1、 Important disclosures are in the disclosure appendix.For other important disclosures,please refer to the disclosure&disclaimer at the end of this Standard Bank February 2025 2 Contents Contents.2 G10 outlook for 2025.3 EM outlook for 2025.8 Resilient ambitions:Africas economy in a volatile global c

2、limate.16 SA politics in 2025:risks,and opportunities,abound.39 SA:Slowly heading into the right direction.45 Standard Bank February 2025 3 G10 outlook for 2025 Stability at risk 2025 looks set to be another year of steady,if unspectacular,growth amongst developed nations.Advanced countries are like

3、ly to grow by just short of 2%in aggregate,much like the likely 2024 outcome.While growth might be modest,we still should remember that most economies have enjoyed a relatively soft landing after the surge in policy rates in 2022 threatened to tip the advanced economies over a cliff.But risks abound

4、,most of which are associated with the new US administration under Donald Trump.For the spectre of damaging tariffs has come back to haunt global policymakers and financial markets alike.Optimists will point to the fact that the last surge in US protectionism,which started in 2018 during the first T

5、rump administration,did not prevent robust global growth.However,the tariffs were far less draconian than those being talked about by the second Trump administration.At the same time,it is difficult to disentangle the impact tariffs had on the global economy after 2020 because Covid decimated the wo

6、rld economy.Most projections relating to the effects on the US of new tariffs now point to weaker growth,higher inflation,less Fed policy easing(and possibly rate hikes),and a stronger dollar.In short,it does not look good,and it could be even worse for other countries,especially those that trade he

7、avily with the US such as Canada,Mexico,and China.Many policymakers and investors will hope that the Trump administration holds tariffs back as a threat rather than a policy of choice.But the Trump administration sees tariffs as a source of revenue,and this cannot be realised if tariffs remain a thr

8、eat and no more.And with tax cuts in the pipeline,the Trump administration looks as if it could use all the revenue it can muster given that the budget deficit is set to remain a very high 6%of GDP or so for as far as the eye can see,and debt has soared to around 100%of GDP.With this in mind,and giv

9、en how Trump threatened,and then delivered,tariffs during his first term,we suspect that new tariffs will be delivered during this period in office,even if only sporadically.Will these be sufficient to blow advanced countries off course?We doubt it,but we also suspect that advanced countries will fa

10、il to achieve potential growth as fast as they could if tariff threats were absent.A difficult last mile Advanced countries made further progress in reducing inflation last year.For after the recent peak of around 7.5%back in 2022,inflation is likely to have been around 2.75%last year and is seen sl

11、ightly lower still,at around 2.5%in 2025.The slowing in the rate of decent illustrates what policymakers have said for some time;that achieving the last mile of inflation reduction to the 2%target level desired by most major central Figure 1:Trade uncertainty surges again Source:Bloomberg 0123456200

12、5 2006 2007 2008 2009 2011 2012 2013 2014 2015 2016 2018 2019 2020 2021 2022 2023World trade policy uncertainty index Standard Bank February 2025 4 banks would be the hardest.The difficulty relates largely to the fact that labour markets have remained quite tight,even in countries where economic gro

13、wth has been meagre,such as the UK.This tightness has,in turn,limited the reduction in wage growth.While this is welcome,as the fall in inflation below wage growth prompts the sort of rise in real income that should aid economic growth,central banks could be left facing the fact that sustainable on-

14、target inflation remains just out of reach.In addition,new inflation risks are arising,not least in the US,from the triple threat of tariffs,deportation of illegal migrants and tax cuts.But it is not just in the US.Should governments hit by US tariffs retaliate with tariffs of their own on US import

15、s,which seems very likely,we could see global price pressures rise.And,as far as migration policy is concerned,we are also seeing far tougher policies from many European governments as they face political pressure from far-right parties that campaign on anti-migration platforms.On balance,we do not

16、expect these factors to spur notable reversals in the progress towards target-level inflation,but achieving this last mile of inflation reduction down to 2%may prove elusive.Even though central banks have admitted that achieving the last mile of inflation reduction is proving the hardest,they have s

17、till cut policy rates.This is something we would expect.Only Norway and Australia have held out,but this should end soon,while the Bank of Japan continues to drive in the other direction by lifting policy rates as it seeks to exit the unconventional easing that has been in place for many years.Only

18、in the US have questions arisen about further easing as the Federal Reserve has entered a pause period.The desire to pause is partly related to the policy uncertainty associated with the new Trump administration.As already mentioned,policies that include tariffs,deportations and tax cuts can serve t

19、o lift inflation and so complicate the Feds path to bring the Fed funds target rate down to what the bank considers as neutral,which is 3%,according to the median projection of Fed members.Many,including us,believe that the neutral rate is higher than the Feds estimate.We put the rate at around 3.5%

20、and expect the Fed to get to this level in the first half of 2026.Many other central banks would seem to have a clearer path to bring policy rates down to more neutral levels,and some may even have to go below neutral.In the euro zone,for instance,many members seem to point to the 2%region as neutra

21、l and a level that can be achieved this year.We believe that the paucity of growth,falling wage growth and sub-target inflation can combine to bring policy rates down to 1.75%before the end of 2025.Bond market problems Given that most developed country central banks are easing policy,we might have e

22、xpected longer-term bond yields to fall.This is what usually happens in an easing cycle.But it has not happened this time around,at least not yet.For instance,US 10-year Figure 2:Labour market tight despite modest economic growth Source:Bloomberg-6-4-2024684,04,55,05,56,06,57,07,58,08,59,01981198419

23、87199019931996199920022005200820112014201720202023Advanced countries unemployment rate(%)Advanced countries GDP(%yr)(RHS)Standard Bank February 2025 5 treasury yields have risen by just over a percentage point since the Fed started to cut rates last September.A part of this is down to the adjustment

24、 of future expectations about Fed easing as the Fed started to cut rates.For instance,when the Fed first cut the policy rate by 50bps,to 5%,in September 2024,the Fed funds futures market was priced for the bank to trim rates down to just below 3%by the end of 2025.But now,after another 50bps of rate

25、 cuts from the Fed,the market is priced for the Fed funds rate to be just under 4%at the end of the year.In other words,the more the Fed cut rates,the less optimistic the market became about future reductions.This has helped lift treasury yields and other bond yields have moved in sympathy even thou

26、gh none of those that have eased policy appear to have paused yet.However,the rise in yields does not just seem to reflect less dovish expectations for Fed policy;it also reflects a rise in the US term premium.The 10-year US term premium has turned positive again as investors demand to be paid more

27、for holding 10-year treasuries than from rolling over shorter maturities.A positive term premium has been largely absent over the past decade,having been dragged down by factors such as Fed bond purchases.But now quantitative easing has turned to tightening and,although the Fed may stop this process

28、 later this year,there are new concerns to contend with,primarily associated with rising government debt which is now around 100%of GDP.It is projected to rise by a further 20%of GDP over the next decade by the bipartisan Congressional Budget Office,even before allowance is made for the deficit-boos

29、ting policies of the Trump administration.In all,it could create an environment in which the Fed eases,but longer-term bond yields continue to rise,while higher yields are also seen outside of America,even though debt concerns lie mostly in the US.Given that budgetary concerns in the UK back in Sept

30、ember 2022 provoked a dramatic surge in UK gilt yields,there have been concerns that the so-called bond vigilantes could come for the US next.We do not take this view.So,while there are undoubted risks that yields rise further in the short term,to 5%for 10-year treasuries,we do not see such levels a

31、s likely over the longer term,provided the Federal Reserve brings the policy rate back to our estimate of the neutral rate of around 3.5%.In this event,wed expect 10-year treasury yields to ease down to the 4.0%region,and possibly just below,over the next year or so.Such declines should help encoura

32、ge lower bond yields in other developed countries.Indeed,yield declines could be more rapid elsewhere given the absence of any pause in policy easing,the better inflation outlook,and fewer government debt strains.The tariff question The pausing of Fed easing has contributed to a rise in the dollar i

33、n recent months,although it seems clear that the biggest contributor to the greenbacks rise has been the election victory for Trump last November.Just like his first victory in November 2016,Figure 3:Term premium is positive again Source:Bloomberg-2-10123456198019831986198919921995199820012004200720

34、102013201620192022US 10-year bond market term premium Standard Bank February 2025 6 the dollar has risen based on the likely consequences of a very similar policy combination of tariffs,tax cuts,and tougher migration laws.However,what was notable about Trumps first term in office between 2017 and 20

35、21,was that the post-election surge in the dollar quickly evaporated and,if we take the four years as a whole,Trump left the dollars value against other major currencies 10%lower than the level he inherited.In other words,this policy combination of tariffs,tax cuts and tough migration laws seemed to

36、 contribute to a fall in the dollar,not a rise.In fact,the greenback never managed to reach the heights seen immediately after his 2016 victory through his first term.Whats more,we should remember that 2017 and 2018 saw the Fed tightening policy while all other major central banks left policy unchan

37、ged.And then there was the Covid pandemic in early 2020 which did not produce new highs for the dollar in spite of the greenbacks supposed safe-asset allure during times of such severe global economic stress and asset-price meltdown.One final point to note was that the dollar rose during the pre-Tru

38、mp years,under Obama and again in the post-Trump years under Biden.In short,Trumps arrival appeared to reverse the dollars appreciation temporarily.Can we expect history to repeat itself,or is history only a good guide to the past?We suspect it will be the former and that Trump will leave office wit

39、h a lower dollar than where he found it.We take this view for several reasons.On tariffs,we should remember that tariffs are bad for the US economy,as well as those targeted by tariffs.Both theory and evidence suggest that the imposition of tariffs leads to a stagflationary combination of weaker gro

40、wth and higher inflation.It is true that US importers may need to buy fewer Canadian dollars,Mexican pesos and Chinese renminbi if tariffs are levied but trade flows account for such a small proportion of FX turnover that they really do not matter.Another argument,that tariffs and other policies suc

41、h as tax cuts and mass deportations could keep the Fed on hold while others ease,is not a surefire way to create dollar strength.For a start,these policies threaten to lift inflation,and if that reduces US real(inflation adjusted)rates relative to others,the dollar is more likely to fall than rise.F

42、or it is real interest rates that count for currencies,not nominal rates.If nominal rates were most important,FX investors would buy the currencies of the highest interest rate countries but that does not happen because these countries usually have the highest inflation as well.In fact,the countries

43、 with the highest nominal interest rates tend to find that they have the weakest currencies on average.Another issue to consider is that tariffs,along with many other policies of the Trump administration,such as pulling out of multilateral institutions and embracing crypto currencies,undermine US he

44、gemony and the dollars safe-asset status.In our view,these things seem likely to provoke more diversification away from the dollar.The US should remember that it is beholden to the rest of the world to provide the dollars that allow the country to maintain such low levels of saving(the large budget

45、deficit,for instance)relative to investment.Americas so-called exorbitant privilege,of owning the worlds dominant currency,means that it can accumulate huge external debt,which Figure 4:The dollar stalled in the Trump years Source:Bloomberg 70758085909510010511011520092010201120122013201420152016201

