Updated: Sep 14
(Image source: REUTERS/Rogan Ward)
Following a divergence between current and future economic conditions.
Consumer sentiment in Africa did not change in July following last month’s growth in the global index. The lack of movement in consumer sentiment is due to the fact that the index of current economic conditions and the index of future expectations moved in opposite directions with the former declining by 3 points and the latter advancing by 1 point.
Looking at the household indicators, there were mixed results across the board. The purchasing power and household income indices stagnated while the job prospects, discretionary spending and personal finance indices fell by 3, 2 and 2 points respectively. Despite this, households reported a positive outlook for the general city and country economic conditions as both indices rose by 3 points.
Cameroon, Nigeria and Ivory Coast all experienced a heightening in their consumer sentiment with Ivory Coast recording the largest gain of 13 points after being the worst performer in the past two months. On the contrary, consumer confidence in Kenya, South Africa and Tanzania deteriorated in July with South Africa posting the largest contraction of 17 points. Meanwhile, Ghana’s consumer confidence index stood at the level attained in June.
The positive momentum in consumer sentiment experienced last month failed to continue into July as KASI’s global CCI stalled at 8 points. This inertia in the consumer sentiment index is attributed to the fact that the index of current economic conditions dipped by 3 points while the index of future expectations moved up by a single point.
While households remain slightly optimistic about future economic conditions, the current economic situation does not appear to be favourable for households. In spite of the minimal uptick in business activity within the continent, the pace of economic recovery has been hampered especially with the emergence of the delta variant of Covid-19 which continues to derail the revival of critical sectors such as the tourism sector. Furthermore, food insecurity remains to be a serious threat for the continent among other developing countries around the world. According to the World Bank, in addition to Covid-19 disruptions, weather uncertainties and poor macroeconomic conditions including weaker currencies are driving up food price inflation at the retail level and this is having a greater impact on vulnerable households especially in low-and middle-income countries. World Bank’s Agricultural Commodity Price Index remained near its highest level since 2013, and as of July 16, 2021, the index was approximately 30% higher than in January 2020. Rising food prices coupled with reduced incomes means that more and more households are having to cut down on the quantity and quality of their food consumption. UN’s Food and Agriculture Organization (FAO) has indicated that 34 countries in Africa are in need of external food assistance “with conflicts and climate-related shocks continuing to underpin the high levels of severe food insecurity.”
Nevertheless, countries are still progressing with their vaccine rollout with 4.4% of the continent’s population having received the 1st dose and more vaccines being procured to hasten inoculation. According to the Africa CDC, as of 19th August 2021, the continent had reported 7,388,784 Covid-19 cases with 186,367 deaths and 6,507,715 recoveries.
Households indices point to a softening in job prospects and purchasing power thus leading to depressed expenditures.
The performance of household indices for July was mixed in comparison to last month where majority of the indices moved in a positive direction. Whereas, the general city and country economic conditions indices maintained their upward momentum from last month as both indices increased by 3 points, the other indices were sluggish. For the second month in a row, the purchasing power index failed to budge as it languished at the level attained in May i.e. 13 points. Similarly, the household income index lingered at 29 points after improving by 9 points last month. Meanwhile, the job prospects, personal finance and discretionary spending indices dropped by 3, 2 and 2 points respectively after registering gains in June. Certainly, this month’s performance of the households’ indices is worse than that of last month’s and can explain the dullness in consumer sentiment. With households’ incomes remaining flat and job prospects dwindling, the ability for households to make purchases especially for discretionary products is hampered, spending is curtailed and consumer sentiment is subdued.
Consumer confidence in South Africa faulters amid civil unrest while Ivory Coasts’ consumer confidence bounces back after two months of successive crippling.
Focusing on the countries tracked by our index, Cameroon, Ivory Coast and Nigeria were the only countries to witness a heightening in consumer sentiment for July while Kenya, South Africa and Tanzania all experienced a slump in their consumer confidence. In Ghana, consumer sentiment was static as it persisted at June’s level of 11 points.
