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Naira’s value continues rapid descent; IMF and World Bank say Kenya’s shilling is ‘overvalued’

Nigerian Naira (₦) 

Compiled by Ikenga Kalu

The naira lost even more value against the U.S. dollar having pulled off a 200 naira decrease over the last week from USD/NGN 1100 to 1300. 

The central bank intends to source $10 billion U.S. dollars in order to clear the growing FX backlog on the official FX window. The funds will be reportedly sourced from forward sales from the state oil company, Nigerian National Petroleum Corporation, and a soft loan from Qatar. So far, news of this development has had no positive impact on the currency, which has instead depreciated further over the past few days. 

Since no specific timeline has been provided for receipt of the central bank funds, we expect the naira to continue to lose value against the U.S. dollar amid chronic FX scarcity. 

Further reading:  

Business Day — How Nigeria plans to source $10bn to fix FX crisis

Ghanaian Cedi (GH¢)

Compiled by Sakina Seidu

The cedi continues its depreciating streak against the dollar from USD/GHS 12 to USD/GHS 12.20 levels in a week.

Yields for treasury bills have been on the rise for the past seven months. This has been caused by the limiting avenues for the government of Ghana to borrow to fund its expenditure. Also, with the infamous domestic debt exchange programme’s shadow slowing down investor interest in treasury bonds, the appetite for treasury bills have seen a huge jump. A report from the Bank of Ghana shows that financial institutions have recorded an upward trend from 17.8% to 51% of their portfolios dedicated to treasury bills.

We expect the cedi to begin to stabilize owing to the expectation of the $800 million cocoa syndication loan to be disbursed in the market in November 2023.

Further reading:  

Ghana web — Cedi sells at GH¢12.25 to $1, GH¢11.46 on BoG interbank as of October 25

Joy Online — T-bills now constitute banks largest investment portfolio

Joy Online — Pressure on cedi to ease this week

Business and Financial Times — Cedi’s bearish trend to continue until FX inflows materialize

South African Rand (R) 

Compiled by Alex Barmuta

The South African rand started the new week trading at USD/ZAR 18.95 before moving back above  19 level. As of Wednesday afternoon, it is trading around the 19.05 level.

The rand’s stability around  19 is strongly tied to global risk sentiment. A sharp increase in perceived risk could send the rand back above 19.20 against the U.S. dollar.
Locally, the South African Reserve Bank stated that there are still too many inflation risks for the country, so it is too early to say that the rate hike cycle is over. Further rate hikes from the Monetary Policy Committee (MPC) could help prop up South African rand demand for investors with a higher risk tolerance.

Looking ahead, we can expect the rand to continue trading above 19 against the U.S. dollar.

 

Further reading:  

Moneyweb — Sarb sees too many risks to say rate hikes are done

Egyptian Pound (EGP)

Compiled by Mitchell Diedrick

The Egyptian pound remained stable against the U.S. dollar this week to remain at levels of USD/EGP 30.90.

As the Israel-Hamas conflict continues, we have seen a refusal from Egyptian authorities to allow Palestinian refugees to enter Egypt. Egypt remains firmly in control of the Rafah crossing. This is the only entry and exit point available from Gaza at the moment, as other crossings have been closed by Israel.
The main concern from Egypt’s point of view is that they want to avoid the additional strain that the refugees would place on its economy. Despite this, Egypt remains a key mediator in the conflict as it has done in previous situations.
The International Monetary Fund’s Managing Director, Kristalina Georgieva, also shared concerns on the impact of the war on neighboring countries such as Egypt and how it is likely to impact tourism and other revenues.

The Egyptian pound remains stable at present however, it is worth monitoring the above situation to assess any further impact on Egypt.

Further reading:  

Egypt today – Gaza war impact on Egypt and neighbors “already visible,” IMF chief Georgieva

Kenyan Shilling (KSh)

Compiled by Terry Karanja

This week, the Kenyan shilling lost ground against the dollar and is trading at a new record low of USD/KES 150.15/35 from last week’s levels of 149.90. The demand for hard currency has increased across all sectors, but mainly energy and manufacturers against the thin supply of dollars. On October 24, 2023, Central Bank of Kenya Governor Kamau Thugge met the parliamentary committee to explain the measures put in place to reverse the shilling losses against the U.S. dollar. He pointed out that the economy has been having an overvalued exchange rate, and according to the International Monetary Fund and the World Bank the shilling was between 20% and 25% overvalued against the dollar. He said the Central Bank of Kenya has undertaken a number of measures to help strengthen the shilling. Kenya also expects large cash inflows from multilateral, bilateral, and regional development financial institutions such as the World Bank and investors to support the shilling from further decline. We expect the shilling to continue weakening amid high demand for dollars.