46、72018201920202021202220232024Dollar index(DXY)Trumps first term Standard Bank February 2025 7 stands at close to USD24tn,without incurring the sort of currency weakness and bond-market vulnerability that other countries would be expected to endure.In fact,evidence rather suggests that the US has att

47、racted too much overseas savings because it has led to a potentially dangerous concentration of risk.The US stock market,for instance,has seen its weight rise from just over 30%of the global aggregate(MSCI World index)back in 1990 to around 70%today and thats despite the US share of global GDP havin

48、g declined over the period.This increased weighting,as reflected in US stock market outperformance,has sucked foreign capital into the US and probably lifted the dollar in the process.This could certainly continue in the future,but we regard the situation as increasingly fragile.This does not mean t

49、hat we expect some sort of huge reversal in capital flows to the US and dollar collapse,but we do think that those sending capital the USs way may require some cheapening of assets,via a weaker dollar,to continue supplying the ever-increasing amount of capital that the US requires.Another key compon

50、ent here is whether other developed countries can make their own economies and financial assets more attractive.In the past,the growth deficit and the asset price deficit to the US has been large and seemingly responsible for the dollars rise.This year should bring some reduction in the USs growth a

51、dvantage.We see the US economy growing by closer to 2%than the near 3%from 2024.At the same time,the euro zone and UK are more likely to see growth this year of 1%,or above,compared to the sub-1%figures from last year.That might not be a big closure of the growth gap but,when it comes to the dollar,

52、it does appear that market participants are heavily invested in the theme of US economic exceptionalism such that only a modest unwinding of this advantage is required to weigh the dollar down.In the near term,we think that the Trump-led dollar euphoria can continue for a bit longer,pushing euro/dol

53、lar,for instance,down into a 0.95-1.0 range.But as this euphoria fades,wed expect the euro to be back up to the 1.10 level in a years time,with similar improvement for other currencies,such as 1.35 for the pound and 140 for the yen.Steven Barrow This material is non-independent research.Non-independ

54、ent research is a marketing communication as defined in the UK FCA Handbook.It has not been prepared in accordance with the full legal requirements designed to promote independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.Figure 5

55、:US growth advantage expected to narrow Source:Standard Bank Research-0,50,00,51,01,52,02,53,0USEurozoneJapanUKCanadaAustraliaNZGDP forecast 2024GDP forecast 2025 Standard Bank February 2025 8 EM outlook for 2025 Introduction As we kick off 2025,the outlook for emerging markets might seem rosy at fi

56、rst glance.Sure,there are some solid fundamentals in play:decent economic growth,stable inflation,and low debt levels.But lets not get too carried away.This optimism could very well be misplaced.The real story lies in the intricate dance of monetary policy,trade dynamics,and broader economic conditi

57、ons.Much is riding on a few key factors:Will the Federal Reserve cut rates?Will the US dollar weaken?And can we trust that Chinas growth wont falter under the weight of its own complexities?And obviously,the looming threat of an ever-escalating trade war and elevated geopolitical tension.On each of

58、these scores the jury is still out.The markets may be putting on a brave face,whilst forecasts seem to be erring on the side of optimism and ignoring some a significant pivot from Beijing towards a less circumspect response.At this juncture,it seems that the balance of risks certainly leans more tow

59、ard the downside.Buckle up!Relatively benign forecasts As we look ahead to 2025,IMF(2025)projections indicate a global economic growth rate of 3.3%,mirroring the pace of the past three years.While both developed economies and emerging markets are expected to expand at similar rates as last year,adva

60、nced economies will likely grow at less than half the speed of their emerging counterparts.This baseline forecast suggests a“smooth landing,”as described by the Bank for International Settlements(BIS,2024),fostering conditions favourable for rising stock markets,tighter credit spreads,and more relax

61、ed financial environments.However,these seemingly optimistic projections mask significant challenges for emerging markets.The trajectory of the US dollar,fluctuations in commodity prices,shifting global risk appetites,and increasing macroeconomic uncertaintyparticularly due to slowing growth in Chin

62、a,their most critical trading partnerpose serious threats.Compounding these issues are escalating geopolitical tensions among major economies,raising alarms about potential global economic fragmentation(IMF,2023).Such fragmentation could undermine financial market stability(Boungou&Urom,2025)and dri

63、ve up borrowing costs(Nguyen&Thuy,2023).The growth rate of emerging markets is not nearly as lofty as it once was The growth trajectory of emerging markets is markedly less robust than it once was.Current projections indicate that around two-thirds of the worlds emerging economies are expected to ex

64、pand faster than their five-year pre-pandemic trendsa slight improvement over 2024.However,only three of the ten largest emerging marketsIndonesia,the Philippines and Polandare anticipated to accelerate in 2025.This small group of larger economies,primarily driven by China and to a lesser extent Ind

65、ia,represents a staggering 80%of the overall economic growth in this category.When expanding the analysis to include the 20 largest emerging market economies,only India,Indonesia and the Philippines are forecast to achieve growth rates near or above 5%in 2023 fewer than in previous years.Overall,the

66、se economies are projected to grow by an average of 3.5%in 2025,significantly below the pre-pandemic average of 4.5%per year.Regionally,Sub-Saharan Africa is expected to see a boost,with growth accelerating from 3.5%to over 4.2%in 2025.This growth places it between the lagging performances of Latin

67、America and Emerging Europe,driven largely by Asias dynamic economies.While these forecasts underscore the resilience of emerging markets,they also highlight the headwinds facing several larger economies that could derail their growth trajectories.Much like the uneven impacts felt during the pandemi

68、c and subsequent Geopolitical tensions,the US dollars strength,and inflation trends,pose challenges for emerging markets Fewer and fewer large emerging markets are expanding at rapid rates Standard Bank February 2025 9 recovery,2025 is likely to reveal a mixed bag of performances across the board.Gr

69、owth rates will vary due to factors such as differing initial conditions,reliance on commodities,sensitivity to US interest rates and dollar fluctuations,levels of institutional maturity and resilience,and the overarching influence of geopolitical dynamics.In essence,while some emerging markets may

70、show signs of strength,the overall landscape is fraught with challenges that could hinder progress and create a patchwork of growth across the globe.Inflation trend and rates still up in the air too The trajectory of inflation remains uncertain,with forecasts suggesting a decline to 4.2%in 2025,foll

71、owed by a further drop to 3.5%in 2026.This reduction will be a welcome respite after the inflationary surge that marked the post-pandemic recovery.However,its crucial to note that advanced economies are expected to reach target inflation rates more swiftly than their emerging market counterparts.Maj

72、or central banks,including the US Federal Reserve,are likely to shift toward easing restrictive monetary policies in 2025.Yet,the spectre of increased tariffs from the Trump administration loom ominously over these inflation forecasts.Such tariffs could stifle growth and exacerbate inflationary pres

73、sures(McKibbin et al.,2025).Coupled with the risks posed by potential inflationary effects stemming from US tax cuts and deregulation,these factors are likely to keep the Fed cautious for much of the year.In contrast,other central banks are expected to continue easing their policies,with some that h

74、ave yet to do so likely to follow suit.This general trend toward easing will provide much-needed support for economic growth.However,the influence of treasuries may act as a headwind,preventing yields from declining as much as they otherwise might.Therefore,while the forecasted decline in inflation

75、is encouraging,the interplay of tariffs,fiscal policies,and central bank strategies will be critical in shaping the economic landscape.The outlook remains complex,and stakeholders must navigate these uncertainties carefully.USs path biased towards strengthening albeit uncertain The trajectory of the

76、 US dollar appears biased toward strengthening,albeit with significant uncertainties.Wider yield spreads between the US and other countries,combined with punitive US tariffs,are likely to sustain a robust dollar.Analysts generally predict a strong US dollar relative to other currencies,particularly

77、given the dimmer prospects for many advanced economies.These dynamic influences investor psychology and capital flows,often resulting in adverse effects on emerging market asset prices,especially equities(Mouffok et al.,2023).Research by Druck et al.(2018)and others highlights the negative correlati

78、on between dollar strength and the real economy,underscoring the challenges ahead.The primary mechanisms driving this relationship include:(i)an income effect stemming from the dollars impact on global commodity prices,(ii)increased costs for importing capital and inputs necessary for domestic produ

79、ction,and(iii)heightened inflationary pressuresparticularly for emerging markets already burdened by substantial levels of USD-denominated debt,which has doubled to USD 4 trillion as of Q3 2024 over the past decade(BIS,2024).While we anticipate that this dollar strength may diminish later in the yea

80、r as the growth gap narrows and the Federal Reserve resumes easing,the current robust dollar complicates the outlook for emerging markets.A pressing concern is whether the dollars ascent may fuel further protectionist sentiments within the US administration.Although a deliberate devaluation of the d

81、ollar seems unlikely,its consequences would undoubtedly send shockwaves through the global economy.Emerging markets face complexities from US dollar fluctuations,commodity market changes,and geopolitical tensions that could affect growth Standard Bank February 2025 10 Commodity prices Commodity and

82、oil markets are poised to be pivotal battlegrounds that will shape our economic landscape in the coming years.While oil prices may stabilize or even decline due to increased global production,a stronger dollar could exacerbate inflationary pressures in oil-importing nations.This challenge will be pa

83、rticularly pronounced in countries experiencing dwindling demand from China,which is anticipated to have a lasting impact on global commodity exports.It is crucial to recognize that commodity markets have yet to fully adjust to the reality of Chinas ongoing structural slowdown.For instance,China rec

84、ently added an impressive 277.2 GW of new solar capacity,reflecting a staggering 28%year-over-year growthan amount that is almost double the entire installed capacity of the United States.Renewable energy has evolved beyond a mere driver of decarbonization efforts;it is now an integral component of

85、Chinas economic framework.As we look ahead,many emerging markets remain heavily dependent on Chinese demand for their commodities.This reliance underscores the critical role of advanced economy long-run bond yields and commodity prices as key determinants of capital flows to emerging markets(Byrne&F

86、iess,2016).The stakes are high:should trade tensions escalate into a full-blown conflict,the repercussions could be catastrophic,not just for the regions involved but for the global economy.In essence,the interplay between commodity prices,currency strength,and geopolitical dynamics will be crucial

87、in navigating the uncertain economic waters ahead.Reasons for some optimism in emerging markets Before delving into the significant challenges facing emerging markets in 2025,its essential to recognize the reasons for cautious optimism.However,for investors to shift more decisively toward emerging m

88、arket assets,a compelling narrative highlighting potential recovery and growth is necessary.This narrative should be supported by factors such as plausible US rate cuts(though not guaranteed),a weaker US dollar(dependent on the Feds actions),favourable economic indicators especially from China(which

89、 seems less likely)and signs of easing geopolitical tensions(which appear very unlikely).Despite these concerns,emerging market growth is expected to surpass that of developed markets,suggesting greater opportunities for returns.In China,growth expectations have notably increased,largely due to exis

