% in December. Governor Cornelius Dekop noted that while inflation expectations remain where they are, the economy is expected to operate below full capacity in the short term, with a 3.3% growth forecast for 2025.

Botswana’s economy is officially in a recession, with Q3 2024 GDP declining by 4.3%, following contractions of 5.2% in Q1 and 0.4% in Q2. The downturn is largely due to a sharp decline in diamond mining output and revenues, which has impacted export profits and government spending. Non-mining sectors also underperformed, worsening the economic slowdown.

According to the 2025 Budget Speech, Botswana’s GDP shrank by 3.1% in 2024, but the economy is projected to grow by 3.3% in 2025 if there’s a recovery in the diamond industry later in the year. However, global trade uncertainty and tight fiscal policies pose risks to this outlook.

The central bank expects muted inflationary pressures and gradual economic recovery but warns of external risks, including geoeconomic fragmentation, global supply chain disruptions, and fiscal constraints.

MEETINGS OF THE MPC for 2025 are scheduled as follows:

• 17 April 2025

• 19 June 2025

• 21 August 2025

• 30 October 2025

• 4 December 2025

Uganda

Uganda’s private sector entered contraction at the start of 2025, marking the first decline in business conditions since March 2024, according to the Stanbic Bank Uganda PMI®. The Purchasing Managers' Index (PMI) fell to 49.5 in January, down from 53.1 in December, signaling a slower business activity.

The decline was primarily driven by a drop in new orders, ending a nine-month streak of growth, as businesses reported lower consumer demand and lower purchasing power. Output stagnated across industries, while the services sector was most affected by falling new business.

Employment levels continued to decline for the third consecutive month, reflecting excess capacity and a reduction in backlogs of work. At the same time, firms faced rising input costs due to higher utility bills, raw material expenses, and increased wages, leading to a raise in selling prices. Inflationary pressures persisted, with January’s year-on-year inflation rising to 3.6%, slightly above December’s 3.4%.

Despite these challenges, businesses remain optimistic about the future, expecting demand conditions to improve in the coming months. Purchasing activity and inventory levels increased, suggesting that firms are positioning themselves for a potential recovery. While the private sector lost momentum in January, there is confidence that the slowdown may be temporary, with expectations of stronger growth ahead. The central bank has maintained the key lending rate at 9.75%, citing a contained near-term inflation outlook but acknowledging heightened external risks, including geopolitical tensions and global economic uncertainties

Ethiopia

Ethiopia is undergoing significant economic reforms, including the launch of its first stock market since the era of Emperor Haile Selassie in 1960’s-70’s. This initiative is part of Prime Minister Abiy Ahmed's broader strategy to liberalise the economy, which has been predominantly state-controlled. Key reforms include foreign exchange liberalisation and opening the banking sector to foreign investors. Despite challenges such as a recent civil war, these efforts aim to attract foreign direct investment and stimulate economic growth.

Conclusion & Outlook

Africa's economic trajectory for 2025 appears cautiously optimistic. The African Development Bank projects the continent's growth to accelerate from 3.7% in 2024 to 4.3% in 2025, positioning Africa as the second-fastest-growing region globally.

This growth is anticipated to be driven by East Africa's robust performance and a recovery in the largest economies.

In a significant move to bolster financial stability, African leaders have approved the creation of the African Financial Stability Mechanism (AFSM), a continental fund aimed at preventing potential debt crises. Hosted by the African Development Bank, the AFSM seeks to offer concessional loans to member countries, focusing on preemptive measures to maintain economic stability.

However, challenges persist. Inflationary pressures, partly due to currency depreciations in countries like Angola, Ethiopia, and Nigeria, have led to inflation and food insecurity across the region.

At Regal Capital, we are looking to expand our research into Africa and build an investment portfolio around industries we believe will experience growth in the coming 2-10-year period. Long-term we believe Africa is the future but we remain neutral on our medium-term outlook on Africa as we choose to wait and see the data reflect an improving Africa as opposed to just being hopeful.

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