The unpredictability of the coronavirus has led to economic uncertainty across the African continent. The Sub-Saharan region is in danger of falling into a recession for the first time in 25 years. Furthermore, nearly 20 million jobs are at risk, which could cause the African economy to shrink by 0.8% or 1.1%, depending on how projections play out.
All of these macroeconomic factors contribute to the value of currencies, which is reflected in the foreign exchange (FX) market. FXCM notes that currency trading is the largest financial market in the world, with more than 5 trillion USD traded every day — and how African currencies perform in this market has profound implications on business and the economy. Thus, it is important to understand currency values when looking at a country’s economic performance.
The following list looks at how some African currencies have fared over the last few months.
Though the Kenyan shilling has depreciated in value relative to the U.S. dollar in the last decade, it is considered one of the most stable currencies in East Africa. Kenya is also one of the fastest growing economies on the continent, with a GDP growth rate of 5.4% in 2019.
However, the shilling has dropped to a new low against the dollar and other major global currencies. As of July 22, the Kenyan shilling traded at 107.70/90 against the dollar. The Central Bank of Kenya sold dollars to bolster the value of the shilling amidst increased importer demand for oil and other merchandise.
Nigeria, Africa’s largest oil and gas producer, also took a huge hit amidst the pandemic. The global demand for oil has significantly declined as a result of a reduction in transportation and industrial activity all over the world. Oversupply is currently such a huge problem that major oil players have decided to cut production to compensate for the lack of demand.
Due to this major issue, the Central Bank of Nigeria adjusted its dollar exchange rate from 307 to 360 Naira. It is the biggest change in value the Naira has seen since 2015. Bloomberg reports that Nigeria’s public debt also jumped by 3.4 billion USD after a loan approval from the International Monetary Fund. It has now officially skyrocketed to 9.99 Trillion Naira, which has the potential to further devalue the currency.
Although experts will tell you that the rand is on the road to recovery, a surge in global and local COVID-19 cases resulted in a retreat. The South African rand was valued at 16.7300 against the dollar on July 20, which was 0.19% weaker than its July 17 closing value.
Fluctuations are expected, especially as local cases spike in South Africa. Threats of protests from businesses against lockdown restrictions should also be taken into account. The impact of lockdown measures has been devastating for the food service industry in South Africa, to say the least. However, taking to the streets to protest can result in more COVID-19 cases and further economic turmoil for the country.
It’s clear that African currencies have a long way to go in terms of recovery. For anyone with a vested interest in foreign exchange or the economy, they should pay close attention to the developments in coronavirus trends. These will impact economies and currencies for the foreseeable future.
AUTHOR: Francine Reed