Assessing the economic damage
How bad is the economic fallout from COVID for sub-Saharan Africa? The IMF gave its best estimate last week, updating a dismal forecast in April for a 1.6% contraction in the continent’s economy this year to a yet more dire projection of negative 3.2%. Even with the recent recovery in oil prices, countries dependent on oil, commodities as well as tourism face the most devastating contractions. Nigeria, reliant on crude for over 90% of FX revenue, has seen particular pressure on the Naira while the more diversified economies of East Africa – Kenya, Uganda, and Tanzania – appear more insulated.
CBN under pressure to devalue Naira
Rising dollar demand is heaping pressure on the CBN for another round of devaluations, last seen in March, in a bid to bolster exports. As a stopgap, the Central Bank has been probing some dealers for allegedly procuring foreign currencies to import items designated as invalid for Nigeria’s FX market. The CBN hopes to manufacture financial stability amid new projections from the IMF that Africa’s oil producing countries led by Nigeria could lose $34 billion in revenue due to the crash in oil earlier this year. While crude oil recovered to above $40 a barrel this week, the Naira slid from 460 to 462 per dollar. We foresee sustained negative pressure.
Risk seekers put rand in rebound
Data showing South Africa’s economy contracted by 2% in the first quarter, extending recession from Q4 19, had little impact on the Rand as it bounced back from recent lows amid the pickup in global risk appetite and a retreating dollar. The Rand climbed 1.8% during the week from 17.37 to 17.06 to the dollar. With US job growth well above expectations, the Rand will ride the global risk-on wave in the coming days.
Senegal lifts state of emergency
President Macky Sall lifted the state of emergency including a night-time curfew while warning that economic growth will slow to 1.1% GDP growth this year. As recently as January, growth was forecast at 6.8% for 2020. Senegal’s borders are expected to open conditionally from mid-July. Despite closed borders, a curfew, and social distancing rules, coronavirus has infected over 6,600 and killed 108.
Zero-VAT stimulus underwhelms Kenya shilling traders
The Kenyan shilling edged lower during the week to 106.45/65 levels from 106.35/55 amid increased dollar demand from energy importers and multinational companies meeting opex. Also holding little sway on FX markets, a Finance Bill aimed at cushioning Kenyans from the adverse effects of COVID-19 was signed by President Kenyatta this week, bringing in zero VAT on several items. We expect further slight pressure on the shilling, driven by demand for oil and manufacturing inputs.
World Bank booster steadies Uganda Shilling
The Ugandan shilling held firm at 3,720-3,730 levels this week, supported by the World Bank’s approval of $300 million in assistance to spur economic recovery and fight coronavirus impact. We foresee the shilling holding sway at around these levels in the coming week.
Stability in “lower middle income” Tanzania
With Tanzanian schools reopening and the economy almost back to normal, we see the shilling remaining steady, with start-of-the-month dollar demand from producers for oil and other imported inputs balanced by revenue from agricultural exports. The shilling saw slight appreciation this week to 2,307 from 2,310 per dollar levels. One positive economic indicator came from the World Bank, which this week declared Tanzania a lower-middle-income country five years ahead of schedule, as annual GNI per capita increased from $1,020 in 2019 to $1,080 in 2020. While we are bracing for upcoming presidential elections in October, there is not too much pressure at this point for President Magufuli as the incumbent nominated candidate.