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Friday, January 08, 2021/ 12:00PM / United Capital Research /
Header Image Credit: Brandspur
In 2020, SSA currencies
under our watch depreciated against the US dollar, except the CFA franc which
firmed 9.3% against the greenback as at the end of the year. The depreciation
recorded was majorly attributable to the Covid-19 pandemic, amid the demand shock
which affected export demand for commodities from China, one of the region's
most important trading partners.
Apart from Zambia (-33.7%)
which saw the worst currency performance due to the debt crisis, currency
pressure on the region reflected vividly on the performance of the largest
economies within the SSA region: Angola (-25.9%), Nigeria (- 11.1% I&E
rate, -19.0% official rate and -22.9% parallel rate), Kenya (-7.2%) and
S/Africa (-4.7%). Clearly, oil exporters were hit harder compared to non-oil
commodity exporters as the oil market crash resulted in a severe dollar crisis
in Nigeria and Angola. Also, Mauritius' currency fell 8.4% due to the harsh
impact of the pandemic on the tourism sector, the country's main source of
foreign currency earnings.
Going forward, we expect
most local currencies in SSA to remain relatively weak over the course of 2021.
Specifically, we expect the South African Rand to remain highly volatile as the
currency continues to weaken due to carry trade, coupled with potential
bounce-backs arising from the lifting of restrictions in Europe, the US and
other economies to which South Africa economy is largely exposed to.
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