Africa private sector recovery lags global trend

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

12-month outlook remains positive

Purchasing Managers Index (PMI) reports released by IHS Markit in the first week of April shows that, while African private sector activity continued to improve during the first quarter of 2021, growth lagged global trends. PwC’s calculations show that PMIs for eight African economies – Egypt, Ghana, Kenya, Mozambique, Nigeria, South Africa, Uganda and Zambia – averaged 50.3 during 2020Q1. This was barely above the 50.0 level that signals an improvement in activity. In turn, the JP Morgan Global Composite Output Index averaged 53.4 during the same period – signalling a faster growth pace. (The global composite increased to a 79-month high in April.) 

Figure 1: African PMIs are back to pre-pandemic levels

Sources: IHS Markit, Trading Economics

The World Bank recently commented that the “emergence of more contagious COVID-19 variants and looser adherence to basic health protocols led to a resurgence in the number of new cases and deaths in the region since the second half of December 2020.” This has prompted many African governments to tighten lockdown restrictions, and by implication, limit economic activity. On a positive note, many countries have implemented targeted policies like partial or focussed lockdowns to flatten the curve of COVID-19 infections – thereby limiting the adverse impact on their economies. 

Private sector activity decreased during the first quarter in three out of the eight African countries covered by the IHS Markit surveys: Egypt, Mozambique and Zambia. In Egypt, private enterprise experienced weak market demand amid ongoing COVID-19 restrictions. Mozambican firms reported a decline in new orders, shortages in raw materials, as well as some closures due to the adverse impact of the 2020 recession. Private sector business in Zambia noted low customer numbers and a decline in output. In turn, private sector activity increased in the five other countries: Ghana, Kenya, Nigeria, South Africa and Uganda.

Business expectations for the next 12 months are generally positive. Egyptian firms expect their activity to increase over the next year as an expanded vaccine programme fuels hopes of a faster return to normality. Private sector companies in Ghana and South Africa are also hoping for a return to normal trading conditions towards the start of next year. In turn, many Nigerian and Mozambican companies are planning to expand their businesses and market penetration. Survey respondents in Uganda and Zambia signalled hopes for increased new business opportunities. On a more pessimistic note, Kenyan firms expect no real improvement in activity over the coming year due to worries over the continuing impact of the pandemic on demand. 

PwC expects continued growth in African private sector activity during the second quarter of 2021. It is certainly possible that African PMIs could over the remainder of 2021 catch up with the global average of private sector activity growth. Both the World Bank and International Monetary Fund (IMF) reported in early-April that they have upwardly revised their 2021 economic growth forecasts for the region as global economic conditions improve. However, as with other regions, Africa’s growth prospects in 2021 are intrinsically linked to COVID-19 infections, vaccine rollouts, and lockdown restrictions. 

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