East to West Africa growth story intact for 2021; Rand benefits from pre-election dollar jitters

East to West Africa growth story intact for 2021

The global pandemic has left the economies of East and West Africa better poised than many other regions to rebound next year, supporting currency stability. While growth in Asia will surpass the African continent, East Africa should see an uptick of at least 3% in 2021, led by consumer demand in Kenya fueling 4%-plus growth, along with healthy expansion for Ethiopia and Tanzania, Fitch Solutions analysts said this week. The outlook is strongest in West Africa, projected to see an average of 4.4% growth, with Ghana leading the way amid rising demand for its commodity exports and one of the shortest lockdowns causing fewer negative effects, according to the Fitch Solutions analysts. Senegal and Côte d’Ivoire are next in line, while Nigeria’s growth is dragged down by weaker oil prices.

CBN flows to Bureau de Changes lift Naira

The Naira gained against the dollar, trading 1.56% higher from a week ago at 457.75. The key driver was CBN pumping over $450 million to Bureau De Changes (BDCs) to support the local currency against a scarcity of dollars. While the sustainability of this support is questionable, we foresee the local currency hovering at 455 levels.

Rand benefits from pre-election dollar jitters

The Rand climbed 1% from 16.75 per dollar to 16.57, supported by an easing of lockdown measures and signs of increased economic activity. The exchange rate strengthened as data showed improved business confidence from a month earlier. With the upcoming US elections and investors taking shelter from the dollar, we foresee continued strengthening for the Rand in the coming days.

USAID support for Kenya anchors Shilling

The Kenyan Shilling held steady during the week, trading at 108.40/ 108.60 levels against the dollar. On Tuesday, USAID announced it will give up to $7 million to help vulnerable communities in Kenya’s northern and coastal regions recover from the loss of tourism and livelihoods because of COVID-19. We foresee weakening pressure returning as a gradual reopening of the country and a loosening of lockdown measures boosts demand for dollars from manufacturers and importers.

Tanzania election overshadows positives for Shilling

The Tanzanian Shilling weakened to levels of 2313/2327 (2320) from 2295/2309.06 (2302.03) a week ago, despite a slew of positive news. The Bank of Tanzania’s MPC projected 5.5% economic growth for 2020. The country is set to receive USD 11.6 million from the IMF’s Catastrophe Containment fund, a program helping 28 of the world’s poorest countries alleviate debt and better cope with the impact of coronavirus. Meanwhile, the tourism minister said the number of foreigners visiting Tanzania had increased, providing a significant contribution to economic growth. Even so, we foresee weakening pressure returning as political risk ahead of elections on Oct. 28 drives speculators to bet against the currency.

Ugandan Shilling finds balance

The Shilling strengthened to levels of 3693/3700 against the dollar as airports and borders reopened to flights. Dollar inflows from commodity exports are balanced against demand from the energy, oils, and manufacturing sectors. We see this equilibrium continuing, making for a stable currency in the immediate term.

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Disclaimer: 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.

About The Author

  • 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.