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Post-COVID seeds of innovation are transforming African finance to farming

Beyond the immediate toll on African economies, the pandemic has triggered critical innovations and breakthroughs whose benefits will outlive COVID-19. In a conversation hosted by AZA between leading experts on the continent, we explore a year of rapid development from finance to farming. To watch the webinar, click here or on the image below.

Plunging Naira meets resistance at record low 500

 A shortage of dollars and massive demand sent the Naira to an all-time low of 504. The plunge coincided with Nigeria’s economy sliding into its worst recession in three decades. A huge backlog of unresolved FX trades continue to weigh on the currency. According to a recent CBN circular, the central bank devalued its official rates, removed “third parties” from buying FX routed through the bank’s so-called form M, and allowed diaspora remittances to be withdrawn in dollars and sold anywhere including on the black market. At the same time, the apex bank boosted market liquidity to help stabilise the currency. The Naira gradually reacted and improved to 480/485 levels. Still, as the market remains illiquid, it is doubtful that the CBN has significant scope to further ease on its FX policies or open its reserves to the market, as it did in 2015. The Naira rate remains highly volatile and liable to react to any major flare-ups in the week ahead. For now, 500 to the dollar remains a critical support level, with 450 the resistance level on the flip side as the market’s parameters.

Rand in retreat as infections raise lockdown risk

The Rand lost ground to 15.32 against the dollar, from 15.26 earlier in the week, as President Cyril Ramaphosa discussed the possibility of reintroducing lockdown restrictions in some of the hot spot areas of the country after more coronavirus cases were reported. While increased infections has been a trend in most countries where numbers have risen with the easing of lockdowns, South African officials are reconsidering measures to curb the second wave. The economy has continued to be in recession and, increasingly, unemployment levels are rising. Fears that tighter restrictions will cause a negative impact on the currency in the near term are set to drive further weakness.

Kenyan interbank rate diverging from official sparks hoarding 

The Shilling has been on a weakening trend against the dollar, trading at levels of 110.60, while banks are selling as high as 116 as a result of scarcity of dollars in the market. Demand from entities with import obligations has been added to by retailers and wholesalers needing FX to restock supplies towards yearend. Key players in the market have had to hold onto their dollar positions as interbank rates, for the moment, have been seen deviating away from the official rates published by the Central Bank. With official reserves shrinking, we foresee sustained pressure on the local currency.

Ugandan elections to cut short Shilling rally

The Ugandan Shilling climbed to 3692 from 3705 to the dollar this week after Covid-19 restrictions drove declines in imports from both private and government entities. Meanwhile, inflation levels dropped from 4.5% to 3.7% largely due to an easing of consumer demand, according to the Uganda Bureau of Statistics. With the country heading towards general elections on Jan. 14, and the need among retailers to stock up with imported produce in the approach to yearend, the currency’s current rally is likely to prove short-lived.

Tanzania’s stable Shilling faces yearend pressure

The Tanzanian Shilling traded steadily at 2319 levels during the week, supported by matched inflows and outflows in the market. Tanzania has been one of the few countries to claim zero Covid infections. However, travel advisories have been issued to foreigners warning that they risk contracting coronavirus. With the recent re-election of President Magufuli, the country has resumed normalcy. Yet, as we head towards the end of the year, we expect to see some pressure on the local currency.

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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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