Tanzania: Consumer inflation eased to 3.6% y/y in June from 4.0% in May, which was in line with our expectations. CPI rose by 0.1% m/m, lower than the prior month’s 0.2% increase, mainly driven by lower food costs. The food & non-alcoholic beverages index decreased by 0.3% m/m, which together with moderation in restaurants & hotels and furnishings, contributed to slowing inflation.
Transport prices were flat over the month, while housing & utilities costs rose at the same pace as the prior month. The remaining eight subcomponents were either unchanged or posted a moderation in price increases barring clothing & footwear, health, recreation & culture and miscellaneous goods & services. Looking ahead, we expect favourable food and fuel base effects to continue to drive inflation lower, though the recent currency weakness poses a risk.
We expect inflation to average 4.0% in 2023, lower than last year’s 4.3%, and for it to remain below the Bank of Tanzania’s (BoT) 5.4% medium-term target. In the June Monetary Policy Statement, the Bank said that it will continue implementing less accommodative monetary policy under the current framework in the first half of FY2023/24 and move to an interest rate-based monetary policy framework only in H2 FY2023/24. We therefore believe the MPC will keep the policy rate unchanged for the remainder of the year, in contrast to our earlier expectation of a 100bp hike.
Separately, the pace of economic growth slowed to 3.6% y/y in Q4 22 from 5.0% in the prior quarter, bringing full-year 2022 growth to 4.7% (2021: 4.9%). This was in contrast to our expectation for growth to slow to only 4.8% y/y in the fourth quarter and average 5.2% for the full year.
The moderation in the pace of economic momentum was broad-based, barring mining, water, finance, administrative services, and other services, which recorded faster growth rates. For the full year, weaker agricultural sector growth, which increased by 3.3% compared with 3.9% in the prior year, weighed on overall growth. In contrast, growth in industrial output and services rose by 5.5% and 5.2%, respectively, up from 5.4% and 5.0% in 2021.
We expect the benign inflationary environment, coupled with an improvement in weather conditions and continued pick-up in tourism activity, to support the economic recovery, with growth likely averaging 5.0-5.5% in 2023.
Nigeria: The African Development Bank yesterday, through a speech by its Director General of the Nigeria Country Office, Lamin Barrow, listed some of the factors preventing Nigeria’s economy from reaching its full potential.
The Bank noted that some of the major bottlenecks included macroeconomic instability, low productivity, inadequate access to credit for small and medium-size enterprises, and infrastructure and logistics deficiencies, especially inadequate power supply. He added that in order to remove the barriers to non-oil trade and exports, the country must decisively fix its power supply. The Bank also called on the government to improve tax collection and tax administration and enhance the efficiency of public investment programmes. Policies are also needed to enhance agriculture sector productivity and develop value chains in the sector.
The Bank is concerned about the country remaining a net importer of food despite generous endowment of arable land, although the Bank is supporting the implementation of a USD518mn Special Agro-Industrial Processing Zone. Barrow cited a World Bank study that suggested that Nigeria would need USD3tn by 2050 to address its huge infrastructure needs. He estimates that it may take Nigeria 300 years to provide a minimum level of infrastructure needed for development. Hence, he called on Nigeria to mobilise the private sector for infrastructure development and service delivery, which would also reduce pressure on public finances (This Day).
Kenya: The High Court has extended the freeze order granted on 30 June against the implementation of the 2023 Finance Act until the case is deliberated on. The petitioners argue that the Finance Act is unconstitutional and that it was implemented without following due procedure.
This poses an additional risk to the National Treasury’s revenue outlook tabled in the FY2023/24 Budget. In our note (Kenya Budget: Revenue optimism poses slippage risks, 22 June 2023), we argued that the FY2023/24 deficit is likely to come in at 4.9% of GDP, higher than the National Treasury’s 4.4% projection, as we believe the government’s ambitious revenue projections are unlikely to materialise. The temporary suspension of the 2023 Finance Act could see the deficit print much higher than we currently anticipate. The freeze also complicates our inflation and monetary policy outlooks. With the Energy and Petroleum Regulatory Authority (EPRA) having increased the prices of petrol, diesel and kerosene by 7.4% m/m on 1 July on the back of changes in the VAT rate, we had expected inflation to climb higher and for the Central Bank to hike the policy rate by another 100bp. A reversal of the price increases poses a risk to our views.