After being the worst-performer for the past two months, Ivory Coast’s CCI finally rebounded by 13 points from -2 to 11 making it the best performer for the month. This revival in consumer confidence stems from the strengthening of its index of future expectations and index of current economic conditions which climbed up by 11 and 20 points respectively. The weakening cocoa futures contract prices in recent months has not been beneficial to Ivory Coast as income receipts have diminished. However, in July, the country received an upgrade from Fitch Ratings in its Long-Term Foreign-Currency Issuer Default Rating (IDR) to BB- from B+, citing a sustained reduction in political risk given the peaceful March 2021 elections as well as government actions to reign in its deficit through fiscal consolidation plans focused on tax policy and administrative reforms. Moreover, even with the falling cocoa prices, the IMF recently lauded Ivory Coast for its strong resilience to the pandemic stating that its economic performance and resilience were supported by strong pre-crisis fundamentals, a rapid policy response, and a relatively lower dependency on sectors that have been typically hit the hardest elsewhere such as tourism. This optimism in consumer sentiment is also reflected in the household indices all of which improved in July. The household income, personal finance, discretionary spending and purchasing power indices surged by 10, 10, 24 and 19 points respectively. Additionally, the job prospects, city economic conditions and country economic conditions indices also grew by 14, 8 and 5 points respectively.
On the flip side, in the back of registering the best performance in consumer sentiment last month, South Africa was the laggard of the month. Following a resurgence in its consumer confidence index by 16 points in June, the index slipped by 17 points in July erasing all of last month’s gains. July was a difficult month for South Africa. Subsequent to the sentencing of former President Jacob Zuma to a 15-month jail term, the country witnessed civil unrest in Zuma’s home provinces of KwaZulu-Natal and Gauteng, the two most populous provinces which together account for half of South Africa’s economic output. Widespread looting and burning of businesses broke out as riots and violence led to the deaths of over 300 people making this the worst uproar since the end of apartheid. As such, both the index of current economic conditions and index of future expectation crumbled by 20 and 16 points respectively, thereby driving down consumer sentiment. As a result of the turmoil, businesses were forced to close down and this resulted in job losses. Consequently, the economic and financial situation for households were negatively impacted and this is reflected in the household indices. The purchasing power, personal finance, household income and discretionary spending indices collapsed by 28, 31, 26 and 31 points respectively and the job prospects index also followed suit sinking by 10 points. Fortunately, households remained slightly buoyant on the general country and city economic conditions as the indices rose by a modest 1 and 2 points respectively.
Risk-management strategies are imperative for retailers as they can be better prepared to withstand any unforeseen events.
Evidently, the mixed performance in consumer sentiment and households’ perception of the economic and financial situation continues to prevail at the continental level. Moreover, consumer sentiment at the country level is clearly unsteady as last month’s best and worst performers, South Africa and Ivory Coast respectively, have directly switched places with South Africa now being the worst performer in July and Ivory Coast registering the best performance.
This pattern continues to reinforce the recommendation made last month which was the need to have a dynamic pricing model that considers changes in consumer behaviour among other shifts that would affect profitability thus allowing retailers to price their products in a manner that reflects recent developments. But what is more critical, as illustrated by the turbulence in South Africa, is the need to have in place and/or review risk-management strategies in preparation for any crisis. For example, sales for retailers in South Africa with an online presence and effective safety and security mechanisms for their delivery workers and distribution/storage points may have been less affected by the riots. Therefore, risk-management strategies for businesses are necessary to minimize business disruptions hence limiting losses and boosting the odds of survival during times of crises.
“The concentration of workers in the informal sector which lacks social safety nets in case of disruptions means that majority of the population, especially women, are in serious peril if there is a reversal in economic recovery as incomes would be further eroded, posing a threat to survival including the ability to access essential needs such as food and healthcare.”
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