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Kenyan shilling hits new low, Trader speculation fuels volatility of naira

Nigerian Naira (₦) 

Compiled by Ikenga Kalu

The naira exhibited extreme volatility over the week on the back of expected central bank direct intervention in the parallel market, with the naira depreciating overall from USD/NGN 900 to USD/NGN 906. The central bank issued two circulars targeting both money transfer and bureau de change operators with details on the acceptable margins for trades outside the official window and timelines for rendering reports. This, in addition to earlier promises to clamp down on “speculative activities,” led to a spree of panic selling, which launched the naira to 840 levels at the end of last week. However, this trend reversed rapidly after J.P. Morgan released a report contesting the size of the FX reserves available to the central bank and its capacity to intervene in the market sustainably. We expect the naira to depreciate gradually in the absence of a follow-up from the central bank.

Further reading:  

BusinessDay — Naira hits new low of 900/$ after JP Morgan revelations

Daily Trust — CBN Brings Back BDC, Introduces New Operational Mechanism

Ghanaian Cedi (GH¢)

Compiled by Sakina Seidu

The cedi slipped marginally against the dollar, averaging USD/GHS 11.45 on the retail market.

In the past few months, Ghanaians have seen an amendment to income and excise tax, as well as growth and sustainability tax. These have since been followed with other amendments and new taxes. Presently, the Ghana Revenue Authority (GRA) has set a target of over 400 million cedis to be raked in from taxes on “shisha,” as well as an increase in excise tax. There has also been an introduction of a 10% gaming tax to be charged on all winnings. Peasant farmers, in a quest to get ahead of this curve, have approached Bryan Acheampong, the minister of Food and Agriculture, who has assured them that taxes on agricultural inputs might be exempted. The farmers await a conclusion to that discussion.

We expect the cedi to continue to slip as increasing demand for forex is seen in the days to come.

Further reading:  

B&FT — GRA targets GH¢455m in shisha tax, et al

CBN — GRA to rake GH¢400 million from gaming tax

B&FT — Gov’t ponders tax exemptions for agricultural inputs

South African Rand (R) 

Compiled by Alex Barmuta

The USD/ZAR closed out last week, trading at 18.9775. With the 19.00 level acting as a resistance area, the rand managed to make further gains against the dollar in the new week as it traded around 18.70 as of Wednesday afternoon. 

Positive headline consumer inflation data released in South Africa showed that the CPI has dropped from 5.4% in June to 4.8% in July. Core inflation also dropped from 5% in June to 4.7% in July. 

Another factor that could be influencing an increased demand for the rand is the ongoing BRICS conference held in South Africa, as investors weigh possible benefits for Africa’s most industrialized economy.

Looking ahead, we can expect the rand to continue trading under 19 against the dollar. To the upside, the 18.95 is likely to act as resistance, and to the downside, some support can be found at the 18.50 level. 

Further reading:  

Investor observer — USD/ZAR forecast: Rand signal as South Africa inflation slips again

Egyptian Pound (EGP)

Compiled by Mitchell Diedrick

The Egyptian pound appreciated to USD/EGP 30.84 last week. However, it returned to trading at USD/EGP 30.90 in Wednesday’s trading session. 

The Ministry of Petroleum reported that a new oil discovery was made in the Geisum-Tawila West concession area in the Gulf of Suez. The recently installed well has a current production exceeding 2,500 barrels per day. It is worth noting that this is the fourth well to be drilled using early production facilities, and another three wells are still available. This is likely to have a positive impact on the Egyptian economy and fuel economic growth.

The pound is expected to trade around USD/EGP 30.90 in the coming week in the absence of external shocks.

Further reading:  

Egypt today – Egypt announces new petroleum discovery in Gulf of Suez

Kenyan Shilling (KSh)

Compiled by Terry Karanja

The Kenyan shilling hit a new all-time low and is trading at USD/KES 144.35/144.80, mainly due to the mismatch between the dollar supply and demand in the economy. Strong remittance inflows continue to support the current account and the stability of the exchange rate. In July 2023, there was an 18.4% increase in remittance inflows, which hit a record monthly high of $378.1 million U.S. dollars compared to $319.4 million in July 2022. The cumulative inflows for the 12 months to July 2023 totaled USD 4,076 million compared to USD 3,995 million in the same period in 2022 — an increase of 2.0%. We expect the shilling to remain under slight pressure due to the increased importer demand for dollars, especially from the energy sector.