90、ting stimulus measures.Its important to note that cross-country correlation studies do not robustly support the assumption that higher equity returns are exclusive to faster-growing economies.Gajdka and Pietraszewski(2016)argue that stock price returns are primarily driven by company earnings,which

91、do not necessarily correlate with GDP growth.Encouragingly,earnings in emerging markets are projected to be relatively supportive,with a forward price-to-earnings(P/E)ratio of 14.5x,lower than that of advanced economies.Mayur(2015)finds that while the P/E ratio can serve as an effective performance

92、proxy,it is most relevant for firms with substantial market capitalizations.Additionally,emerging market assets remain relatively under-owned,still below pre-COVID levels where they had been oversold especially in markets with smaller capitalizations(Harjoto&Rossi,2023).Moreover,similar to most adva

93、nced economies,many emerging market central banks are adopting an easing bias,creating a favourable environment for equity markets.Should the US Federal Reserve lower rates later this year,it could further bolster equities and temper US dollar strength(Lakdawala&Schaffer,2019).It is notable,however,

94、that the impact of Fed policies on emerging markets can vary significantly(MacDonald,2017),influenced by the depth of domestic financial markets and Emerging markets are projected to grow faster than developed markets,presenting attractive investment opportunities.The diversity of contributing count

95、ries enhances this potential Standard Bank February 2025 11 stronger macroeconomic fundamentals(Mishra et al.,2018).This variability can create tensions between macroeconomic and financial stability(Kolasa&Wesoowski,2023).China economic prospects For the full year,Chinas GDP growth settled at 5%,sli

96、ghtly down from 5.2%in 2023,yet still aligning with Beijings targets.However,doubts linger regarding the reliability of economic data amidst sluggish stimulus efforts and persistent growth challenges(Rosen et al,2025).Looking ahead to 2025,Beijings primary mission is to elevate domestic consumption

97、to address these entrenched economic disparities and sustain growth momentum,even amid deteriorating trade relations with the US.The December Central Economic Work Conference emphasized the urgent need to vigorously spur consumption to combat weak domestic demand and reduce reliance on exports.Beiji

98、ng has indicated a substantial uptick in government spending as authorities ramp up efforts to rejuvenate the economy.The Politburos December economic work meeting underscored the necessity for unconventional counter-cyclical adjustments to stabilize growth.We project that Beijing will target GDP gr

99、owth of around 5%for 2025,mirroring the 2024 target.However,with the property sector facing headwinds and exports unlikely to provide substantial support,government spending will be pivotal.We anticipate a fiscal deficit target of 4%,up from 3%target in 2024.Beyond the expanded budget deficit,we exp

100、ect further measures to enhance fiscal support,including increased issuance of special-purpose bonds by local governments and special treasury bonds by the central government.We project GDP growth of 4.5%for 2025,heavily influenced by the impact of potential tariffs from the incoming Trump administr

101、ation and the extent of fiscal and monetary support required to sustain growth.To foster enduring improvements in consumer confidence,policymakers must prioritize increasing household incomes and revitalizing the property sector.With external uncertainties looming,it is imperative to mitigate system

102、ic risks and avert shocks to domestic demand that could result from declines in real estate or stock markets.The Peoples Bank of China(PBoC)is adopting a proactive approach to stabilize the yuan.While speculation suggests that Beijing may permit yuan depreciation in response to Trumps tariffs,the PB

103、oC remains vigilant against potential capital flight,aiming to reassure the public that any depreciation will be modest,thus alleviating concerns about the necessity of moving funds offshore.Importantly,with the gradual liberalization of Chinas exchange rate system,shocks from the renminbi markets c

104、ontribute more to fluctuations more currency markets than before(Chow,2021).Risks to the emerging market outlook Beyond the idiosyncratic challenges facing individual nations,we must confront the formidable geopolitical risks that overshadow the emerging market landscape.The Trump administrations tr

105、ade policies will be crucial,likely injecting volatility into the market.During his first term,Donald Trump threatened significant tariffs,including a staggering 60%on Chinese goods,and has already implemented a 10%tariff on imports from China.The imposition of such tariffs is poised to inflate pric

106、es across a wide array of goods,potentially reigniting inflation in the US economy(McKibbin et al.,2025).A resurgence of inflation diminishes the likelihood of interest rate cuts this year,further complicating the economic environment.The spectre of destructive trade wars looms not only with China b

107、ut also with key US allies,including Mexico,Canada,the United Kingdom,and Taiwan.Such conflicts could fracture the foundational economic and security arrangements that have long underpinned the global multilateral system,leading to heightened uncertainty in global markets.The repercussions of these

108、trade wars would ripple through emerging markets,undermining their growth prospects and stability.We expect growth of 4.5%in China,but much will depend on geopolitical tensions and the corresponding fiscal response The outlook for emerging markets in 2025 is significantly affected by a range of risk

109、s,particularly geopolitical tensions and the potential for trade wars Standard Bank February 2025 12 The prevailing trend of mutually antagonistic policies has fostered a worldview where competition is viewed in zero-sum terms.During his previous tenure,Trumps withdrawal from international instituti

110、ons weakened global multilateralism(Sullivan de Estrada,2023),prompting debates about the efficacy of a“multilateralism minus one”approach to pressing global challenges like climate change and trade(Fehl&Thimm,2019).Trumps America First doctrine could precipitate significant market fluctuations in t

111、he year ahead.While a shift towards a multipolar world is likely unavoidable(Krishnan&Kassab,2024),the journey ahead is fraught with uncertainty.Emerging markets may find themselves caught in the crossfire as the contours of this new geopolitical landscape begin to take shape.Chinas response In resp

112、onse to escalating US restrictions,Chinese authorities are intensifying their use of export controls and other retaliatory measures.Following the expansion of US export controls targeting Chinas chip industry in December 2024,Beijing acted swiftly,banning exports of critical dual-use minerals and la

113、unching an anti-monopoly investigation into Nvidias acquisition of Mellanox.Similarly,after the US enacted an additional 10%tariff on all Chinese goods,China responded with a multifaceted strategy,imposing tariffs of 15%on coal and liquefied natural gas(LNG),and 10%on crude oil,agricultural machiner

114、y,large-displacement vehicles,and pickup trucks.Moreover,Chinas response extends beyond tariffs.The Ministry of Commerce has enacted export controls on essential materials and added companies like PVH Group and Illumina,Inc.to its Unreliable Entity List.Furthermore,the State Administration for Marke

115、t Regulation(SAMR)has initiated an investigation into Google for suspected antitrust violations.This suggests that Chinese officials are fully prepared to leverage their lawfare toolkit,indicating a shrinking number of potential offramps for de-escalation.As tensions rise,the potential for miscalcul

116、ations and misunderstandings increases,creating a more volatile and unpredictable environment for emerging markets.Confirms a less circumspect Beijing in 2025 In the coming weeks and months,Beijing will be grappling with critical questions about its future trade relationship with the US.Trumps broad

117、er commitment to impose tariffs on all imports to the US might inadvertently encourage other major economies to strengthen their trade relations with China,creating a complex environment that Beijing must navigate carefully(Polk,2024).Technology and export controls presents another layer of uncertai

118、nty as it remains unclear whether Trump will revert to the less systematic approach he employed during his first term.Back then Xi Jinping successfully engaged in personal diplomacy to persuade Trump to lift restrictions on companies.Additionally,Trumps potential alienation of other key chip-produci

119、ng nations,such as Taiwan,might open the door for China.Related,a shift in US diplomacy could alienate traditional allies undermine global multilateralism a spot China has been eager to full.At the World Economic Forum in 2017,President Xi stated,Pursuing protectionism is like locking oneself in a d

120、ark room Wind and rain may be kept outside,but so is light and air.Consistent with Chinas evolving foreign policy China is committed to promoting a partnership model that emphasizes development while rejecting a one-size-fits-all approach to human rights,advocating instead for respect for sovereignt

121、y and national contexts.A significant change in the past decade has been the introduction of Major Power Diplomacy with Chinese Characteristics.Previously,Chinas foreign policy language was carefully crafted to reassure the global community,emphasizing that China had no intention of challenging US p

122、rimacy and would not export its political ideologies or development model.During Hu Jintaos era,the narrative of Chinas peaceful rise emerged,with leaders preferring to refer to China as the largest developing country rather than a power.With Xis leadership,Chinas swift retaliation to US tariffs and

123、 restrictions,including export controls on critical materials and investigations into foreign companies,indicates a readiness to engage in tit-for-tat economic strategies Standard Bank February 2025 13 China has begun to identify itself as a new major country,aiming for new major country relations.W

124、hat is new in this approach?First,China has sought a leading role in shaping the new world order and international security.Although the narrative of peaceful rise persists,Xi conditions his vision of Asian harmony on the acceptance of Chinas regional supremacy(Thornton&Thornton,2018).In Africa,Chin

125、a has actively engaged in peace and security initiatives(Alden&Jiang,2019).Etyang and Oswan Panyako(2020)note that the principle of non-interference is undergoing a deliberate transformation,reflecting Chinas changing role in global geopolitics.Also,the ambition to tell Chinas stories well,introduce

126、d by President Xi in August 2013,aims to counter negative perceptions of China(Mattingly et al.,2024).Goals and strategies in Chinas global positioning The higher-level objective involves restoring Chinas standing in the world and calibrating its influence in global affairs to align with its economi

127、c status as an emerging superpower.The latest Government Work Report(GWR)reflects this aim,explicitly calling for a multipolar world and a new type of international relations,while affirming Chinas opposition to bullying tactics.In the broader context,President Xi has re-established confidence in Ch

128、inas Party-led political system after decades of ideological drift.This reassertion is aimed at revitalizing the Chinese Communist Party as a Leninist entity capable of delivering comprehensive leadership,fostering party-centric nationalism,and enhancing legitimacy(Tsang&Cheung,2022).A new model of

129、governance Chinas previous stance of“no export”has evolved into the export of the China model of development and governance,particularly to the developing world.China aims to present a distinct approach to modernization and governance which emphasizes growth,stability,and effective leadership,offers

130、 compelling lessons for other nations(Alterman,2024).Simultaneously,China is advocating for reforms to increase its influence and representation in international institutions,framing this as the democratization of international relations.Importance of the Global South and Africa China is strategical

131、ly positioning itself to champion the discourse power of developing economies within international organizations,aspiring to lead the Global South(Xu,2020).This involves a transformation described by Wang et al.(2022)as a matriculation from participant to practitioner to leader in multilateral setti

132、ngs.Herein,Chinas diplomatic and commercial engagement in Africa plays a crucial role providing a platform for China to act as a responsible power on the global stage(Mthembu&Mabera,2021).Overall,unlike in many other regions,perceptions of Chinas influence on African development are relatively posit

133、ive,often more so than those of the United States.In many respects,China has cultivated a constructive narrative on the continent.This positive reception is bolstered by deep and robust diplomatic and commercial ties,supported by substantial multilateral frameworks like the Forum on China-Africa Coo

