Company / Analytics

Analytics, 21 March 2020

African Stock Exchanges' reaction to COVID-19

As the number of Coronavirus infections escalated across the world from China to Europe, and from Iran to the United States, Africa remained largely immune to the virus, until the first case was reported in Egypt in early February.

But as far as the World Health Organization (WHO) is concerned, Egypt is not part of Africa. The WHO divides the world into six regions, for the purposes of the reporting, analysis and administration. Egypt is not on the WHO’s Africa regional cluster, so those cases were not considered African as Egypt belongs to the Eastern Mediterranean Region (EMRO).

According to the WHO, the first case in the WHO African region was reported in Algeria on 25th February from an Italian tourist who had arrived in the country on 17th February 2020.

The number of COVID-19 infections in Africa has since increased to about 37 countries with more than 800 confirmed cases and deaths as of March 20, 2020.

South Africa, in particular, has recorded about 202 cases, just a leap behind Egypt’s 285 cases. Many of the COVID-19 cases in Africa have been imported from abroad, mostly from Europe.

Impact on African economies

As with other regions, airlines, tourism and hospitality industries have been highly affected by the COVID-19. African economies and financial markets have reacted differently to the pandemic, with most of their stock exchanges experiencing their largest drop in years.

Most African states rely on trade with China, and reduced demands on trade as well as disruptions of global supply chains will have long term ramifications on these nations. The likely impact of coronavirus on African economies can be gauged through tourism, trade and transport sectors, and individual countries trade links with China in terms of imports and exports, according to Johannesburg based Rand Merchant Bank (RMB).

Johannesburg Stock Exchange (JSE)

The largest stock exchange market in Africa by market capitalization, the Johannesburg Stock Exchange fell below 38,784 points on Monday, its lowest record since August 2013, following concerns from investors about the economic impact of COVID-19 on South Africa’s economy which has been struggling with an economic crisis over the last ten years.

At the time of writing, South Africa has 202 confirmed cases of Coronavirus, and South African President Cyril Ramaphosa has declared a national disaster and imposed travel bans on visitors from eight of the hardest-hit nations – Italy, Iran, South Korea, Spain, Germany, France, Switzerland, the US, the UK and China.

The South African economy is more exposed to the Chinese economy than most African countries than even the United States, and any slowdown in China’s demand for commodities will have an impact on the local economy. South Africa is a major exporter of mineral commodities to China, and most of these mining companies are listed on the Johannesburg Stock Exchange. The South African Reserve Bank believes the economy will contract this year and has cut its growth forecast and benchmark interest rate to 5.25% from 6.25%, the biggest margin in more than a decade to support an economy that’s set to contract for the first time since the global financial crisis in 2008.

Nigeria Stock Exchange (NSE)

As of March 19, Nigeria had confirmed eight cases of COVID-19. Stocks at the Nigeria Stock Exchange fell by 2.94% (to 22,078 points) on Thursday, their lowest level in eight years, as the number of cases of COVID-19 increased. The index of Nigeria’s top 10 lenders: NGSEBNK10, the most liquid sector led the decline by dropping by 7.75%, the Nasdaq reported.

The Association of Securities Dealing Houses of Nigeria (ASHON) believes that the Nigerian Stock Markets remains bullish, and the market would soon bounce back, as what we are currently experiencing is a reflection of the global economy.

In response to the potential impacts of the COVID-19 outbreak, the Central Bank of Nigeria will inject a stimulus package of 1 trillion nairas ($ 2.7 billion) to various sectors of the economy, according to Bloomberg. Nigeria’s economy has just recently been impacted by the fall in oil prices, and a reduction in commodity demands and trade with China. Like South Africa, Nigeria has banned travels from the major affected countries but its management of the COVID-19 pandemic could be worsened by the decision of Nigerian doctors to go on strike, demanding two months’ back pay. How Nigeria manages a strike by health officials in a time of a health crisis will be a further test on its leadership.

Nairobi Securities Exchange (NSE)

Kenya is Eastern Africa’s largest and most advanced economy with a GDP of US$99.246 billion in 2019. Similar to South Africa, Kenya is one of the top African economies that will be highly impacted by the COVID-19 outbreak in terms of both infection-risk exposure and economic impacts due to its ties to China. China is Kenya’s largest trading partner, and the largest source market accounting for about 20% of Kenya’s import requirements.

Kenya has so far registered seven COVID-19 cases. Hours after the first Coronavirus case was reported on Friday 13th March, trading at the Nairobi Securities Exchange (NSE) was halted after the benchmark NSE all-share index fell to 15% due to panic-selling from foreign investors scrambling for an exit.

Bank stocks were the most sold stocks, and in some cases, there was no one to buy even the most liquid stocks. The halt was temporary in line with market regulations and the exchange resumed trading the following Monday.

In addition to measures imposed by other nations such as travel bans from high-risk countries, Kenya’s president directed the country’s Central Bank “to explore ways of deepening mobile-money usage to reduce risk of spreading the virus through physical handling of cash,” among other measures.

Kenya’s Central Bank is set to revise its economic projections for 2020 in the wake of the COVID-19 pandemic.

Egyptian Stock Exchange (EGX)

The coronavirus outbreak is posing an increasing threat to Egypt’s economy, with pressure on tourism, trade and gas exports coming on top of a longstanding failure to drum up private investment. Last Sunday, trading at the Egyptian Stock Exchange was suspended for half an hour after Egypt’s broader index EGX100 dropped by more than 5%, following government steps to contain the coronavirus.

It is still early to determine how the economy will slow down even with the current incentives coming from the governments, but according to the coronavirus has hit Egypt and the Middle East and North African region at a time when the region is already burdened with multiple problems, including a series of long-running conflicts, sectarian tension, economic crises, and widespread political unrest.

Forecasts for the year

Over the last three years, the size of private equity investment in Sub-Saharan Africa more than doubled, with Nigeria and Kenya recently getting the most attention. The African financial market, especially the private equity market, remains attractive to foreign investors but is likely to be negatively affected by the latest events caused by the COVID-19 pandemic. Most African countries have narrow tax bases, weak tax collection mechanisms, and a heavy reliance on commodity revenues. All these sources are likely to come under significant pressure, placing further strain on already constrained resources.

An important factor that cannot be left aside is the effect that this pandemic may have in political terms on the continent. While the continent was about to make great advancements in terms of the Continental Free Trade Area Agreement (AfCFTA), closing borders indefinitely could contribute to a slowdown both economically and politically.

China will remain in the centre of attention, as they contribute both in the production and consumption capacities in the world, especially for African economies.

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