Further reading:  

africanews — currency overvalued, says central bank governor

Ugandan Shilling (USh)

Compiled by Yadhav Panday

USD/UGX traded at 3,757 on October 25, 2023, decreasing  0.08%  since last Friday. Over the last 12 months, its price fell by 1.39%.

Looking ahead, we expect the U.S. dollar to strengthen against Ugandan shillings as a result of the business risks outlined in a recent advisory issued by several US agencies. The advisory advises against doing business in Uganda due to the country’s recently passed Anti-Homosexuality Act. According to the United States, it increases the risk of attacks on businesspeople and exposes businesses to Ugandan government interference because it requires public reporting on anyone suspected of engaging in homosexual behavior.

 These factors include the Anti-Homosexuality Act, which was recently passed and, according to the US, increases the risks and opens up new avenues for meddling in business affairs by, among other things, requiring the reporting of anyone suspected of engaging in homosexual behavior.

Further reading:  

The east african — US warns businesses of risks in Uganda, cites anti-gay law

Tanzanian Shilling (TSh)

Compiled by Kristin Van Helsdingen

The Tanzanian shilling strengthened to the USD/TZS 2,500 level at the end of last week. The shilling has since strengthened to USD/TZS 2,498, where it is currently trading.

On October 22, 2023, Tanzania’s government signed off on a deal with DP World, a company based in the United Arab Emirates (UAE), to manage three berths of the Dar es Salaam port for the next 30 years. This has led to protests from locals resulting in several arrests. Further, DP World will be investing $250 million U.S. dollars into the port and likely more over the 30-year period.

In the week ahead, as investments remain steady into Tanzania, we expect the shilling to continue to remain stable against the U.S. dollar and possibly strengthen slightly. The shilling is expected to stabilize around the USD/TZS 2,500 level.

Further reading:  

QUARTZ – Tanzania signs a controversial port management deal with Dubai-based company despite protests

Bloomberg – DP World Wins Bid to Run Part of Tanzanian Port for 30 Years

West African CFA Franc Region (XOF) 

Compiled by Yashveer Singh

In Senegal, the government allocated a 750 billion FCFA subsidy in 2022, equivalent to 4.4% of the GDP, to control electricity, butane gas, and fuel prices. However, for 2023, the subsidy is expected to decrease to 556 billion FCFA, a drop of 194 billion FCFA. This decision has already led to discontent, particularly between the National Electricity Company (SENELEC) and its customers. 

Electricity bills have significantly increased, with many subscribers seeing their bills double or even triple. The controversy intensified when a customer received an invoice for 3,990,000 FCFA, compared to her previous bimonthly bill of 77,000 FCFA. A petition has been filed and signed by more than 32,000 SENELEC customers.

Further reading:  

Sikafinance — Senegal: The electricity bill once again at the center of controversy

Central African CFA Franc Region (XAF)

Compiled by Yashveer Singh 

Concrete iron producers in Cameroon have agreed to reduce their selling prices by approximately 2% on all categories of concrete reinforcing bars used in the construction sector. This decision aligns with the government’s initiative to lower prices of certain consumer products, taking advantage of the reduced global prices for raw materials and freight. The trade ministry unveiled this new price scale on October 20, 2023, following a request from the government.

The producers’ willingness to accommodate the government’s request is motivated by the improved international economic conditions compared to previous months. However, they remain concerned about rising energy input costs, which impact their competitiveness.

In May, a dispute arose when several companies, including concrete iron producers, objected to a 20% price increase in natural gas by Gaz du Cameroun (GDC). The Ministry of Commerce supported the manufacturers in criticizing GDC for not following regulatory procedures. GDC threatened to suspend supplies to non-compliant customers.

Further reading:  

BusinessinCameroon — Cameroon: Concrete iron producers agree to lower prices, despite soaring energy costs

 

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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