134、peration(FOCAC),high-level visits,proactive diplomacy,and increasingly strong bi-directional commercial relationships.Conclusion The outlook for emerging markets is relatively benign.As 2025 kicks-off,emerging markets exhibit a relatively robust fundamental backdrop characterized by decent economic

135、growth,stable inflation,and relatively low debt levels and default rates.However,the interplay of monetary policy,trade dynamics,and broader economic Chinas foreign policy is undergoing a significant transformation,which adds another layer of uncertainty to the emerging market outlook Standard Bank

136、February 2025 14 conditions will be crucial in determining the trajectory of growth in 2025 and in the coming years.Much seems to orbit around expectations for Fed cuts,USD weakness,a decent level of growth in China and Trump proving to be more bark than bite.At the very least,the jury is out regard

137、ing each of the above,and the balance of risk on each of these scores seems to tilt to the downside.Jeremy Stevens ReferencesReferences Alden,C.Jiang,L.2019.Brave new world:debt,industrialization and security in ChinaAfrica relations.International affairs(London),2019-05,Vol.95(3),p.641-657 Alterman

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139、ternational Settlements.December 2024.Boungou,W.Urom,C.2025.Geopolitical tensions and banks stock market performance.Economics letters,2025-02,Vol.247,p.112093,Article 112093 Chow,H.K.2021.Connectedness of Asia Pacific forex markets:Chinas growing influence.International journal of finance and econo

140、mics,2021-07,Vol.26(3),p.3807-3818 Druck,P.Magud,N.E.Mariscal,R.2018.Collateral damage:Dollar strength and emerging markets growth.The North American journal of economics and finance,2018-01,Vol.43,p.97-117 Etyang,O.Oswan Panyako,S.2020.Chinas Footprint in Africas Peace and Security:The Contending V

141、iews.The African review,2020,Vol.47(2),p.336-356 Fehl,C.Thimm,J.2019.Dispensing With the Indispensable Nation?:Multilateralism minus One in the Trump Era.Global governance,2019,Vol.25(1),p.23-46 Harjoto,M.A.Rossi,F.2023.Market reaction to the COVID-19 pandemic:evidence from emerging markets.Internat

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143、ding Financial Stability amid High Inflation and Geopolitical Risks.In:Financial Stability Report.Washington,DC.Kolasa,M.Wesoowski,G.2023.Quantitative easing in the US and financial cycles in emerging markets.Journal of economic dynamics&control,2023-04,Vol.149,p.104631,Article 104631 Krishnan,A.Kas

144、sab,H.S.2024.The twilight of us dollar hegemony and the coming multipolar world.Austral(Porto Alegre),2024-03,Vol.12(24)Lakdawala,A.Schaffer,M.2019.Federal reserve private information and the stock market.Journal of banking&finance,2019-09,Vol.106,p.34-49 MacDonald,M.2017.International capital marke

145、t frictions and spillovers from quantitative easing.Journal of international money and finance,2017-02,Vol.70,p.135-156 Mayur,M.2015.Relationship between PriceEarnings Ratios and Stock Value in an Emerging Market.Paradigm(Ghziabd,India),2015-06,Vol.19(1),p.52-64 This material is non-independent rese

146、arch.Non-independent research is a marketing communication as defined in the UK FCA Handbook.It has not been prepared in accordance with the full legal requirements designed to promote independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment

147、research.Standard Bank February 2025 15 Mattingly,D.Incerti,T.Ju,C.Moreshead,C.Tanaka,S.Yamagishi,H.2024.Chinese state media persuades a global audience that the China model is superior:Evidence from a 19-country experiment.American journal of political science,2024-07 McKibbin,W.Hogan,M.Noland,M.20

148、25.The international economic implications of a second Trump presidency,PIIE Working Paper 24-20.Mouffok,M.A.Mouffok,O.Bouabdallah,W.2023.Emerging markets economies sensitivity to us dollars strength during Russia-Ukraine war.Journal of Social Sciences,Vol.6(3),p.6-19 Mishra,P.NDiaye,P.Nguyen,L.2018

149、.Effects of Fed Announcements on Emerging Markets:What Determines Financial Market Reactions?IMF economic review,2018-12,Vol.66(4),p.732-762 Mthembu,P.Mabera.,F.2021.Africas changing geopolitics:towards an African Policy on China.Africa China Cooperation.International Political Economy Series.Nguyen

150、,T.Thuy,T.2023.Geopolitical risk and the cost of bank loans.Finance Res.Lett.,54(2023),Article 103812 Rosen,D.Wright,L.Smith,J.Mingey,M&Quinn,R.2025.After the Fall:Chinas Economy in 2025.Rhodium Group.Available online at:After the Fall:Chinas Economy in 2025 Rhodium Group()Sullivan de Estrada,K.2023

151、.US retreat,Indian reform:multilateralism under Trump and Modi.India review(London,England),2023-03,Vol.22(2),p.139-149 Thornton,W.H.Thornton,S.H.2018.Sino-globalisation:The China Model After Dengism.China report(New Delhi),2018-05,Vol.54(2),p.213-230 Tsang,S.Cheung,O.2022.Has Xi Jinping made Chinas

152、 political system more resilient and enduring?Third world quarterly,2022-01,Vol.43(1),p.225-243 Polk,A.2024.Trivium Markets Macro.Trivium Advisory.Washington.Wang.,L.Zhang.,Y.Xi.,H.2022.The political economy of Chinas rising role in the BRICS:strategies and instruments of the Chinese way.Chinese Aca

153、demy of Social Sciences.Beijing.Standard Bank February 2025 16 Resilient ambitions:Africas economy in a volatile global climate The global outlook for 2025 remains modestly optimistic,with growth projected at 3%.Central banks in advanced economies are expected to maintain an easing bias,supporting c

154、onsumer spending and global risk appetite.However,geopolitical tensions and domestic political risks,such as potential US tariff policies and Europes fiscal struggles,could disrupt this stability.Against this uncertain global backdrop,Sub-Saharan Africa(SSA)faces a mix of external headwinds and inte

155、rnal opportunities that shape its growth prospects.Growth in SSA is forecast to recover to 4%in 2025,from 3.6%in 2024,with domestic consumption remaining a stabilizing force for many economies.However,reliance on exports to China makes countries such as Angola,DRC and Zambia vulnerable to any econom

156、ic slowdown in China.US tariffs could exacerbate these risks by dampening global trade flows,further pressuring commodity-dependent economies.Despite these challenges,several SSA countries are demonstrating resilience,driven by robust private consumption.Climate-related shocks continue to weigh heav

157、ily on the region.Severe droughts in 2024 reduced agricultural yields and hydropower generation in Zambia and Malawi,exacerbating economic challenges.La Nia conditions in 2025,though less intense than initially feared,may not provide the rainfall relief necessary to fully replenish resources and sup

158、port recovery in these economies.As climate risks intensify,the need for investment in resilient infrastructure and diversified economic activity becomes more pressing.The global transition to clean energy presents a significant structural opportunity for SSAs critical minerals sector.Rising demand

159、for minerals such as copper,cobalt and nickel,driven by electric vehicles,solar energy and battery technology,positions Zambia and the DRC as key suppliers.The DRC,with 70%of the worlds cobalt reserves,and Zambia,with vast copper deposits,stand to benefit immensely.Infrastructure projects,such as th

160、e Lobito Corridor and the TAZARA rail line,aim to address logistical inefficiencies,reduce transportation costs,and enhance mining profitability.However,policy consistency and regulatory clarity are crucial to attract the long-term investment needed to unlock this potential fully.Fiscal consolidatio

161、n remains a central theme for many SSA economies as they navigate high debt burdens.While governments increasingly rely on raising revenue rather than cutting expenditure,this approach has its limitations.For instance,Kenyas tax hikes since 2023 have triggered public protests even as revenue collect

162、ion growth eases,highlighting the challenges of implementing fiscal reforms in economies with large informal sectors.Broader tax bases and improved governance are essential for sustainable fiscal health.Mozambique exemplifies the fiscal pressures facing the region,with rising domestic debt and liqui

163、dity constraints increasing the risk of defaults.External ratings agencies have downgraded this country,reflecting growing investor concerns.Monetary policy in SSA is expected to remain largely accommodative in 2025,with central banks in countries such as Angola and Malawi likely maintaining cautiou

164、s stances.Egypts declining inflation provides room for further easing,while Kenya plans new infrastructure bonds to address significant maturities.Zambia and Nigeria face challenges related to exchange rate pressures.Ugandas rising government bond yields,driven by increased domestic borrowing due to

165、 large local debt maturities,offer potential opportunities for duration trades despite fiscal risks into the January 2026 elections.Standard Bank February 2025 17 The political landscape in 2025 is less crowded than in 2024 but includes significant elections in Cte dIvoire,Malawi and Tanzania.Cte dI

166、voires elections could see unrest if President Ouattara seeks a fourth term,while Malawis political landscape has been reshaped by the dissolution of key alliances and the passing of Vice President Chilima.Tanzanias ruling CCM party is expected to retain power,leveraging infrastructure achievements

167、and economic reforms.These elections will influence governance,stability and economic trajectories across the region.Despite external challenges,SSA economies will likely continue to show resilience,with several countries approaching,or surpassing,pre-pandemic growth levels.This regions ability to c

168、apitalize on opportunities,such as the rising demand for critical minerals,while managing risks from climate shocks and fiscal pressures,will be crucial for sustaining its recovery and long-term growth.Climate-related shocks frequency increasing GDP growth in SSA is likely to recover to around 4.0%y

169、/y in 2025,from an expected 3.6%y/y in 2024.Our assessment,that SSA growth will likely prove resilient from the January 2024 AMR(African Markets Revealed)publication,amid sluggish global growth and fading external demand,seems to have transpired.We had emphasized back then that,since private consump

170、tion expenditure comprises a notably larger share of overall GDP,subdued external demand from weaker global growth wasnt likely to majorly disrupt economic activity in many of the SSA markets in our coverage.But still,SSA economies that are reliant on robust external demand from China for their key

171、exports may still face downside risks to growth over the coming year,should US tariffs become detrimental for economic activity in China.Of the markets in our coverage,DRC,Zambia and Angola have a sizeable concentration of their exports that are routed to China.In Angola,around 45%of their total exp

172、orts of goods go to China,while in DRC this is higher,at around 48%.In Zambia this ratio is also elevated,at around 28.7%.However,this is lower in other economies such as Botswana at c.7.2%,Ethiopia c.8.4%,Ghana c.8.7%,Kenya c.2.8%,and Nigeria at c.3.3%.Nonetheless,oil-exporting economies such as Ni

173、geria may still be susceptible to a slowdown in the Chinese economy,as this may coincide with a decline in international oil prices and worsen the external position.In the past,this has exacerbated FX liquidity conditions and weighed on growth in the non-oil sector too.However,recent pledges by Chin

174、ese authorities,to ramp up their stimulus support,may underpin economic activity in China and thereby support prices for both oil and copper.Figure 1:Exports to China%total exports Source:UNCTAD 0102030405060MauritiusUgandaEgyptKenyaNigeriaSenegalMalawiTanzaniaCote dIvoireRwandaBotswanaEthiopiaGhana

175、NamibiaMozambiqueZambiaAngolaDRC Standard Bank February 2025 18 But as weve stressed in previous AMR editions,more than shocks to external demand,domestic shocks that drain personal consumption expenditure such as prolonged weather shocks,aggressive monetary policy tightening from an overheating of

176、the economy and entrenched political disruptions,are likely to have a larger and durable negative impact on economic growth in our markets.In fact,over the better part of the past decade or so,economic growth in SSA has increasingly been influenced by climate-related shocks.For instance,droughts and

177、 floods are not only becoming acute,but the frequency has also increased.Extreme La Nia drought conditions in 2024 weighed heavily on GDP growth in both Zambia and Malawi.The drought,described as a humanitarian catastrophe by the United Nations,destroyed key crop harvests,reduced hydropower producti

178、on and drained livelihoods in Zambia,Malawi and other southern African economies.As we have highlighted in our previous edition of the AMR,hot on the heels of the El Nio weather conditions experienced in 2024,which resulted in severe droughts in Zambia and Malawi and heavy rainfall in Kenya and Ugan

179、da,a transition towards La Nia conditions is now being widely expected by weather experts.This would likely reverse the weather trend experienced in 2024,with the East Africa region expected to face drier conditions,while southern Africa,including Zambia and Malawi,could now face increased rainfall.

