Weekly Africa Update: 10-04-2023

Currencies

The Nigerian naira (NGN) has been stable for the past two months trading at about 460 per dollar.  This follows a 10.8% depreciation of the naira that began in August 2022.  After the election of a new president in February, the market is awaiting possible reforms to the current currency regime.  The presidential inauguration is scheduled for May 29, 2023.

The Zambian kwacha (ZMW) was bullish last week, closing at ZMW 19.6303 after closing the previous week at ZMW 21.1500 against the dollar. Dollar supply was strong last week on the back of reduced demand from the Energy sector. Corporate entities converting dollars to meet quarterly and month-end kwacha obligations have left the economy long dollars. We expect the kwacha to continue appreciating, albeit in the midst of uncertainties surrounding the debt restructuring negotiations.

The Tanzanian shilling (TZS) weakened slightly against the dollar, trading at 2352 from 2349 levels recorded the week ended March 31, 2023. Demand for the greenback is mainly driven by improved activities in the energy and manufacturing sectors while inflows were supported by tourism activities, NGOs and the mining sector.

In Uganda, dollar inflows along with a slowdown in activity due to month-end goings-on and the shortened week leading up to the Easter holiday, continued to influence the market. This resulted in the Ugandan shilling (UGX) appreciating against the dollar, to close the week ended April 7, 2023 at 3738 against the week’s opening rate of 3780.

Côte d’Ivoire (Ivory Coast)

The Ivorian authorities and IMF staff have reached a staff-level agreement on economic policies and reforms to be supported by a new 40-month arrangement of approximately USD 3.5 billion under the blended Extended Fund Facility (EFF) / Extended Credit Facility (ECF).

Ghana
Data from the Bank of Ghana showed that gross international reserves edged higher in February, coming in at USD 5.92 billion from USD 5.88 billion in January. The current level of reserves equates to 2.8 months of import cover.

Global ratings agency Fitch upgraded Ghana’s local currency debt from default to CCC following the February 2023 completion of the domestic debt exchange programme. Fitch said in its statement that the upgrade of Ghana’s local currency rating follows the resumption in payments on local currency bonds. Fitch estimates that the domestic debt exchange will allow Ghana to reduce its interest payments in 2023 by around 10% of expected revenues, or 1.6% of GDP.

Kenya

The latest data from the Central Bank of Kenya (CBK) showed that Kenya’s foreign exchange reserves remained under pressure in the first three months of 2023. Specifically, foreign exchange reserves dropped by 13.6% in Q1 2023 to a multi-year low of USD 6.43 billion from USD 7.44 billion recorded at the end of Q4 2022. The current level of reserves is sufficient for 3.59 months of imports, which is below the CBK’s requirement to maintain at least four months of coverage.

Against the backdrop of sustained inflationary pressures, the Central Bank of Kenya’s Monetary Policy Committee voted in favor of a 75-basis-point rate hike, taking the benchmark policy rate to 9.00%. While global inflation pressures have subsided amid the recent pullback in international commodity prices, inflation risks remain.

The CBK issued a foreign-exchange code that outlines standards for commercial banks and seeks to strengthen the functioning of the interbank market. According to the Kenya Bankers Association, “… the implementation of this code is expected to restore market trust and enhance the functioning of the foreign-exchange market, support the country’s flexible exchange rate regime in keeping with its true price discovery principle, and deliver other attendant benefits to the overall economy.”

A Central Bank of Kenya report showed that remittance inflows fell by 3.8% year-on-year in February to USD 309.2 million. On a month-on-month basis, remittance inflows dropped by 11.5% from USD 349.4 million in January. The US remained the largest source of remittances into Kenya, accounting for 59% in February.

Mozambique

The Bank of Mozambique (BoM) left its benchmark interest rates unchanged at 17.25% for the third consecutive meeting. Mozambique started hiking rates relatively early compared to when other African countries began their tightening cycles. The BoM hiked for the first time at the end of 2020. Since then, rates have been raised from 10.25% to 17.25%.

