March Purchasing Managers Index (PMI) headline readings revealed a COVID19 related contractions transmitting to the business ecosystem through currency depreciation, tourism and fresh cut flower industry exposures and supply disruptions impacting aggregate demand and input prices. Zambia, South Africa, Kenya, Uganda, Ghana to mention but a few had their manufacturing activity eroded by disease pandemic effects.
Currency depreciation weighs Zambia’s factory activity. The copper producers headline readings slid deeper into contraction to 44.7 from 48.5 in February as input inflation was at a record high given currency depreciation effects, energy risks and lack of liquidity in the market. The copper producer was last in positive territory in February 2019 when it headlined 50.4. Medium term view of factory activity for Zambia remains feeble given the steep currency slide fueled by coronavirus related disinvestment risks that has sparked demand for dollars as a safe haven store of value manifesting in a currency rout. Zambia’s manufacturing cost environment remains elevated and will remain in contraction in the pandemic period.
Downgrade risks and energy bottlenecks punctured growth in SA. Other jurisdictions bearing the brunt of pandemic effects on currency and business supply chains are South Africa which headlined 44.5 from 48.7 in February. Inflation risks remain very high fueled by a weak Rand that has been on the back foot after the Moody’s downgrade to junk and a waning investor confidence. Energy bottlenecks have ravaged the most industrialized nation in Africa as rolling blackouts affect production pace. The 21 day lock down has not made manufacturing any easier for SA as it tries to curb disease pandemic. Headline readings are set to slide even deeper for April as the lockdown expires on 16 April with possibility of extension.
COVID eroded Kenya’s tourism and flower industry growth. East Africa’s largest economy’s headline readings were the worst of all African nations Markit economics tracks posting 35.7 from 49 in February. The $3billion tourism industry which is Africa’s largest and fresh cut industry were hit the most on the back of suspension of flights into export zones. Kenya also struggled to get inputs from China due to supply chain disruption as such the effects priced into the headline readings for March.
Uganda’s debut decline in 3 years. Uganda had the first decline in 3 years headlining 45.3 from 56.2 in February as exposure to China was very evident given the COVID19 business disruption effects.
COVID takes the cocoa producer 10 steps backwards. Ghana’s slide was 10 points steep to 41.4 from 52.6 in February on the back of disease pandemic effects.
The Kwacha Arbitrageur