180、La Nia conditions were expected to begin in H2:24,although,per the International Research Institute for Climate and Society(IRI),this will likely only transpire around Q1-Q2:25.But,more importantly,the intensity of La Nia conditions is likely to be milder,compared to earlier expectations from climat

181、e experts.While the weaker than expected La Nia may be a point of celebration for economies in East Africa,economies such as Zambia and Malawi may now potentially experience lower rainfall than was previously envisaged.This would in turn not aid the expected replenishing of the hydropower dams and w

182、ould also not underpin any rapid improvement in agricultural productivity.However,with base effects expected to unwind,GDP growth in Zambia is likely to receive a statistical boost in 2025.Notwithstanding the risks of below-average rainfall from the weaker-than-previously expected La Nia,we see GDP

183、growth recovering to 5.8%y/y in 2025,from an expected outturn of 2.2%y/y in 2024.In fact,the mining sub-sector could add an additional 75k MT in copper production in 2025,based on guidance from listed mining firms.This would equate to about 10.3%y/y growth in copper output for 2025.But of course,the

184、re are notable downside risks to this forecast,should agricultural productivity and hydropower generation remain subdued.Figure 2:IRI probabilistic seasonal rainfall forecast for Africa Source:IRI Standard Bank February 2025 19 In Malawi,too,GDP growth will likely recover to 2.5%y/y in 2025,from an

185、expected 1.8%y/y in 2024.Despite a weaker intensity La Nia being expected,the governments meteorological department expects above-normal rainfall in Q1:25.Should this transpire,food harvests will likely improve,which may reduce cereal imports and thereby likely underpin net exports and GDP growth.Fu

186、rthermore,government expenditure could also increase ahead of the September 2025 elections,which could support growth.However,in addition to the downside risk of below-average rainfall for growth,too much rainfall can also create flooding and destroy crops in key food-growing regions of the country.

187、The agriculture sub-sector accounts for around 22.0%of GDP.Climate-related shocks have also increased in frequency in Mozambique.Following the detrimental effects of Cyclone Freddy back in 2023,Cyclone Chido has already hit parts of northern Mozambique,resulting in notable damage to infrastructure.B

188、ut the cyclone is also likely to weigh down agricultural output,considering that the agrarian sector accounts for nearly 25.0%of GDP in Mozambique.We have slashed our GDP growth forecast for Mozambique to 2.5%y/y in 2024,from our initial expectation of 4.6%y/y.For 2025,we now expect growth of 3.0%y/

189、y(3.8%y/y previously).Growth may have contracted in Q4:24 due to post-election protests and,with the risk of entrenched domestic political disruptions,growth may even potentially contract in Q1:25.Moreover,aside from the risks of protests becoming durable,economic activity may be dragged lower by FX

190、 liquidity pressures that may persist,intensifying fiscal pressures,and recurring episodes of insecurity in Cabo Delgado which will further delay FDI in the LNG sector.GDP growth in Kenya will likely be lower at 4.6%y/y in 2024,from our earlier forecast of 4.9%y/y.This downward revision was largely

191、due to economic disruptions during the Gen-Z led protests in mid-2024.Growth in Q3:24 eased to 4.0%y/y,from 4.6%y/y in Q2:24,and 5.0%y/y in Q1:24.Due to this slower impetus from 2024,we now see GDP growth rising to 5.0%y/y in 2025,lower than our earlier expectation of 5.3%y/y.Interestingly,despite t

192、he torrential El Nio rainfall in Q2:24,growth in the agricultural sub-sector remained resilient,at 4.8%y/y,from 6.1%y/y in Q1:24.In fact,positively,it appears that the Kenya Kwanza governments increased emphasis on agriculture sector reforms could be bearing fruit.Growth in the agricultural sub-sect

193、or averaged 5.0%y/y in the 9-m to September 2024 and 6.4%y/y in 2023.This exceeds the average growth of 2.2%y/y in the sector between 2018-2022.The government has been providing fertiliser subsidies to farmers,while also providing seeds to spur cotton cultivation.Of course,favourable base effects sh

194、ould help overall GDP growth recover in Kenya in 2025.However,the risk of drier weather conditions from the La Nia drought may still weigh down agrarian output.Additionally,personal consumption expenditure may also remain sluggish over the coming year due to still elevated taxes and higher statutory

195、 deductions from salaried employers.However,declining KES interest rates may help spur private sector credit(PSC)lending and underpin consumer spending in 2025.However,with government arrears owed to suppliers and contractors still in excess of KES700bn(c.4.4%of GDP),PSC growth could remain subdued

196、as banking sector non-performing loans(NPLs)typically dont decline when arrears are also increasing.The government still has plans to issue local bonds to roads contractors to clear part of these arrears.However,should arrears remain elevated,public investment in infrastructure may also decline furt

197、her,likely weighing down growth.Growth in Uganda has been impressive,in line with our expectations.This has largely been on the back of higher investment spending around the oil sub-sector.We see GDP growth rising further,to 6.5%y/y in FY2024/25 and 7.5%y/y in FY2025/26,from 6.2%y/y in FY2023/24.We

198、expect the government to secure and finalise all the Standard Bank February 2025 20 funding requirements for the East Africa Crude Oil Pipeline(EACOP)in 2025.However,on first oil,we see this being delayed into H2:26,while the government still sees first oil by the end of 2025.But again,as we have hi

199、ghlighted before in previous editions of the AMR,even should first oil be delayed beyond our 2026 baseline assumption,FDI in the oil sector will probably remain robust and thereby support GDP growth.Furthermore,government spending outside the oil sector will also likely increase in 2025 ahead of the

200、 January 2026 elections.This could also support growth.However,with Ugandas external position looking weak,should the UGX come under pressure from either a stronger USD globally or looser fiscal policy,the Bank of Ugandas MPC is likely to tighten monetary policy conditions again,which could drag dow

201、n consumption expenditure.Also,should a stronger-than-expected La Nia occur in H1:25,growth in the agrarian sector will likely decline and drag down overall growth too.In West Africa,growth in Nigeria will likely recover to 3.5%y/y in 2025,from an expected 3.2%y/y in 2024.With most of the reforms,su

202、ch as removing fuel subsidies and adjusting the NGN drastically to address overvaluation and USD liquidity concerns now behind us,consumer growth could gradually recover.We see 7.6%y/y growth in crude oil production in 2025,which equates to an average of 1.63m bpd.Notwithstanding sluggish new invest

203、ment in the oil sub-sector,the authorities continue to focus on curbing oil theft and pipeline vandalism.Moreover,commencement of operations at the Dangote refinery should also boost growth in the oil refining sub-sector and support overall growth through linkages with other sectors such as construc

204、tion and transport.Further,the improvement in FX liquidity will also likely continue to bode well for growth in the non-oil economy.However,should oil production falter or should exchange rate pressures re-emerge,growth will likely be dented,particularly as inflationary pressures remain elevated.Gro

205、wth in Ghana has surprised to the upside in 2024.We now expect GDP growth to rise to 6.2%y/y in 2024,from our initial view of 3.8%y/y.Despite a poor performance from the cocoa sub-sector,the mining sector outperformed in 2024.We expect this trend to continue in 2025 following the commissioning of th

206、e Cardinal Namdini mine in Q4:24,and a new mine Ahafo North is also expected to commence production in mid-2025.The authorities expect these two mines to cumulatively contribute around 600k ounces to gold production.Hence,this development may also result in higher GDP growth in 2025 than our current

207、 core scenario.Figure 3:Nigeria oil production Source:CBN;NUPRC-20,0%-15,0%-10,0%-5,0%0,0%5,0%10,0%15,0%20,0%1,001,201,401,601,802,002,202,402,6020062007200820092010201120122013201420152016201720182019202020212022202320242025fOil Production(mbpd)y/y growth(RHS)Standard Bank February 2025 21 In Botsw

208、ana,we forecast 3.7%y/y GDP growth in 2025,from an expected contraction of 3.5%y/y in 2024,driven largely by a slower decline in net exports and an increase in domestic spending,courtesy of increased monetary and fiscal stimulus.The likely contraction in growth in 2024 was worsened by domestic suppl

209、y-side constraints,particularly in the utilities sector where the Morupule B power plants maintenance works created significant energy supply shortages,while the agricultural sectors performance remained subdued due to drought conditions in the broader southern Africa region.Our baseline scenario fo

210、r 2025 includes a slower decline in natural diamond prices as the market stabilizes,with production cuts potentially easing price pressure from lab-grown alternatives and 20-y high inventories.Laying the tracks for a structural shift The long-term demand for critical minerals such as copper,cobalt a

211、nd nickel may surge over the coming decades,driven by electric vehicle growth,solar power expansion,artificial-intelligence(AI)data centers,and robotics.This battery-technology super-cycle represents a major structural tailwind for electrification metals,with estimates by the SBR mining and resource

212、s team indicating global annual copper demand as likely to double,from currently 25m MT,to 50m by 2050.Zambia and the Democratic Republic of Congo(DRC)are ideally positioned given their hefty high-grade deposits.According to the United States Geological Survey(USGS),DRC has approximately 70%of the w

213、orlds cobalt reserves,and copper reserves of approximately 80m MT(USD750bn at current prices).Zambias copper reserves are estimated at 21m MT(USD189bn).Critical minerals demand growth creates a structural growth opportunity,not only for these two countries but also for Angola by way of the Lobito Co

214、rridor,and for Tanzania by way of the TAZARA rail line,which,respectively,connect the Zambia-DRC Copperbelt to the US export market via the Atlantic facing Lobito port,and to China via the Dar es Salaam port on the Indian Ocean.The Lobito corridor investment project,funded by the Partnership for Glo

