It has been a slow start for currencies in Africa this year as 7 out of the 10 largest economies in the continent have seen their currencies depreciate against the dollar, while the remaining 3 countries saw their currencies rally by less than 4 percent since the beginning of the year.
The best performing currency among Africa’s top economies so far this year was the Egyptian pound which produced a modest return of around 3.14 percent. After suffering a severe currency crisis in 2017, the Egyptian pound has stabilized in the currency market as investor’s confidence in the currency and the Egyptian economy was strengthened by the IMF-backed market reform to freely float the currency which caused the pound to roughly half in value.
Governor of the Central Bank of Egypt (CBE) Tarek Amer pointed out in January that he expected the Egyptian pound to appreciate modestly against the dollar following the implementation of the mechanism of foreign cash-transfer via banks. Egypt had put in place strict controls on the movement of foreign currency after its 2011 political uprising to limit the flight of capital which ended up backfiring and caused investors to flee the country.
Behind the Egyptian pound was the Kenyan Shilling which appreciated by 1.55 percent against the dollar since the beginning of the year. According to Reuters, The Kenyan shilling strengthened against the dollar to close at its highest level in four years during the first week of March buoyed by increased hard currency inflows and a drop in demand for imports. However, the Shilling lost some of its gains during the past week as the currency cooled after a week of strong gains.
Naira which returned 0.43 percent year to date is currently the third best performing currency in Africa, not as a result of a strong appreciation but rather due to stability as Central Bank interventions in the foreign exchange market has helped keep the Naira stable since the last devaluation in mid-2016. Central Bank of Nigeria (CBN) Governor, Godwin Emefiele told the press in January that “on the issue of free float, the monetary policy committee has said it is wrong – it will certainly lead to capital flight and it will lead to a massive depreciation of the valuation of our currency, and ultimately to currency crisis in Nigeria.” Since 2016, Nigeria has avoided going the way of Egypt to freely float its currency in the market and take the short term hit in order to benefit long term gains.
The poorly performing currencies in Africa since the beginning of the year were Morrocan Dirham (-0.45%), Rwandan Franc (-0.55%), Ethiopian Birr (-0.65%), Algerian Dinar (-0.72%), South African Rand (0.74%), Angolan Kwanza (-2.45%) and Ghanian Cedis (-14.88%). While most of the currencies have remained relatively stable this year, Ghanian Cedis has been hammered in the market. Ghana’s currency slumped to a record low against the dollar after the central bank unexpectedly cut its benchmark rate in January and signaled more easing may be in store causing foreign investors to shy away from Ghana’s fixed income markets.
Bloomberg reported that out of the 2.1 billion cedis ($391 million) of two-year and longer-dated maturities sold by the government through Jan. 31 this year, foreign investors bought just 6.3 percent. This compares to 30 percent in 2018.
In response, the Government last Wednesday announced that it was adopting a number of measures, this month to reverse the depreciation of the cedi.
IFEANYI JOHN