Further reading:  

The Star — More pressure on consumers as importers buy a dollar Sh21 more

Ugandan Shilling (USh)

Compiled by Yadhav Panday

The Ugandan shilling improved from USD/UGX 3734 at close of last week to USD/UGX 3716 this week as pressure on demand for the greenback eased a bit. This also comes after data from the Uganda Coffee Development Authority reported that coffee exports increased in the month of July by 12% compared to a year earlier. 

The Bank of Uganda has plans to delay payment of government securities that are soon maturing and opt to settle later at a higher rate through its switch auctions within the upcoming year of 2023/24 in a bid to minimize volatility in the domestic financial markets. In the near term, we project the shilling to remain relatively under pressure with the global dollar strengthening.

Further reading:  

Name of Outlet – Title of article (hyperlinked entire line)

The Observer — BoU switches up bonds as payments fall due 

Uganda Business News — Coffee exports rise, spurred by higher robusta prices

Tanzanian Shilling (TSh)

Compiled by Kristin Van Helsdingen

This past week, the Tanzanian shilling crumbled to USD/TZS 2,505 once again, the shilling’s weakest level since 2017. The shilling strengthened over the weekend to USD/TZS 2,502 but is back trading at 2,505.

The weak shilling is causing a knock-on effect where debt financing is growing as the majority of Tanzania’s debt is denominated in U.S. dollars, and import costs have been on the rise. This recent weakening of the shilling is owed to a shortage of foreign reserves at the Bank of Tanzania (BoT). However, the BoT confirmed on Tuesday that they are expecting this to stabilize soon.

In the week ahead, we can expect some volatility in the USD/TZS currency pair as the BoT works toward gaining control again over the value of the shilling. Additionally, the country will be experiencing power shortages this week as the Tanzania Electric Supply Company works to fix a system error that occurred on Tuesday, Aug. 22, 2023. The USD/TZS will most likely continue to fluctuate around the 2,505 level.

Further reading:  

THE CITIZEN – How the weakening shilling is affecting debt servicing

AFRICA Press – High import bills drive up imports

THE CITIZEN – BoT outlines key measures to spur local currency’s rebound

THE CITIZEN – Tanzania to face power outages due to system error

West African CFA Franc Region (XOF) 

Compiled by Yashveer Singh

The General Directorate of the Financial Sector under the Ministry of Finance and Budget has released a report detailing the status of Decentralized Financial Systems for the first quarter of 2023. The findings reveal several notable trends and statistics that indicate the sector’s growth and potential impact on the economy. One of the standout highlights of the report is the significant increase in credits granted during the first quarter. Credits surged by 9% compared to the previous quarter, reaching a total of 195.9 billion FCFA (approximately 298.7 million euros). This expansion translated into 171,606 credits issued, with an average amount of 1,141,725 FCFA. Outstanding deposits also witnessed growth, rising by 4% to reach CFAF 511.3 billion. This amount corresponds to 3.1% of the country’s GDP and 9.1% of total bank deposits. Simultaneously, outstanding credit increased by 2.8% to reach CFAF 617.3 billion, accounting for 11.9% of credits to the African economy and 3.7% of GDP.

The first quarter of 2023 demonstrates significant growth in Decentralized Financial Systems, with increased credits, membership, and deposits. These findings indicate that the microfinance sector is playing a pivotal role in expanding financial inclusion. Nevertheless, challenges remain, including the need to address portfolio quality and gender disparities. Continued monitoring and strategic interventions are crucial to ensuring the sustained growth and stability of the sector.

Further reading:  

Sika Finance — Senegal: 196 billion FCFA of loans granted by microfinance in the 1st quarter of 2023

Central African CFA Franc Region (XAF)

Compiled by Yashveer Singh

Cameroon Oil Transportation Company (Cotco) announced a new shareholder structure with SHT Overseas Petroleum (SOP), Tchad Petroleum Company (TPC), the Republic of Chad, and Cameroon’s National Hydrocarbons Corporation (SNH) as shareholders. Although the exact share distribution was not specified during the initial announcement, it was later revealed that Chad transferred 20% of Cotco’s shares to Cameroon, bringing Cameroon’s total ownership to 25.17%. This shift in ownership means that Chad now controls 74.83% of Cotco, which manages the Cameroonian section of the Chad-Cameroon Petroleum Development and Pipeline Project.

Chad and Cameroon resolved a diplomatic crisis, with Cameroon supporting Chad’s position in exchange for the transfer of 20% of Cotco’s shares to Cameroon and the ability to suggest a managing director for the company. In a previous deal between SNH and Savannah Energy, Cameroon would have received only 10% of Cotco.

Further reading:  

Business In Cameroon — Cameroon’s shares rise to 25.17% with Chad transferring additional 20%

 

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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