For months, high oil prices squeezed African businesses that rely on imported fuel. Then a surprise peace deal sent crude tumbling. The result: a sudden burst of better sentiment across the continent.
The reopening of the Strait of Hormuz following the US-Iran peace deal was a pivotal development, as this narrow waterway handles about a fifth of global oil shipments. The agreement eased supply concerns that had fueled price spikes, offering immediate cost relief to net importers across the continent.
That gave a quick lift to African economies that buy fuel from abroad.
The cost spike in recent months was "largely hinged on oil markets," noted David Owen, an economist with S&P Global Market Intelligence. He added that "a notable cooling of global oil prices over the course of June provides some confidence that inflation will moderate further."
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Kenya's index rose from 46.6 in May to exactly 50 in June. That neutral mark means activity stopped shrinking. S&P Global reported that Kenyan companies saw their highest future-confidence in three-and-a-half years, fueled by rising sales that improved sentiment, created backlogs, spurred new hiring, and increased inventory.
Nigeria's index slipped to 53.4 in June from 54.1 in May, but stayed above the 50 mark. The decline resulted from limits on operational capacity, pending work orders, and supply chain disruptions.
Mozambique, Zambia, and Uganda also saw improved sentiment in June, according to S&P Global's data. Higher output and new orders drove improvements in Uganda and Mozambique, while Zambia benefited from optimistic year-ahead expectations.
Standard Bank Group economist Christopher Legilisho noted that despite ongoing cost pressures, the drop in oil prices provides some relief. "Still, as international oil prices have been declining, there may be reprieve for firms in time," he said.
Many African nations lack domestic refining capacity and depend heavily on imported petroleum products. Earlier this year, rising crude costs drove up transportation and production expenses for businesses, compressing profit margins and limiting their expansion. The recent decline in oil prices not only eases immediate cash-flow strains but also helps central banks combat inflation, potentially paving the way for more accommodative monetary policy. For net importers such as Kenya, Uganda, and Zambia, lower fuel costs can translate into reduced electricity tariffs and cheaper raw materials, boosting industrial activity over time.
Fuel-importing African nations beyond South Africa are expected to see further benefits from lower oil prices in the months ahead, since the decline in cost pressures had a noticeable impact only on South Africa's June index. The next round of PMI data will show whether June's bounce turns into a sustained recovery.
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