215、bal Infrastructure and Investment(PGII),is a USD10bn rehabilitation and development of rail,road,bridges,and energy infrastructure.Angola is the primary beneficiary given that 90%of the rail line falls within its borders,as does the Lobito port.Figure 4:SBR vs IMF GDP forecasts 2025 Source:Standard

216、Bank Research;IMF 0,02,04,06,08,010,012,0AngolaBotswanaCote dIvoireDRCEgyptEthiopiaGhanaKenyaMalawiMauritiusMozambiqueNamibiaNigeriaRwandaSenegalTanzaniaUgandaZambiaIMF 2025fSBR 2025f Standard Bank February 2025 22 In Zambia,the refurbishment of the Lobito corridor may boost efficiency and throughpu

217、t of existing mines,while simultaneously laying the foundation for broader economic growth.Local contractors can see immediate benefits in track rehabilitation and station upgrades,while secondary towns near the rail corridor may develop bonded warehouses and other services for metals and general ca

218、rgo.From a mining perspective,long-term investment decisions tend to be based on long-term copper demand and sustained high prices.As such,for mining,the benefits of the Lobito corridor are likely to stem from wider margins by way of logistical efficiency gains.Currently,much of Zambias and DRCs cop

219、per travels up to 2,000 kilometers by truck from mines to Durban or Richards Bay ports in South Africa,along the way facing border delays,security risks,and high insurance costs.Turnaround can be up to 60 days from mine to port.Therefore,streamlined logistics from trucking should improve margins for

220、 mining operators.Beyond mining,an optimized Lobito and TAZARA corridor can reduce truck congestion on existing road networks throughout Zambia,expedite delivery of capital goods imports,and enable Zambias non-traditional exports(including agricultural products)to reach regional markets faster and c

221、heaper.To maximize the opportunity presented by critical minerals demand,a consistent and transparent regulatory framework is as important as infrastructure investment.Frequent changes to mining taxes or royalty rates,and uncertainty over production-sharing agreements,may erode investor confidence a

222、nd deter the long-term capital needed to develop large-scale mining projects.By upholding regulatory clarity,Zambia and DRC should attract reliable investment and fully capitalize on the structural opportunities provided by copper,critical minerals,and the infrastructure supporting their extraction.

223、Is revenue-driven fiscal consolidation failing?Fiscal consolidation,the term increasingly commonly referred to when discussing SSA debt sustainability and/or public finance management dynamics.Often,when there is a concern about public debt vulnerabilities,reducing the fiscal deficit invariably beco

224、mes an urgent requirement.However,it is becoming habitual for economies in Africa to increasingly focus on mobilising higher revenue,rather than cutting back on expenditure notably,in order to advance fiscal consolidation and restore public debt on a more sustainable trajectory.Figure 5:Lobito and T

225、AZARA corridor Source:Standard Bank Research Standard Bank February 2025 23 Arguably,many would assert that African governments prefer revenue-based consolidation as they have a limited propensity to scale back on exorbitant and bloated government costs.But,in many instances,even the IMF frowns on e

226、xpenditure-based fiscal consolidation,arguing that it can increase inequality.The IMF has been proponents of not cutting back on capital expenditure or critical social spending programmes,believing that this could dent long-term growth.In essence,the IMF prefers a balanced approach that combines spe

227、nding cuts and revenue increases which can help ensure both fairness and economic development.However,there is substantial support for expenditure-based consolidation in OECD research papers,which emphasizes that reducing government spending,particularly on current expenditure,has a greater likeliho

228、od of achieving long-term debt stabilization.The World Bank also agrees that reducing spending typically has a smaller negative impact on economic growth than would raising taxes.Tax hikes,according to the World Bank,can lower private sector activity by reducing disposable income and discouraging in

229、vestment,while well-targeted spending cuts can maintain investor and consumer confidence,keeping an economy stable.Indeed,many countries probably rely on raising revenue to address fiscal problems because their ability to cut essential spending is limited.However,focusing too much on increasing tax

230、rates can push these economies beyond the point where higher taxes generate more revenue.Of course,this has been well documented by the Laffer Curve theory.However,based on empirical research,the Laffer Curve doesnt always necessarily hold in developing countries,with results being mixed.While there

231、 isnt much recent research conducted on this,studies from the 1980s found some evidence of increased tax revenue in Jamaica after tax rates were reduced,although this wasnt the case in India.Interestingly,in Jamaica,when tax rates were cut,the number of taxpayers grew significantly.But still,other f

232、actors,such as improved tax administration,may have influenced this outcome.For instance,Kenyas recent tax policy adjustments which eventually resulted in youth protests in mid-2024,such as the VAT revision on fuel to 16%from 8%effective July 2023,and the introduction of new individual personal inco

233、me tax rates and bands,provide valuable insights into revenue dynamics.Interestingly,VAT collections rose by 17.3%y/y in FY2023/24,compared to the 10-y average of 12.6%y/y(20102019).Similarly,income tax collections grew by 10.74%y/y in FY2023/24,falling below the 10-y average growth rate of 14.2%y/y

234、(pre-2019).Admittedly,one must acknowledge that other factors may have either dampened or underpinned economic growth during these periods.However,we suspect that the Laffer Curve probably doesnt hold in this instance due to the large informal sector in Kenya,which accounts for around 86%of total em

235、ployment statistics.In fact,despite recent improvements,Kenyas tax as a%GDP remains below the levels seen between 2015 and 2018,perhaps signalling a decline in the efficiency of tax mobilization relative to economic growth.Standard Bank February 2025 24 But then again,notwithstanding a misalignment

236、of the Laffer Curve theory in this case,we find it unsurprising that the return on the VAT increase is higher than the hike in personal income tax.This is likely due to the large magnitude of the informal sector workforce where VAT increases,as an indirect consumption tax,would probably capture the

237、vast informal sector.On the other hand,the increase in personal income tax rates wouldnt necessarily tap into the large informal sector.In fact,there clearly appears to be a relationship between the size of the informal sector and the revenue collections as a%of GDP for VAT and income tax.For exampl

238、e,per data from the International Labour Organisation(ILO),economies in SSA such as South Africa,Mauritius and Namibia,have a relatively smaller share of the informal sector as function of total employment statistics,at 39.8%,46.9%and 58.6%respectively.Ergo,unsurprisingly,VAT collections as a percen

239、tage of GDP are higher in South Africa at around 6.2%,7.3%in Mauritius,and 6.7%in Namibia.This would be in comparison to Kenya at 4.1%,Ghana at 4.2%and Uganda at 3.8%all economies with informal sector workforces reported at between 85%and 95%.In some economies,such as Nigeria where the VAT rate is t

240、he lowest amongst the economies in our coverage at 7.5%,while the informal sector size is reported at over 90%by the ILO,an increase in the VAT rate(which is widely expected by the market this year)may boost collections not just because of the large informal sector but also as the VAT rate is perhap

241、s just way too low.Figure 6:Kenya tax revenue VS GDP growth Source:Central Bank of Kenya Figure 7:Relationship between informal employment and tax revenue Source:Various ministries of finance,IOL -1012345678-10-5051015202530200220042006200820102012201420162018202020222024%y/y%y/yIncome TaxVATTotal t

242、ax revenueGDP growth(RHS)AngolaBotswanaBrazilCte dIvoireDRCEgyptEthiopiaGhanaKenyaMalawiMauritiusMozambiqueNamibiaNigeriaPakistanRwandaSenegalSouth AfricaTanzaniaTrkiyeUgandaZambia203040506070809010011005101520253035Informal employment%total employment Tax revenue%GDP Standard Bank February 2025 25

243、Moreover,Mozambique,has the highest corporate tax rate amongst the countries in our coverage,at 32%.They collect around 6.6%of corporate tax as a percentage of GDP,while in Mauritius and Egypt,where the corporate tax rate is 15%and 22.5%(some of the lowest in our coverage)respectively,they collect a

244、round 3.6%and 3.9%of GDP respectively.However,the corporate tax rate in Uganda and Kenya is at 30%,yet these economies collect corporate tax of around 1.9%and 1.0%of GDP respectively,perhaps reflecting deficiencies in the investment climate.Ugandas 20122013 personal income tax reform,which raised th

245、e top marginal rate from 30%to 40%,while adjusting lower-income thresholds,also highlights interesting dynamics.Personal income tax revenue rose by 21.4%during 20122013,only marginally above the 8-y average of 21%before the reform.But again,Ugandas informal sector is large,estimated at nearly 95%of

246、total employment statistics,per the ILO.In Ghana,when VAT was cut to 12.5%,from 15.0%back in 2018,y/y growth of VAT collections averaged just 4.5%during 2018 and 2019,from 22.6%in the 3-y to 2017.This isnt surprising given that Ghanas informal sector is c.85%.But,crucially,while there is probably en

247、ough evidence to suggest that VAT increases will likely grow tax revenue faster in most economies in SSA given their large informal sectors,some economies may have their tax rates way lower than is optimal.Hence,in this scenario,any increase in tax rates off a low base will likely spur tax revenue T

248、able 1:Tax rates vs tax revenue%GDP CIT VAT Personal income tax rates Tax revenue%GDP Angola 25 14 25 15.4 Botswana 22 14 25 13 Cte dIvoire 25 18 32 13.6 DRC 30 16 40 7.1 Egypt 22.5 14 27.5 12.9 Ethiopia 30 15 35 6.8 Ghana 25 15 35 13.1 Kenya 30 16 35 14.5 Malawi 30 16.5 35 10.8 Mauritius 15 15 20 2

249、2 Mozambique 32 16 32 21.9 Namibia 30 15 37 30.3 Nigeria 30 7.5 24 1.5*Rwanda 28 18 30 15.4 Senegal 30 18 43 19.8 South Africa 27 15 45 24.5 Tanzania 30 18 30 11.4 Uganda 30 18 40 12.6 Zambia 30 16 37 17.9 Source:Various tax authorities;Various ministries of finance;Standard Bank Research*Tax revenu

250、e refers exclusively to revenue streams allocated to the federal government Figure 8:Uganda tax revenue vs GDP growth Source:OECD;Uganda Bureau of Statistic 0,002,004,006,008,0010,0012,00-50510152025302004200620082010201220142016201820202022%y/y%y/yTotal Tax revenueTaxes on income,profits and capita

251、l gains of individualsGDP growth(RHS)Standard Bank February 2025 26 collections in the near term at least.But,more importantly,as it is becoming increasingly difficult to formalise informal sectors in SSA,authorities perhaps need to relentlessly focus on broadening the tax base,instead of relying so

252、lely on increasing tax rates.Of course,hiking VAT rates,regardless of the size of the informal sector,is politically challenging.Thus,perhaps utilisation and leveraging off technology will likely be a quicker way to broaden the tax base and thereby improve tax compliance.Although,various studies sug

253、gest that growing non-tax compliance in SSA is perhaps less to do with inefficient tax administration,but rather strongly linked to the perception amongst citizens that the government isnt providing adequate and quality public services such as health,transport and education.This change in perception

