The Economic Intelligence Unit (EIU), the research and analysis division of the Economic Group, has predicted a 10 percent or more depreciation for the domestic currencies of Nigeria, Egypt, Angola, Ethiopia, and Sudan—the naira, Egyptian pound, kwanza, birr, and Sudanese pound—in 2024.
The extent of currency depreciation, potentially exceeding 10 percent in the coming year, hinges on the influence of negative macroeconomic factors affecting their economies.
EIU, in its Africa Outlook 2024 report titled “Strong growth amid heated elections and financial woes,” published on Friday, said, “double-digit currency depreciation is anticipated in the major economies of Egypt, Sudan, Ethiopia, Angola, and Nigeria.”
This forecast, particularly concerning the naira, reiterates its earlier warning highlighted in previous reports. It cautioned about the naira’s downward trend, kicked off by President Bola Tinubu’s implementation of foreign exchange market convergence.
A convergence that resulted in the closure of several official exchange windows into one called the Nigerian Autonomous Foreign Exchange Market (NAFEM) leaves only this market and the black market as windows to trade in FX.
Since May, when the convergence was announced, the naira has lost more than 50 percent of its value on both markets, causing untold hardship to Nigerians.
In its November report, EIU warned that the country’s central bank does not have the ability to clear the backlog of FX demand, which is a mandatory requirement to help revive the falling value of the naira.
It said, “In Nigeria, an unsupportive monetary policy implies that the naira will remain under pressure while the central bank lacks the firepower to adequately supply the market or clear a backlog of foreign exchange orders, which will keep foreign investors unnerved.
“High inflation and a continued spread with the parallel market will leave the exchange rate regime unstable and result in periodic devaluations.”
Meanwhile, on a broader analysis, the research firm added that most countries currencies within the African continent would experience several degrees of depreciation against the US dollar in the coming year.
It said, “We forecast currency depreciation against the US dollar across much of Africa in 2024, although adjustments are expected to be less severe than those recorded in 2023.”
However, unlike the North, West, and Central African blocs, it spoke optimistically of the Southern African economic bloc, saying that “the Southern African economies of South Africa, Namibia, and Botswana saw their currencies lose considerable value against the US dollar in 2023, but currency stabilisation appears to be the most likely outcome in 2024.”
EIU added that Zimbabwe stands out in Southern Africa with a struggling local currency facing significant devaluation. The country’s weak economy, heavily reliant on the dollar, and the potential adoption of digital gold coins by 2024 will likely further diminish the value of the Zimbabwe dollar.
African nations tied to the euro, including the CFA franc zone countries, will witness currency fluctuations based on euro-US dollar movements.
The euro is expected to gradually gain strength in 2024, supported by economic growth and the euro zone’s current-account surplus. Consequently, Central and West African countries using the CFA franc might experience currency appreciation.
