One month on from Russia’s invasion of Ukraine, the spike in oil and commodity prices is piling pressure on import-dependent African countries. Major Ukrainian wheat importer Egypt this week devalued the Pound by 14% and increased its benchmark interest rate for the first time since 2017. In Ghana, the Cedi nosedived to a fresh record low—taking its 2022 depreciation to 20% against the dollar—and hiked interest rates by a record 2.5 percentage points. Kenya’s Shilling tumbled to an all-time low as inflation pressure builds. With Ghana’s bonds trading at ‘distressed’ level yields and Egypt requesting additional support from the International Monetary Fund, the crisis looks set to cause further deterioration in Africa’s international debt markets. 

Naira recovers from record dollar low
The Naira recovered slightly against the dollar this week, trading at 585, having hit a record low of 587 at Friday’s close. Nigerian President Muhammadu Buhari this week opened the $2.5bn Dangote fertiliser facility in Lagos, which could provide a timely hedge against the current global rise in wheat, oil and fertiliser prices. Back in 2018, the Central Bank of Nigeria halted subsidies for agricultural fertilisers via its FX auctions, which contributed to a huge local shortfall. Potential further sanctions on Russia’s oil exports threaten to put further strain on Nigerian manufacturers who have already seen diesel prices surge by almost 170% over the past year. Overall, however, we expect the Naira to continue its recovery against the dollar on the unofficial market in coming weeks as the recent FX shortage shock dissipates. 

Cedi at new low after record rate hike
The Cedi nosedived to a fresh record low against the dollar, depreciating to 7.489 from 7.278 at last week’s close as the country’s economic outlook sours. The central bank this week cranked rates higher by 250 basis points to 17%—its biggest ever hike and the highest level since 2008—in an effort to tame inflation, which hit a near six-year high of 15.7% in February. Ghana’s dollar-denominated government bonds were already trading in distressed territory as the US Federal Reserve signalled it will raise rates faster than expected. We expect Ghana’s record rate hike to help ease the pressure on the Cedi in the near term. 

Rand strength may be short lived amid inflation
The Rand strengthened to a near five-month high against the dollar this week, trading at 14.82 from 14.96 at last week’s close amid expectations of a tighter monetary policy backdrop as domestic inflationary pressures persist. Further gains were capped by the prospect of a more hawkish US Federal Reserve and uncertainty about Russia’s war in Ukraine. Ongoing concerns about domestic structural weaknesses fueled by recurrent power cuts also checked the Rand’s appreciation. Those conditions are likely to weigh on the currency over the long term. We estimate the Rand will depreciate to around 15.5 levels in the course of the coming year.

Egypt devalues Pound, hikes rates, calls in IMF
The Pound depreciated sharply against the dollar this week after the country’s central bank devalued the currency by 14% and raised interest rates for the first time since 2017. The Pound weakened to 18.53 from 15.7 at last week’s close. The fallout from higher commodity prices amid Russia’s war in Ukraine has caused both capital flight and inflationary pressures. To help mitigate economic strains, President Abdel Fattah el-Sisi brought forward a 13% pensions increase to April rather than July as previously planned. Egypt is also seeking more support from the International Monetary Fund, which could include a new loan. We expect the Pound to weaken further in the near term given continued capital flight.

Inflation pressures send Kenyan Shilling to fresh low
The Shilling dropped to a fresh record low against the dollar this week, depreciating to 114.35/114.75 from 114.30 at last week’s close as persistently high inflation from rising global commodity prices weighs on the currency. A KES5 hike in petrol prices is expected to add to the inflationary pressures. Meantime, political tensions are heating up ahead of August’s election in what is expected to be a two-horse race between William Ruto and Raila Odinga. Given this political uncertainty and the ongoing inflation issues, we anticipate the Shilling will continue weakening in the near term. 

Ugandan Shilling slumps as foreign investors exit 
The Shilling continued weakening against the dollar this week, trading at 3610/3620 from 3570/3590 at last week’s close as elevated importer demand for the greenback persists. Russia’s war in Ukraine has dented global risk sentiment, reducing demand for assets in frontier markets such as Uganda, whose debt and equity markets have seen foreigners exit. Against that backdrop, we expect the pressure on the Shilling to continue, albeit with support from coffee and other commodity export inflows.

Tanzanian Shilling to stabilise on investment inflows
The Shilling weakened slightly against the dollar this week, trading at 2315/2325 from 2312/2322 at last week’s close. Overall, Tanzania’s currency has fared better than its East African peers amid global risk aversion, supported by lower external debt levels and strong export earnings. Rising mineral prices such as gold have also helped to offset the surge in global energy prices. Meantime, the African Development Fund this week approved a $125m loan to finance the first phase of the Dodoma Resilient and Sustainable Water Development and Sanitation Programme. We expect a stable Shilling in the near term with support from investor inflows.