Africa on track for post-Covid recovery

Africa on track for post-Covid recovery

After the region’s first recession in over 25 years, sub-Saharan Africa shows signs of steady recovery, according to the World Bank’s “Africa’s Pulse” report published this week. Data from the last two quarters of 2020 point to a pick up in economic activity that prompted the World Bank to revise its original forecast of a 3.3% decline in GDP during 2020 to 2%. For this year, the World Bank has revised its growth forecast by 0.2 percentage points compared with its October 2020 projection. It now expects to see a growth of between 2.3% and 3.4% in 2021, depending on the policy measures adopted by countries in the region and the international community.

The upgraded forecasts reflect the positive impact from containment measures, vaccine rollouts, and a faster-than-expected recovery in commodity prices and agricultural growth. Nevertheless, recovery is being hampered by new and more transmissible coronavirus variants, which appear to be more contagious than during the first wave, the persistence of social distancing restrictions on business and trade, and the limited scope for additional fiscal support. The effectiveness of coordinated international policy responses will be key to the region’s sustained recovery.

Naira holds firm amid CBN restrictions

The Naira held steady in a range of 482 to 486 to the dollar on the parallel market against 480 to 485 at the end of last week. Market liquidity has thinned out as Central Bank of Nigeria policies have restricted FX inflows into the market in the face of huge appetite for dollars. On the I&E window, the currency fell to 412 but recovered since to 408.67. In the absence of any new policy announcements, we expect the Naira to continue in this relatively rare stable mode for the coming week, hovering around 480-490 levels on the parallel market and 408-420 level on the I&E window. 

Bank of Ghana injections fail to hold Cedi 

The Ghanaian Cedi weakened to as low as 5.8150 to the dollar from 5.7582 at the end of last week, even as the Bank of Ghana continued injecting $50m into the market through its fortnightly FX forward auction programme. We expect the currency to weaken further towards the 5.85 level, as the market remains highly liquid, with little or no demand appetite for the local currency.

Rand rallies amid Easter lockdown, spurred by Biden

The Rand gained 1.8% from 15.03 to the dollar at last Friday’s close to 14.75. President Cyril Ramaphosa imposed additional measures to prevent a Covid-19 third wave, banning the sale of alcohol and restricting religious gatherings over the four-day Easter weekend, while commending pharmaceutical company Aspen, which has set up a manufacturing plant in Eastern Cape to produce the Johnson & Johnson vaccine. More than half of the capacity of the “world-class” plant, which can produce 300 million doses a year, has been committed to Africa, Ramaphosa said. During the past year, South Africa has had over 1.5m coronavirus infections and more than 52,000 recorded deaths from Covid-19.

President Joe Biden’s proposed $2 trillion infrastructure spending package contributed to dollar weakness and relative Rand strength as inflationary pressures build in the US. We project a 14.70 to 15.10 range for the Rand in the short term as inflationary pressures remain subdued at home.

Senegal suffering lower remittances

Senegal’s recent protests have highlighted simmering frustrations about sluggish economic activity and unemployment in the West African state, which have been compounded by a year of coronavirus restrictions. Since the beginning of 2020, the coronavirus pandemic has significantly changed the country’s economic outlook. The francophone West African country – with an estimated GDP of $24.4bn last year and a population of 16.8m people – witnessed average economic growth of 6.38% between 2014 and 2019, according to the International Monetary Fund. The IMF estimates that the economy expanded by 1% last year, and it is in the process of revising down its forecast of 5.2% growth for this year because of the global impact of the Covid-19 second wave. The pandemic not only hit the hospitality and tourism industries but also slashed foreign remittances, which represent about 10% of the country’s GDP, according to the World Bank. About two million people have fallen into poverty since the onset of the coronavirus crisis, the Forum for African Alternatives, a think tank, reported on March 18.

Suez reopening relieves pressure on Pound

The Egyptian Pound traded steady at 15.70 to the dollar, level with last Friday’s close, as traffic resumed in the Suez Canal. The world breathed a sigh of relief on Tuesday as the container ship blocking the canal was finally freed. Finance Minister Mohamed Maait said this week that Egypt’s forthcoming budget targets a 5.4% economic growth rate this year, a 6.6% budget deficit, and a primary surplus of 1.5%. The nation’s debt-to-GDP ratio is set to decrease to 88.1% this year from 90.4% of GDP in June 2019 and 108% of GDP in June 2017, according to the Ministry of Finance. We project the Egyptian pound to hold around the 15.70 level in the coming days.

Shilling climbs as Kenya holds rate at 7%

The Shilling appreciated to 109.45 to the dollar from 109.75 at last week’s close as the Central Bank of Kenya retained its benchmark lending rate at 7% for the seventh meeting in a row in the face of rising inflationary pressure and surging Covid-19 cases. The International Monetary Fund board is due to decide on Kenya’s $2.4bn loan request, Central Bank Governor Patrick Njoroge said at the Monetary Policy Committee briefing Tuesday, adding that he’s confident the Fund will disburse the first tranche of $314m next week.

Fitch Ratings affirmed Kenya’s foreign-currency credit rating at B+ with a negative outlook. While the country’s public finances will improve on the back of a swift economic recovery, as GDP returns to pre-pandemic levels in 2021, Fitch said its negative outlook reflects underlying weaknesses in public finances and the uncertain pace of planned fiscal consolidation. For several years, the government has passed budgets that contained medium-term plans to narrow the fiscal deficit, but which still left deficits substantially worse than similarly rated peers, Fitch said. The Covid-19 shock has further delayed potential consolidation and Fitch forecasts the general government fiscal deficit to reach 9% of GDP in the fiscal year ending June 2021, above the median of 7.1% for similarly rated countries.

Uganda and AfDB agree on financing for new expressway

The Shilling traded flat at the 3660 to 3670 to the dollar level, supported by month-end interbank and corporate demand for Uganda’s currency. We expect the Shilling to continue trading in this broadly stable range. Longer-term support should come from a $229.5m financing agreement signed by Uganda and the African Development Bank last week for phase one of the Kampala-Jinja Expressway. The link will help boost trade along the northern corridor, which links the country with its neighbours.

On Friday, the Uganda Coffee Development Authority reported that the country’s coffee exports between March 2020 and February 2021 totalled 5.56m bags worth $511.2m, up from 4.74m bags worth $459.47m the previous year, representing a 17% increase in quantity and 11% rise in value.

Weaker bias for Tanzanian Shilling

The Shilling traded steadily in the 2310 to 2326 to the dollar range, slightly weaker than the range of 2310 to 2324 at last week’s close. Tanzania’s late president, John Magufuli, was buried last Friday in his ancestral home of Chato. We expect the Shilling to weaken in the coming week due to end-of-month dollar demand from importers and manufacturers, and as the economy adapts to the change of leadership under new President Samia Suluhu Hassan.

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.

Authors

  • Murega Mungai is the Trading Desk Manager at AZA, based out of the Nairobi office. His work revolves around FX trading and market analysis of emerging and frontier markets, particularly in Africa.

  • Terry Karanja is a Treasury Associate at AZA. She is actively involved in conducting market research to analyze current trends in the global economy and their effects on currencies, with a strong focus on Africa.

About The Author

Murega Mungai

Murega Mungai

Murega Mungai is the Trading Desk Manager at AZA, based out of the Nairobi office. His work revolves around FX trading and market analysis of emerging and frontier markets, particularly in Africa.