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Anti-Africa Bias: Does Presumption of Risk Colour Investment
Argentina, the world’s most notorious serial defaulter, was able to borrow from international investors with no repayment required for a century. Three years on, that bond is worth a fraction of its issue price amid the country’s ninth default. By contrast, oil-rich Angola, which hasn’t defaulted since the end of its civil war in 2002, was charged a higher rate for its shorter-dated debt last year. It’s just one example of the added risk presumed by investors that penalises African governments and companies with higher borrowing rates. And, despite the continent’s relatively exemplary record in tackling the Covid-19 pandemic, presumed risk of default is also the lens through which creditors will be entering talks on debt relief.
In the latest in our series of online discussions, we probe the risk bias against Africa and ask the inevitable question: is prejudice infecting capital markets? Click on the image to join us.

New Naira restrictions fuel unofficial market weakening
Pressure mounted on the Naira this week as scarcity of dollars weakened parallel market rates to 470 and official rates to 386. New restrictions imposed by the CBN denying dollars for imports of maize and corn are likely to drive sustained pressure on the currency in coming days. The bar on FX transactions for import of the commodities would take the number of items restricted from the official market to 44. While the directive is aimed encouraging domestic food production through import substitution, widening restrictions on FX transactions further drives trading to the unofficial market, complicating the CBN’s stated goal of unify multiple currency rates.
Global sentiment lifts Rand amid renewed lockdown
The Rand continued its ascent, climbing to 16.75 to the dollar this week. The currency has been lifted by a tide of global sentiment amid hopes for a COVID-19 vaccine, even as South Africa’s government reinstated lockdown measures this week. We project further advances in the coming days amid demand for higher-yielding currencies.
Energy demand as Kenya reopens puts pressure on shilling
The Kenyan shilling weakened slightly to 107.40 amid an uptick in dollar demand from the energy sector and other importers. An easing of coronavirus restrictions with an end to the cessation of movement is likely to further increase fuel demand as road, rail, and air transportation pick up. We are already seeing an upward revision of fuel prices in the country as demand builds, even as the world’s leading oil producers move to increase production. While FX reserves fell to USD 9,704 million from USD 9,717 million, this is equivalent to 5.83 months of import cover, which is adequate. We nevertheless expect pressure on the shilling, with demand for hard currency increasing as the economy reopens.
Uganda enforcing rate cuts to help steady shilling
The Ugandan shilling weakened slightly from levels of 3,690 to 3,701 this week due to dollar demand from importers in energy and other sectors. We foresee a steady exchange rate in the coming days as the Bank of Uganda takes action to cushion the economy from the pandemic. After commercial banks went against the central bank’s benchmark rate cuts by increasing charges, the BOU threatened to cap the interest that commercial banks can charge borrowers. That triggered an announcement this week by commercial banks that they will lower rates on loans to businesses and individuals. Uganda’s economic recovery received a $300 million financial injection from the World Bank last month.
Tanzanian prices falling as shilling weakens
Tanzanian shilling interbank rates weakened slightly to 2312/2320 (mid 2316) from 2314/2324 (mid 2319) a week ago. The National Bureau of Statistics revealed this week that its NCPI inflation measure decreased by 0.2% during June as prices for both food and non-food items fell. In the political sphere, the ruling CCM officially nominated President John Magufuli as its candidate as the country prepares for elections in October. We expect the shilling to remain little changed amid continued measures to limit the impact of coronavirus while ensuring moderate growth in money supply and credit to the private sector.
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