254、,along with efforts to continue broadening the tax base,will be central in reviving tax revenue durably for economies in SSA.Mozambique:higher risk of domestic debt default,and poor prospects of any improvement in sovereign ratings We examine Mozambiques domestic debt performance as this economy fac

255、es recurrent episodes of government bond arrears and a large increase in bond maturities in 2025 and 2026.Before,arrears were partly attributed to poor debt management office(DMO)capacity,which saw the Ministry of Economy and Finance(MEF)completing in 2024 the migration of external debt data to the

256、Meridian IT system,from CS-DRMS,with a similar process being followed for domestic debt,to help improve debt management.However,we foresee administrative issues as well as entrenched liquidity pressures culminating in a higher risk of a domestic debt default in 2025.Indeed,external rating agencies t

257、oo have been flagging Mozambiques sovereign debt pressures.In October 2024,S&P downgraded Mozambiques local currency(LCY)long-term sovereign rating to CCC,from CCC+,while affirming the short-term LCY rating at C,with a stable outlook or both LCY and FCY.In August 2024,Fitch has affirmed Mozambiques

258、foreign currency(FCY)rating at CCC+.This rating agency has not assigned LCY ratings on Mozambiques sovereign since August 2023.The agency decided to withdraw due to a dearth of reliable information on the resolution of late coupon payments on domestic bonds.Moodys however has kept Mozambiques LCY an

259、d FCY sovereign debt at Caa2,but with the outlook downgraded from positive to stable in September 2023.We see little chance of this economy garnering any material improvement in sovereign ratings soon unless a speedy resumption of LNG investment can manage to lift economic growth.An alarming rapid r

260、ise in domestic debt in 2024An alarming rapid rise in domestic debt in 2024 We estimate central government domestic debt to have grown by an alarming 30%y/y in 2024,to just over MZN400bn(c.USD6.4bn),or 29%of GDP,from 23%of GDP in 2023.This may be due to poor revenue performance during 2024 and gener

261、al election overspending.Mozambiques rapid rise in domestic debt began in 2016 when over USD2bn in previously undisclosed publicly guaranteed loans came to light,resulting in the suspension of an IMF programme at that time.This has also limited access to external borrowing in the meantime.Therefore,

262、central bank financing to the government rose to more than double of the legal limit of 10%of revenue of the previous fiscal year.Standard Bank February 2025 27 More recently,the implementation of the governments unique salary(TSU)in the latter part of 2022 saw the wage bill rising by a staggering 4

263、0%y/y in that year,partly financed by a 24%y/y increase in central government domestic debt,with part of that in the form of domestic bonds issued which are now maturing in 2025 and 2026.The wage bill in 2024,targeted at MZN199.4bn(c.USD3.1bn),or 14.1%of GDP,consumes over 70%of government revenue,fo

264、rcing the government to continue borrowing aggressively in the domestic market.Data reported to Q3:24 shows central bank financing corresponding to 18%of central government debt balances,with T-bills carrying a 31%weight,bonds representing 44%of the exposure,and other term-facilities accounting for

265、7%.A material rise in bond repayments in 2025 and 2026A material rise in bond repayments in 2025 and 2026 We have been flagging an 88.7%y/y increase in government bond repayments in 2025,to MZN37bn(c.USD580m),from MZN19.6bn in 2024,then rising further,by 19.1%y/y in 2026,to MZN44.1bn(c.USD690m).Poor

266、 government bond subscriptions meant that the government has had to increase its reliance on T-bill issuances to fund the Treasury.Figure 9:Central government domestic debt balances Source:Banco de Moambique;Ministrio da Economia e Finanas;Standard Bank Research Figure 10:Government domestic bond pr

267、incipal repayment Source:Bolsa de Valores de Moambique;Standard Bank Research 05101520253035050100150200250300350400450201620172018201920202021202220232024e%of GDPMZN bnOtherBondsT-billCentral bankCentral government domestic debt(MZN bn)Central government domestic debt(%of GDP)024681012141618Jan-25

268、Mar-25 May-25 Jul-25Sep-25 Nov-25 Jan-26 Mar-26 May-26Jul-26Sep-26 Nov-26MZN bn Standard Bank February 2025 28 Rolling over these bonds,most likely via switch auctions,was the strategy of the previous cabinet to help in dealing with large domestic bond repayments and avoid defaulting.The new cabinet

269、s approach is not known.Mozambiques capital markets remain underdeveloped,implying a heavy concentration of government T-bill and bonds exposures in commercial banks balance sheets,pension funds and insurance companies,as well as limited participation from other companies and the public.Notably,inve

270、stment by foreigners in these instruments is also minimal.Per the latest published commercial bank financials reported to December 2023 and June 2024,the top five commercial banks hold over 50%of government debt exposures in the form of T-bill and bonds,with pension funds,including the National Soci

271、al Security Institute(INSS),also holding a large portion of these instruments,which could range at 20-30%.Such heavy concentration may assist the government because it implies managing a limited number or stakeholders in performing switch auctions.Debt service metrics now alarming,in the context lim

272、ited fiscal spaceDebt service metrics now alarming,in the context limited fiscal space At face value,per the 2025-2027 medium-term fiscal framework,Mozambiques domestic debt service(interest plus principal)ratio,seen at 17.4%of revenue in 2025 and 14.9%in 2026,with external debt service(interest plu

273、s principal)to revenue ratios at respectively 11.6%and 10.8%in 2025 and 2026,does not look particularly alarming,especially when compared with the debt service ratios of economies that have defaulted.However,Mozambiques wage bill,consuming over 70%of revenue,translates into severe liquidity constrai

274、nts for this sovereign,which does raise deep concern about domestic debt service levels.Still,Mozambique compares favourably from an inflation perspective.Monetary policy being kept tight,by means of high real interest rates,and high cash required reserves(CRR)at 39%for LCY deposits and 39.5%for FCY

275、 deposits,has helped to sterilize the impact of fiscal slippage on inflation.This,alongside the USD/MZN pair being kept stable since mid-2021,has seen inflation outcomes low,last reported at 4.2%y/y in December 2024,and remaining in single digits since April 2023.We forecast inflation closing 2025 a

276、t 6.1%y/y because of constrained aggregate demand and a stable metical limiting imported inflation.Easing inflation has allowed the Banco de Moambique to cut the MIMO policy rate by a cumulative 450 bps in 2024,to 12.75%,from 17.25%,which helps in lowering the cost of financing,especially for the go

277、vernment.This goes a long way in helping to reduce the governments domestic debt interest bill.Further,the central bank could use the LCY CRR to help in releasing some LCY liquidity and thereby entice commercial banks participation in the likely government debt reprofiling exercise this year and nex

278、t.We view domestic debt defaults risks as having increased,especially due to the Treasurys severe liquidity constraints.The measures announced by President Daniel Chapo during his inaugural speech on 15 January may not relieve the governments liquidity pressure.The president announced expenditure cu

279、ts of MZN17bn(c.USD266m)by reducing the size of the government,dealing with ghost workers,improving the governments procurement process,and dealing with corruption.Standard Bank February 2025 29 However,low government bond subscriptions in some 2024 issuances,and the already high concentration of bo

280、nd repayments in H1:25,implies an imminent domestic debt crunch unless the new cabinet can successfully implement some switch auctions.Fixed income and currency strategy Except for Zambia and Ethiopia,we expect most central bank Monetary Policy Committees in our coverage to maintain an easing bias i

281、n 2025.However,the Committees in Angola and Malawi will likely keep rates on hold over the coming year.Of course,should guidance from the US Federal Reserve on future expected rate cuts change,some MPCs will likely turn cautious and perhaps not ease as much as we currently expect.Admittedly,high bet

282、a markets,where the concentration of foreign portfolio investment in local debt has risen over the past year,will likely be more cautious if the global inflation outlook changes.However,in a market such as Egypt,where headline inflation is likely to decline sharply from February 2025 onwards,the MPC

283、 should have room to ease its policy stance during 2025,even if the Federal Reserve were to further scale back its expectations of rate cuts.The carry trade that we recommended back in March 2025 has returned 13.3%since inception.The EGP came under pressure into Q4:24 as T-bill maturities fell due i

284、n Dec,resulting in higher USD demand.In addition,previous restrictions on USD demand for certain sectors were lifted,which also placed upside pressure on USD/EGP in Q4:24.But,with inflation likely to materially ease from February 2024,in large part due to unwinding base effects,T-bill yields have be

285、gun edging lower.However,roll-over risks remain large,particularly in March 2025 when a large chunk of the 1-y T-bill investments from last year will fall due.Hence,these roll-over risks towards March 2025 will likely keep nominal T-bill yields elevated.However,as real EGP yields likely improve nota

286、bly from February 2025,we could still see more investors add exposure to the 3-y government bond.Figure 11:Mozambique government domestic bond subscription rates Source:Bolsa de Valores de Moambique;Standard Bank Research 050100150200250300350400%DemandAllocation Standard Bank February 2025 30 But,e

287、ven as our trade in our shadow portfolio matures in March 2025,we would still extend this trade with another carry trade.We still view the EGPs valuation on a REER basis as favourable,undervalued by around 26%,per our estimates,while current account dynamics may also improve after the recent ceasefi

288、re deal which may revive Suez Canal receipts.In fact,even before the ceasefire deal,despite a large current account deficit(exacerbated by increased gas imports),and elevated external debt service(between USD15.0-20.0bn per annum)in both 2025 and 2026,the Egyptian governments external funding source

289、s remained ample to cover this.Kenya will issue another infrastructure bond(KENIB)in February 2025.In fact,the government may even prefer to issue new KENIBs in the months where there is a coupon reinvestment risk,being February and August 2025.But also,in April 2025,cumulative maturities of T-bills

290、 and government bonds rises to KES254.7,from KES174.9bn in March 2025 and KES128.2bn in February 2025.Thus,with this large roll-over risk,the government may also look to potentially issue another KENIB closer to April.Recall that the government had initially communicated the intention to conduct a s

291、witch auction to deal with this large redemption in April 2025 but then decided to delay these liability management plans on the expectation that KES yields may fall further.With KENIB yields having fallen to around 13.5%in the secondary market at the time of writing,there is probably limited scope

292、for further large duration gains right now,considering that KENIB yields havent historically been lower than c.12.0%.In addition,we dont expect the KES to rally sharply from current levels.However,we also dont expect the KES to sharply depreciate in 2025,which would imply that the KENIB trade may st

293、ill provide an attractive avenue for the carry.The KENIB 2032 position,that we had opened in our shadow portfolio last year,has returned 36.1%in USD terms.We took profit on this trade in early September 2024.But,looking ahead,we will only re-enter the KENIB trade if new primary issuances provide ent

294、ry level yields of 15-16%.Of course,there is always the risk that offshore investors take profit,and move to other markets such as Nigeria and Egypt.Further,if Kenya doesnt secure a new IMF programme in 2025,portfolio investors may become nervous,particularly if this coincides with a volatile global