Consumer price inflation in Mozambique rose to 10.30% year-on-year in February from a nine-month low of 9.78% year-on-year in January. Rises in the price of food and non-alcoholic beverages, transportation and education underpinned the acceleration in the headline reading.

Nigeria

According to the latest data from the Nigeria Inter-Bank Settlement System (NIBSS), the total number of NIBSS Instant Payment platform (NIP) transactions increased to 787.9 million in February from 541.7 million in the previous month. It also surged on a year-on-year basis by 121.6% from 355.6 million in the same period of last year.

According to Nigeria’s Debt Management Office (DMO), the country’s total public debt rose to NGN 46.25 trillion (USD 103.11 billion) in 2022, from NGN 39.56 trillion (USD 95.77 billion) a year earlier as the government ramped up borrowing to fund its budget deficit. This increase in borrowing pushed Nigeria’s debt-to-GDP ratio to 23.2% in 2022, compared with 22.47% the year prior.

Sierra Leone

The monetary policy committee of The Bank of Sierra Leone, the country’s central bank, was held for the first quarter of fiscal year 2023 in which all rates were raised by 50 basis points to match current inflation.  The monetary policy rate was raised from 18.25% to 18.75%, the Standing Deposit Facility was raised from 12.25% to 12.75% and the Standing Lending Facility was raised from 21.25% to 21.75%. The interbank market also responded to the rise in rates as the overnight lending rate moved from 20.00% to 20.75%.

Over the past week, treasury bill rates remained at 22.0% for 364 days and 5.6% for 182 days.  There was no 91-day auction held during the week ended April 7, 2023.

Tanzania

The Dar es Salaam Stock Exchange (DSE) experienced a further drop in foreign inflows last month as a result of the ongoing global economic uncertainties. Foreign inflows last month were USD 0.24 million while the foreign outflows were USD 0.32 million, creating a net foreign outflow of USD 0.08 million. The decline in the trend of foreign inflows began in the middle of last year as investors were wary of emerging markets.  Additionally, Fed rate hikes have sent shock waves in dollar availability, especially in emerging economies, leading to a large outflow of foreign portfolio investments (FPIs).

Motorists in Tanzania started enjoying some relief after pump prices of petrol and diesel imported through Dar es Salaam port dropped, with the quantum of price declines being TZS 187 and TZS 284 per litre respectively. This recorded decline is based on prices posted on April 5, 2023 vis-à-vis those published on March 1, 2023. According to the Energy and Water Utilities Regulatory Authority (EWURA), these price changes are due to changes in petroleum prices in the global market, transportation costs and the value of the shilling compared to the US dollar. Due to the drop in prices of the fuel, petroleum and diesel will be sold at TZS 2,781 and TZS 2,847 per litre respectively.

Uganda

According to the latest figures released by the Uganda Bureau of Statistics (UBOS), Uganda remains on a positive path to economic recovery, with GDP projected to be roughly 6.2% in 2023, driven primarily by services.  Annual inflation as measured by the Consumer Price Index released for March 2023, fell to 9.0% year-on-year compared to 9.2% in February 2023.

In the Interbank market, there has been a liquidity squeeze with the standing lending facility (SLF) remaining the preferred funding option for most banks.  It averaged 12.0% for overnight and weekly tenors. The sovereign fiscal governing body did not hold any auction in the week ended April 7, 2023.

Zambia

The Zambia Statistics Agency announced that inflation increased from 9.6% year-on-year in February to 9.9% in March. The primary drivers of the higher headline inflation print in March were food items, which increased from 11.6% year-on-year in February to 11.8%, and non-food items, up from 7.0% to 7.3%. Housing, water and electricity, and transport were the key drivers in the non-food category, which continues to increase faster than the food category.

The Treasury Bill auction on Thursday April 6, 2023 was undersubscribed with a subscription rate of only 70%. The total bid amount was ZMW 1.41 billion at cost against an offer of ZMW 2.00 billion. Yields on the 91-day T Bill increased from 10.00% to 10.14% while the yield of other tenors remained unchanged.

Source:  United Bank for Africa PLC