Beyond the fallout from political unrest in Mali, the crackdown on west African CFA franc transactions is likely to worsen the economic disarray of the COVID-19 era, reports AZA, a specialist in cash flows in its weekly bulletin on African currencies.

"In the hours following the military takeover, the Central Bank of West African States (BCEAO) announced protective restrictions on the flow of funds out of the country to member states," reports Michael Nderitu Chief Risk Officer, AZA. Although the French Treasury supports the CFA with the exception of guarantees against any sudden fluctuation in currency markets, the limits imposed on foreign exchange operations will hamper trade, especially for the dominant agricultural sector in Africa's eighth largest country. It is therefore crucial that the BCEAO returns to normality in the currency markets as soon as events on the ground allow.

Outside the CFA zone, we note the scarcity of currencies on other African money markets. Case of Nigeria where the scarcity of the greenback has affected the depreciated naira from 475 to 480 units per dollar in the unofficial market. Plans to reopen Nigerian airports for international travel have boosted demand for dollars while commercial banks have disabled or reduced the daily spending limit on dollar-denominated debit cards. Inflation for the month of July rose from 12.56 per cent to 12.82 per cent, reflecting higher costs of food and other commodities. "We expect levels to remain lower in the coming days as international flights fuel demand for dollars," Aza said.

Deconfinement benefits rand

In South Africa, the Rand rebounded from a low of 17.51 per dollar to 17.21 after President Cyril Ramaphosa announced the easing of lockdown restrictions over the weekend. The move toward normalization of the economy in the African country hardest hit by COVID-19 infections has boosted Rand purchases by investors looking for alternatives to low dollar yields. "We expect further gains for the currency in the coming days," murega Mungai Trading Desk Manager, AZA.

The Kenyan Shilling at its lowest, has not yet hit rock bottom

Pradoxally, this is one of Kenya's best success stories – Safaricom – which is one of the main factors behind the latest fall of the Shilling. Demand for dollars increased further when the government lifted the ban on the import of second-hand clothing and footwear with immediate effect. The shilling weakened to a record low of 108.60 from 108.45 to the dollar. As agricultural exports recover – the beneficiary of the ongoing political struggle between India and Pakistan – this will be offset by dollar demand from the energy sector and other commodity importers. We expect the current negative pressure to continue and the Shilling to reach new lows in the coming days and weeks.

Return to business in Uganda as the Shilling stabilizes

The Ugandan Shilling stabilized at 3,665/3,675 levels due to weak dollar demand from companies in the manufacturing, energy and retail sectors and some support from dollar inflows for tea and coffee exporters. The relatively high yields on government securities are also driving investors away from US assets. The government said it would continue to analyze COVID-19 infections to see which sectors of economic activity could be safely resumed, citing the reopening of the airport for special categories of people, including tourists. With the expected lifting of coronavirus restrictions, business confidence will continue to grow, which will strengthen the Shilling in the coming week.

Cashews, cotton and cloves stimulate Tanzanian Shilling recovery

The Tanzanian Shilling edged up to 2315/2325 (2320) against the dollar from 2320/2330 (2325) a week ago. In its monthly economic review, the Bank of Tanzania posted strong economic performance and predicted a positive outlook for inflation, fuel prices and food stocks. An increase in agricultural exports such as cashew nuts, cotton, cloves, and mining has led to the strengthening of the Shilling, while import demand remains subdued due to restrictions imposed by the coronavirus. "We expect the Shilling to strengthen slightly in the coming week due to increased inflows from agricultural exports and the recovery in tourism," says Terry Karanja Treasury Associate at AZA.