May 19, 2020

Africa's currency markets face major slump

mahlokoane percy ngwato
2 min
Africa's currency markets face major slump

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African countries’ currencies are tumbling amid a rout in commodities, a devaluation of China’s yuan and the prospect of higher interest rates in the USA.

Reserves are shrinking amid falling exports across the continent; sub-Saharan Africa was warned by the International Monetary Fund in a damning report earlier this year that these conditions would push its current account deficit to the widest of any region, deterring foreign investment.

A weaker exchange rate will make exports more competitive but the benefits are being wiped out by the plunge in the value of Africa’s key export goods: oil, crops and precious metals.

Angola used up as much as 10 percent of its foreign currency this year, raising interest rates as a 19 percent drop in the kwanza pushed inflation to almost a three year high.

Nigeria saw its foreign exchange holdings plunge 20 percent and its naira drop 18 percent since last September. Its trading restriction caused dollar shortage which is now preventing Nigerian companies from paying overseas suppliers.

Rand Merchant Bank predicts that Ghana’s cedi, which has plunged by 9 percent in the past month, will shed about another 3 percent this year, even after a bail-out from the IMF.

The IMF report predicted that the deficit in sub-Saharan Africa’s current account would widen to 4.6 percent of gross domestic product this year and growth in many resource-rich countries would slump to the slowest since 2009.

Read the August Issue of African Business Review.


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