Economy & Politics

CFA franc: the hidden risk of the Malian coup

Beyond the fallout from the political unrest in Mali, the crackdown on West African CFA franc transactions risks aggravating 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 seizure of power, 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 backs the CFA except for guarantees against any sudden fluctuations in currency markets, limits on foreign exchange transactions will hamper trade, especially for the dominant agricultural sector in Africa’s eighth largest country. It is therefore crucial that the BCEAO return to normalcy in the currency markets as soon as events on the ground allow.

Outside the CFA zone, there is a scarcity of foreign exchange in other African money markets. Case of Nigeria where the scarcity of the greenback had repercussions on the naira depreciated 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 deactivated or reduced the daily spending limit on dollar-denominated debit cards. Inflation for July fell from 12.56% to 12.82%, on the back of rising costs of food and other basic items. “We expect levels to remain lower over the next few days as international flights fuel demand for dollars,” Aza said.

Deconfinement benefits the 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 containment restrictions over the weekend. The move to normalize the economy in the African country hardest hit by COVID-19 infections has boosted Rand purchases by investors looking for alternatives to low dollar returns. “We expect further gains for the currency in the coming days,” opines Murega Mungai Trading Desk Manager, AZA.

Kenyan Shilling at low, yet to hit bottom

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

Back to business in Uganda as the Shilling stabilizes

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

Cashews, Cotton and Cloves Boost Recovery of Tanzanian Shilling

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 like cashews, 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 over the coming week due to increased inflows from agricultural exports and the recovery in tourism,” said Terry Karanja Treasury Associate at AZA.


Aza, weekly bulletin, weekly currency.


Related Articles

Back to top button