Fund managers at United Capital Research, a Nigerian-based investment banking and research firm have said that most local currencies in Sub Saharan Africa (SSA) will remain relatively weak over the course of 2021 due to a number of factors.
Specifically, “we expect the South African Rand to remain highly volatile as the currency continues to weaken due to carry trade, coupled with potential bounce-backs arising from the lifting of restrictions in Europe, the US and other economies to which the South African economy is largely exposed to,” they wrote in a note to clients.
In 2020, SSA currencies under the firm’s watch, they said, depreciated against the US dollar, except the CFA franc which firmed 9.3 per cent against the greenback as of the end of the year. The depreciation recorded was majorly attributable to the Covid-19 pandemic, amid the demand shock which affected export demand for commodities from China, one of the region’s most important trading partners, the company stated.
According to United Capital Research, apart from Zambia down -33.7 per cent, which saw the worst currency performance due to the debt crisis, currency pressure on the region reflected vividly on the performance of the largest economies within the SSA region.
Angola’s currency depreciated -25.9 per cent, Nigeria (- 11.1 per cent I&E rate, -19.0 per cent official rate and -22.9 per cent parallel rate), Kenya (-7.2 per cent) and S/Africa (-4.7 per cent).
“Clearly, oil exporters were hit harder compared to non-oil commodity exporters as the oil market crash resulted in a severe dollar crisis in Nigeria and Angola. Also, Mauritius’ currency fell 8.4 per cent due to the harsh impact of the pandemic on the tourism sector, the country’s main source of foreign currency earnings,’ stated.
2020 was clearly a turbulent year for emerging and frontier currencies, as the pandemic incited several external sector shocks, from subdued resource and tourism earnings to lower remittance flows.
While the Angolan Kwanza has been in free fall since it’s October 19 regime change, the Naira saw a dual-devaluation in 2020 as oil prices slumped. The Naira is still largely perceived to be overvalued because of the large divergence between the official and parallel market rates, despite a review of its remittance policy to narrow the foreign exchange gap.
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