Table of Contents
Naira gains against the dollar
The Naira gained against the dollar, trading at 745 from 755 at last week’s close. Part of that strengthening is due to the recent cash shortage caused by a plan to swap old Naira notes for new ones, which in turn has reduced demand for FX on the unofficial market. As the redesigned notes begin to circulate in higher volume, we expect to see a resurgence in FX demand and a gradual depreciation of the Naira.
Ghana’s local rating lifted from selective default by S&P
The Cedi appreciated against the dollar, trading at 12.76 from 12.85 at last week’s close even as the country missed its self-imposed deadline to complete its debt restructuring plan to unlock around $3bn of emergency funding from the IMF. So far, Ghana has completed only the domestic part of the programme, with talks ongoing among international lenders and bondholders over its hard currency debt. Ghana could seek to write off as much as 50% of the debt it owes to external creditors, according to S&P Global. S&P raised Ghana’s local credit rating to CCC+ from selective default after the country delivered its new domestic securities to investors as part of the restructuring programme. However, as talks with international creditors drag on, we expect the Cedi to depreciate in the near term.
Rand’s reprieve may be short-lived amid energy woes
The Rand appreciated against the dollar, trading at 18.16 from 18.42 at last week’s close. That came as South Africa’s main stock index rose 0.3% on the final trading day of February, boosted by positive manufacturing data out of China. South Africa’s unemployment rate fell to an almost two-year low, though it is expected to rise again in the coming quarters due to the ongoing power crisis. The country saw its trade deficit widen to ZAR23.1bn—the most since April 2020—as exports fell 14.4% and imports rose 2.9%. Deputy President David Mabuza resigned ahead of an expected cabinet reshuffle. As the country continues to struggle with energy issues and with the government providing little solutions, we expect to see the Rand decline over the coming weeks.
Egypt state asset sales to support Pound
The Pound was unchanged against the dollar, trading at 30.63, in line with last week’s close. Egypt expects to receive more than $10bn in investments from energy-rich allies, including Saudi Arabia and Qatar, seeking to buy stakes in state-owned assets Egypt has put up for sale as part of its reform agenda to reduce government involvement in the economy. The reforms are part of a deal to unlock a $3bn loan from the IMF, though only a fraction of that investment has so far materialised. Talks stalled between Saudi Arabia and Egypt over the sale of the United Bank due to a disagreement about whether to value the asset in Pounds or dollars. Also this week, Egypt signed a dual-taxation agreement with Qatar in a bid to attract more investment. The potential for greater inflows should help support the Pound in the near term.
Kenya Shilling hits new low as inflation climbs
The Shilling dropped to a fresh record low against the dollar, trading at 127.10/127.30 from 126/126.20 at last week’s close amid persistent elevated FX demand from importers in the manufacturing and energy sectors. Annual inflation climbed to 9.2% in February from 9% a month earlier, driven by rising food prices and costs of living—ending three consecutive months of slowing inflation. FX reserves continue to decline, now standing at $6.86bn from $6.88bn a week earlier, sufficient for 3.84 months of import cover. Given the ongoing strains on dollar supply and dwindling reserves, we expect further pressure on the Shilling in the week ahead.
Uganda-South Africa seeks deeper economic ties
The Shilling strengthened marginally against the dollar, trading at 3715 from 3721 at last week’s close. Ugandan President Yoweri Museveni began a state visit to South Africa this week as he seeks to bolster economic ties between the two countries. Total two-way trade between the two nations reached a peak of $162m between 2017 and 2021, with the bulk of that made up of South African exports. While we expect those talks to boost the Shilling in the near term, ongoing challenges of high inflation and unemployment add longer-term pressure.
Tanzanian Shilling steady on export inflows
The Shilling was unchanged against the dollar, trading at 2340, in line with last week’s close. China said it was committed to strengthening economic relations between the two countries, such as increasing imports where possible and assisting with social development. Bilateral trade between Tanzania and China hit $8.31bn in 2022, 27.3% higher than a year earlier. Overall Tanzanian exports rose 3.97% in the quarter ending December last year, reaching just under $2bn. Sales of refined petroleum products, fertiliser and industrial transport machinery drove that. We expect the Shilling to remain steady over the coming week, supported by export inflows.
Higher rates crimp Guinea-Bissau, Mali, and Togo bond auctions
The recent move by the Central Bank of West African States to end its Covid-era fixed rate policy and return to a variable rate system has strongly impacted the liquidity of commercial banks and the public securities market. Guinea-Bissau, Mali and Togo were only able to raise XOF33bn in their most recent bond auction, having sought to raise XOF82.5bn. Investors demanded record average yields for Mali’s three-bond bonds (7.14%), Guinea-Bissau’s five-year bonds (7.44%) and Togo’s seven-year bonds (6.77%). Senegal received XOF210bn from a group of international lenders, including the European Investment Bank and the French and German development agencies, to fund a sustainable transport project in Dakar. The project aims to reduce dependence on private cars by increasing clean public transport to support the fight against climate change.
Cameroon seeks to raise XAF35bn for investment expenditure
The Bank of Central African States said Russia’s war has strongly impacted the region’s agricultural sector in Ukraine, which was one of the main reasons for slower economic growth in the first quarter of the year. The trade sector also slowed in the first quarter due to lower demand and higher inflation. Cameroon seeks to raise XAF35bn in the securities market to finance investment expenditure. The country plans to sell XAF25bn of five-year bonds at 5.75% and XAF10bn of three-year bonds at 4.25%. Bond sale inflows will help temporarily ease the government’s cash flow pressures.
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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.
