Calls for comprehensive Africa COVID support

The International Monetary Fund and World Bank should lead G7 and G20 nations towards a comprehensive financial assistance package for Africa to help tackle the third wave of the coronavirus pandemic, according to the Atlantic Council. While African countries are set to benefit from the IMF’s $650 billion special drawing rights programme, wealthy nations need to provide additional aid and debt relief to help mitigate the economic impact of COVID-19 on the continent, the Washington-based think tank argues

Oil jump eases pressure on Naira
The Naira appreciated against the dollar on the official NAFEX window, trading at 411.13 compared to 411.25 at last week’s close after crude oil prices hit a three-year high of $77 per barrel. Meanwhile, the Naira was unchanged on the parallel market, trading at 503 to the dollar. The Central Bank of Nigeria has been intervening in the market, with dollar reserves falling to $33.1 billion, close to a four-year low and a $2 billion decline since the start of the year. We project the currency to sustain current levels in the coming days.

Ghana FX weakness continues
The Cedi fell to 5.91 to the dollar from 5.88 at the end of last week, continuing the recent downward trend for the Ghanaian currency. Much of that FX pressure is being pinned on external debt servicing commitments, foreign investors repatriating profits from local investments and increased demand for dollars outweighing supply. However, we don’t believe this trend will persist given that the Bank of Ghana still has adequate reserves to protect against a drastic drop, hence we expect the Cedi to improve in the near term.

Rand to rebound on commodities recovery 
The Rand declined again this week to 14.30 against the dollar from 14.24 at last Friday’s close as the surge in Covid cases and tighter lockdown restrictions weigh on South Africa’s economic outlook. The country’s net foreign reserves also dipped to just under $51.4 billion in June, adding to the bleaker sentiment. However, the recovery in commodity prices will support growth in South Africa’s industrial sector and therefore we expect a reversal in any near-term weakness for the Rand.

Citrus exports boost Egypt reserves
The Pound was trading at 15.67 to the dollar, unchanged from last Friday’s close. The Central Bank of Egypt announced on Tuesday that its foreign currency reserves increased by roughly $116 million in June to just under $40.6 billion. That follows an uptick in export inflows this year, with the volume of agricultural exports—notably citrus and potatoes—increasing to more than 4 million tons over the first six months of the year, 15% higher than the same period in 2020. Given those inflows, we expect to see the Pound gain ground against the dollar in the coming days.

IMF, World Bank loans boost Kenya’s coffers
The Shilling remained steady at 107.85/107.95, in line with last week’s close. Kenya’s foreign currency reserves this week climbed to their highest level in almost a year, standing at $9.5 billion—sufficient for 5.81 months of import cover. The rise in reserves follows the disbursement of loan funds from the IMF and the World Bank to help support the country’s economy and boost its vaccine programme. We expect the Shilling to remain stable over the next seven days.

Uganda lockdown dampens sentiment
The Shilling depreciated slightly this week, trading in the range of 3558/3568 to the dollar as Uganda’s ongoing lockdown restrictions to curb an outbreak of COVID-19 cases reduces business activity and stings the wider economy. With the lockdown restrictions set to remain in place until the end of July, we expect pressure on the Shilling to continue.

Tanzania eyes COVID vaccines by year-end
The Shilling held firm against the dollar this week, unchanged at 2314/2324. Tanzania’s government expects to receive its COVID-19 vaccine doses in December after last month requesting support from the international Covax programme following a year of denying the presence of the virus in the country. The African Guarantee Fund for Small and Medium-sized Enterprises this week signed a memorandum of understanding with the Tanzania Agricultural Development Bank that will enable the bank to hand out as much as $20 million of loans to agribusinesses in Tanzania. We expect dollar inflows from agricultural exports such as coffee and cotton to offset the impact of higher oil prices and keep the Shilling stable in the coming week.

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Issued by AZA Finance. This Newsletter is produced as a service to our clients. It is prepared by our dealing professionals and is based on their understanding and interpretation of market events. AZA Finance cannot be held responsible for any losses of whatever nature sustained as a result of action taken based on comments contained in this publication.

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