295、 risk environment.Indeed,while FX reserves have risen to above USD9.0bn,Kenyas external debt service remains elevated over the medium term,which perhaps makes it appropriate for the government to secure a funded,rather than a precautionary,programme.Figure 12:Inflation forecasts(%y/y period end)Sour

296、ce:Standard Bank Research 0510152025303540Cote dIvoireSenegalMauritiusBotswanaNamibiaUgandaTanzaniaRwandaKenyaMozambiqueDRCZambiaGhanaEgyptEthiopiaMalawiAngolaNigeria2025f2024e Standard Bank February 2025 31 The government is keen to secure another funded programme,although may potentially have to t

297、ap into exceptional access again to receive a sizeable IMF arrangement because the government is already close to the SDR quota ceiling.But also,should the government increase uptake of new non-concessional financing,such as the recently discussed UAE financing beyond the USD675m agreed limit with t

298、he IMF under the current fiscal framework,the pending ninth,and final,review under the current IMF programme may not transpire.This may then complicate the remaining disbursements under the RSF tranche of the arrangement.Nevertheless,real KES yields remain relatively attractive,with inflation also u

299、nlikely to become troublesome for the MPC.KES liquidity at primary debt auctions may also be anchored by further increases in the National Social Security Fund(NSSF)contributions.However,a La Nia drought may still increase food inflation but the MPC will still probably look to cut the CBR further in

300、 H1:25.In Uganda,the 5-y bond yield is now approaching 17.0%.The government has ramped up domestic borrowing over the last few months due to large redemptions in January 2025 as well the requirement to clear the remaining overdraft at the BoU.Recall that the government had to clear UGX7.8tn of the B

301、oU overdraft through issuance of marketable securities to the apex bank,with a further UGX1.3tn expected to be cleared in cash.Positively,as of Q4:24,the government had already issued UGX7.8tn in securities to the BoU and cleared that portion of the overdraft.This will likely improve the governments

302、 chances to secure a new IMF programme,which they aim to finalise by June 2025.We still expect further upside for UGX bond yields over the next 3-m due to upcoming large maturities in May 2025,which rise to UGX2.45tn,from UGX722bn in February 2025 and UGX547bn for March 2025.The yield on the 5-y gov

303、ernment bond could reach 17.0-17.5%,a range that may well see us recommending the duration trade in Uganda again,more so if the USD/UGX pair reaches 3800-3850 levels in Q1:25,typically a period where USD demand spikes due to dividend repatriation.However,the risk of supplementary budgets being issue

304、d would normally increase UGX bond yields.Also,with elections expected in January 2026,government domestic borrowing and issuance of supplementary budgets could increase in 2025.However,we will closely track whether any tactical duration opportunities arise between March and May 2025.Figure 13:Real

305、3-m rate Source:Bloomberg;Various central banks -20-15-10-5051015AngolaNigeriaZambiaRwandaBotswanaMauritiusEgyptNamibiaGhanaTanzaniaKenyaUgandaMalawiMozambique%Standard Bank February 2025 32 The carry trade via the 364-d T-bill that we recommended in Zambia will mature in August 2025.The trade is do

306、wn 0.9%due to ZMW weakness in Q4:24.This weakness was largely on the back of increased seasonal agricultural input demand,in addition to looser ZMW liquidity.We expect moderate upward pressure on USD/ZMW to persist in H1:25,with ZMW liquidity conditions expected to remain loose,in large part due to

307、concerns that domestic funding pressures would deteriorate if ZMW liquidity were tightened,amid the still elevated increase in social spending from the severe drought in 2024.ZMW pressure in 2024 was also exacerbated by the El Nio drought which increased both food and electricity imports,thereby wid

308、ening the trade balance.Admittedly,the resumption of favourable rains will be crucial in easing these trade account pressures by replenishing the Kariba Dam and boosting agricultural productivity.However,even if La Nia rains were weak,as is widely expected,which would imply weaker rains in Zambia,we

309、 would expect an improvement in the trade account largely due to a significantly lower base from 2024.Looking ahead,a large portion of the local debt maturities in 2026 is skewed towards foreign portfolio investors estimated at around USD800m.This is more likely to be a balance of payments challenge

310、,rather than a debt sustainability issue,according to us,as non-resident holders are likely to increase USD demand.We believe that the authorities would benefit from signalling to the market how this potential large capital outflow in the financial account would be funded,particularly given that 202

311、6 is in an election year and the current IMF funded programme expires in October 2025.Such signalling would perhaps help alleviate challenges for the government to roll over ZMW debt,which would also anchor investor confidence.Given our entry point at a 19%yield,we maintain our shadow portfolio posi

312、tion in the carry trade.Our base case is that Zambia will muddle through the high maturity wall both in 2025 and 2026 as the banking system maintains high levels of liquidity.That said,likely looser ZMW liquidity may place further upside pressure on USD/ZMW than we currently envisage in our baseline

313、 assumption.But crucially,we also believe that it is likely that Zambia extend,or enter,a new IMF programme once the current one expires in October 2025.However,the authorities are keen to extend the current programme before the October expiry,which would then also make them eligible for the Resilie

314、nce and Sustainability Facility(RSF).In Nigeria,our carry trade recommendation is down around 12.6%since inception in April 2024.The NGN came under pressure in Q3:24 largely on the back of both seasonal(college fees)and speculative USD demand.The NGN appreciated in Q4:24 Figure 14:Real 10-y rate Sou

315、rce:Bloomberg;Various central banks-20,00-15,00-10,00-5,000,005,0010,0015,0020,00NigeriaEgyptGhanaMauritiusZambiaBotswanaNamibiaTanzaniaUgandaKenya%Real 10-y rate Standard Bank February 2025 33 due to an increase in FX reserves from the USD2.2bn Eurobond issuance.This was further complemented by the

316、 introduction of the B-Match system,which has aided price discovery in the FX market.However,as USD/NGN declined from late last year,we have seen right-hand-side USD demand also pick up.In fact,the NGN started 2025 on the back foot,with structural USD demand still persisting.The NGN has been under p

317、ressure despite the CBN selling USD536m in December 2024 and USD360m so far in January 2025.Hence,we will now cut our losses and exit the 364-d T-bill in our shadow portfolio.However,we will wait for better entry levels for USD/NGN between 1600-1700,as OMO yields will likely continue to range around

318、 30.0%for the better part of 2025.Our expectation for an IMF-sponsored,stepped-up depreciation of the Ethiopian birr(ETB)against the USD has materialized.Our recommendation to buy a 24-month USD/ETB NDF in January 2023 proved highly effective,delivering a strong return of 53.73%upon maturity on 21 J

319、anuary 2025.Table 2:Open trades Positions Entry Date Entry Yield,%Entry FX Latest yield,%Latest FX Total return,%Since inception Egypt:buy Egypt 364-d 28-Mar-24 25.9 47.40 25.43 50.31 13.4 Zambia:buy Zambia 364-d 22-Aug-24 19.00 26.11 15.50 27.8-0.9 Source:Bloomberg,Standard Bank Research Standard B

320、ank February 2025 34 Glossary For brevity,we frequently use acronyms that refer to specific institutions or economic concepts.For reference,below we spell out these and provide definitions of some economic concepts that they represent.1414-d d 14-day,as in 14-d deposit,which denotes 14 day deposit 1

321、010-y y 10-year 16 Jan 1316 Jan 13 16 January 2013 3 3-m m 3 months 3m3m 3 million,as in USD3m,which denotes 3 million US dollars 3bn3bn 3 billion,as in UGX3bn,which denotes 3 billion Ugandan shillings 3tr3tr 3 trillion,as in TZS3.0tr,which denotes 3 trillion Tanzanian shillings AOAAOA Angola Kwanza

322、 BAMBAM Bank Al Maghrib BCCBCC Banque Central du Congo(Central Bank of Congo)BCEAOBCEAO Banque Central des tats de LAfrique de lOuest(Central Bank of West African States)BCTBCT Banque Central de Tunisie BMBM Banco de Moambique BNABNA Banco Nacional de Angola BOBBOB Bank of Botswana BOGBOG Bank of Gh

323、ana BOMBOM Bank of Mauritius BONBON Bank of Namibia BOPBOP Balance of payments a summary position of a countrys financial transactions with the rest of the world.It encompasses all international transactions in goods,services,income,transfers,financial claims and liabilities.BOTBOT Bank of Tanzania

324、BOUBOU Bank of Uganda BOZBOZ Bank of Zambia BRBR Bank Rate(Reserve Bank of Malawi)Standard Bank February 2025 35 BRVMBRVM Bourse Rgionale des Valeurs Mobilires(Regional Securities Exchange)BWPBWP Botswana Pula C/AC/A Current account balance.This is the sum of the visible trade balance and the net in

325、visible balance of a country.The latter includes net service,income and transfer payments.Capital Capital accountaccount Captures the net change in investment and asset ownership for a nation by netting out a countrys inflow and outflow of public and private international investment.CBECBE Central B

326、ank of Egypt CBKCBK Central Bank of Kenya CBRCBR Central Bank Rate CDFCDF Congolese Franc CPICPI Consumer Price Index An index that captures the average price of a basket of goods and services representative of the consumption expenditure of households within an economy.Discount Discount raterate Po

327、licy rate for Bank of Uganda DisinflationDisinflation A decline in the rate of inflation.Here prices are still rising but with a slower momentum.Disposable Disposable incomeincome After tax income DMDM Developed markets ECBECB European Central Bank EGPEGP Egyptian pound EMEM Emerging markets ETBETB

328、Ethiopian Birr EurobondEurobond A bond denominated in a currency other than the home currency of the issuer.ExportsExports The monetary value of all goods and services produced in a country but consumed broad.FMDQFMDQ FMDQ OTC Securities Exchange,Nigeria FXFX Foreign Exchange FY2016/1FY2016/17 7 201

329、6/17 fiscal year GCEGCE Government Consumption Expenditure-Government outlays on goods and services that are used for the direct satisfaction of the needs of Standard Bank February 2025 36 individuals or groups within the community.This would normally include all non-capital government spending.GDEG

330、DE Gross domestic expenditure,the market value of all goods and services consumed in a country both private and public including imports but excluding exports.This is measured over a period of time usually a quarter/year.GFCFGFCF Gross Fixed Capital Formation this is investment spending,the addition

331、 to capital stock such as equipment,transportation assets,electricity infrastructure,etc to replace the existing stock of productive capital that is used in the production of goods and services in a given period of time,usually a year/quarter.Normally,the higher the rate of capital,the faster an eco

332、nomy can grow.GDPGDP Gross Domestic Product the monetary value of all finished goods and services produced in a country in a specific period,usually a year/quarter.GHSGHS Ghanaian Cedi H1:16H1:16 First half of 2016 ImportsImports The monetary value of goods and services produced abroad and consumed

333、locally.InflationInflation The rate at which the general level of prices of goods and services are rising.It is usually measured as the percentage change in the consumer price index over a specific period,usually a month/year.Invisible Invisible trade trade balancebalance The value of exports of services,income and transfers,less imports of same.Jan 16Jan 16 January 2016 KBRRKBRR Kenya Bankers Ref