FREE

SSA Currencies: Survival of the fittest

In Q1’22, the Russian invasion of Ukraine was a big story. This, combined with the Fed’s rate hike, had a number of consequences for our coverage currencies: higher export earnings (Angola), higher import bills (Kenya), limited access to the international debt market (Ghana), alternative demand sources for Russian exports (South Africa), and the ability to raise external financing (Nigeria).

In Nigeria, the apex bank released a new supply management policy (RT 200 FX) to boost non-oil export inflows to the economy. An integral part of the policy was the rebate scheme, which seeks to reward non-oil exporters with more Naira for utilizing the Investors and Exporters Window. However, we note that the parallel market provides a more compelling incentive. In this report, we also reviewed the impact of similar post-COVID FX policies and discovered that while most had no positive impact on the exchange rate, the positive returns from a few policies fizzled out after six months.  

Going forward, we believe the performance of SSA currencies in Q2’22 could continually be influenced by global monetary policy, geopolitics, and COVID-19 developments. We still see room for election-related weakness in the Kenyan Shilling and the Nigerian Naira. The Angolan Kwanza, which is also exposed to election-related risk, could be shielded by higher oil prices and interest rates, while high prices of precious metals could continually support the South African Rand. The Ghanaian Cedi could take a breather should the apex bank keep the real rate of return positive by adjusting the policy rate as inflation rises.