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COVID recovery requires joined up global support

Africa and Europe called for greater cooperation to tackle the economic fallout from the coronavirus pandemic at the Africa Roundtable forum this week in Berlin. German President Frank-Walter Steinmeier called on Western nations to make a more significant contribution towards the global vaccination programme, while Senegalese President Macky Sall said easier access to loans to boost infrastructure investment would help support Africa’s recovery from the crisis.

World Bank raises Nigeria’s growth forecast

The Naira depreciated against the greenback to 411.50 on the official NAFEX window as the supply of dollars has dropped by around a third this month, prompting the Central Bank of Nigeria to take steps to boost liquidity by increasing forex allocation to banks. Meantime, on the parallel market, the Naira was steady at 502. The World Bank this week raised Nigeria’s 2021 growth forecast to 1.8% from its previous estimate of 1.1% in January, based on an assumption of higher oil prices, structural reforms in the country’s oil sector and the ongoing shift to a flexible exchange rate regime. We expect the Naira to remain under pressure in the coming days as demand for dollars still outweighs supply.

Ghana plans central bank digital currency

The Cedi weakness continued this week, falling to 5.81 to the dollar from 5.78 at last week’s close, driven lower by dividend repatriation from multinational companies. Inflation continued to ease, dropping to 7.5% in May from 8.5% in April as food prices declined. At the end of last week, Ghana’s central bank said it was in the advanced stages of introducing a digital currency, with a pilot programme for the ‘e-Cedi’ likely to follow soon. We expect sustained pressure on the Cedi in the coming days due to ongoing demand for dollars in the market.

Economic data weighs on Rand

The Rand slid against the dollar, trading at 13.61 compared to 13.48 at last week’s close after data showed South Africa’s GDP contracted by 3.2% in the first quarter compared to the same period in 2020. However, on a quarter-by-quarter basis, the economy expanded by a non-annualised 1.1% in the opening three months of the year compared to the final three months of 2020, beating analyst expectations. We expect the Rand to appreciate in the coming days due to increased business optimism.

World Bank cuts Egypt’s growth outlook

The pound held steady against the dollar this week, trading between 15.62 and 15.72, shrugging off the World Bank’s decision to lower Egypt’s growth forecast to 2.3% in the fiscal year 2021/22 from a projection of 3.7% in January. The bank said its revised forecast came after the economy grew at a slower pace than expected in the opening half of this year despite an easing of lockdown restrictions. Pandemic damage to the tourism, manufacturing and oil and gas sectors contributed to the hit on output. We expect a stable Pound over the coming week as investment inflows should cover demand for dollars.

Kenyan economy slows on Covid-19 effects

The Shilling fell against the dollar, trading at 107.95/108.15 from 107.65/107.85 at last week’s close mainly because demand from importers in the energy and commodity sectors outweighed supply from exporters. The National Treasury reported slower economic growth in the 12 months to March compared to the same period a year earlier due to the impact of COVID-19. We expect increased pressure on the Shilling as dollar demand from merchandise traders increases as economies around the world continue to reopen from pandemic-related lockdowns. Forex reserves remain adequate at $7.5 billion, enough for 4.59 months of import cover.

World Bank funds Ugandan digital inclusion plans

The Shilling gained against the dollar, trading at 3513/3530 from 3540/3550 last week as banks offloaded their long positions amid weaker corporate demand for the greenback. The World Bank’s latest economic analysis on Uganda noted that its economy is emerging from the impact of the pandemic, though growth prospects are weak and debt problems are mounting with debt and interest payments accounting for close to 60% of revenues. However, the country received $200 million funding from the World Bank for a series of telecoms projects to boost digital inclusion. Those inflows, coupled with weaker dollar demand, should see the Shilling continue to strengthen over the coming week.

IMF holds back Tanzania loan on lack of COVID data

The Shilling was steady against the dollar at 2314/2324 compared to last week’s close. The World Bank said it would provide $150 million to help fund the Digital Tanzania Project, which aims to improve broadband internet access across the country to support the provision of digital public services. A potential $574 million emergency loan from the International Monetary Fund won’t be signed off until the country publishes data on the spread of COVID-19, which it hasn’t done since May last year. We expect to see the Shilling gain slightly in the coming week due to expected inflows from food exports.

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Issued by AZA. 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 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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