{"id":3573,"date":"2021-03-26T00:00:00","date_gmt":"2021-03-26T00:00:00","guid":{"rendered":"https:\/\/staging.azafinance.com\/2021\/03\/26\/eco-shelved-for-another-year\/"},"modified":"2021-03-26T00:00:00","modified_gmt":"2021-03-26T00:00:00","slug":"eco-shelved-for-another-year","status":"publish","type":"post","link":"https:\/\/azafinance.com\/eco-shelved-for-another-year\/","title":{"rendered":"ECO shelved for another year","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"\n

New ECO currency shelved for at least another year<\/strong>\u00a0<\/h2>\n\n\n\n

In a blow to trade prospects\u00a0for Senegal and seven other countries in West Africa, the much-discussed plans to replace the CFA Franc with the ECO currency look set to remain stalled for at least another year.

Under the ECO initiative, the countries’ central bank reserves would no longer be placed with the French Treasury, and France would no longer have a representative on the central bank that controls the CFA Franc region, known as\u00a0West African Economic and Monetary Union, or\u00a0UEOMA by its initials in French. Ultimately, the ECO is envisaged for adoption across the\u00a0Economic Community of West African States\u00a0(Ecowas) region, which has 15 member countries including Ghana and Nigeria.

Senegal is among the countries that would benefit most from the ECO, as it would\u00a0enable\u00a0the\u00a0smooth exchange of goods and services within the region and reduce the cost of transactions. Yet Senegal is among 10 member countries that\u00a0would fail to meet the\u00a0single currency\u00a0convergence\u00a0criteria\u00a0set out by Ecowas,\u00a0which include a budget deficit of not more than 4%, an inflation rate no higher than 5%,\u00a0and debts\u00a0valued at less\u00a0than 70% of GDP. These strict criteria are a major\u00a0challenge to the\u00a0currency’s\u00a0introduction and,\u00a0in our opinion, it seems unlikely that they will be met by most countries for at least another year.\u00a0

This is a setback for the region\u2019s recovery. In Senegal, economic output has been mixed. Industrial production increased by 9.2% in January compared\u00a0with\u00a0the\u00a0same\u00a0month\u00a0last year, according to the\u00a0National Agency for Statistics and Demography, while\u00a0remaining well below the months of October and November, which recorded jumps of 14% and 16.1%, respectively. The agency said January’s strong showing was due to robust performance in the mining, manufacturing, water, and electricity production sectors.\u00a0Manufacturing production\u00a0surged\u00a0by 6.8%\u00a0in January\u00a0compared\u00a0with\u00a0the same month a year earlier, mainly\u00a0because of an\u00a0increase in refining and coking,\u00a0and chemical and pharmaceutical production.\u00a0On the other hand,\u00a0the\u00a0agro-food\u00a0sector\u00a0plummeted by 14.4% because of a steep fall in the production of food products.<\/p>\n\n\n\n

Reserves boost buoys Naira, briefly, as rates held<\/strong><\/h2>\n\n\n\n

The Naira held steady this week at 486 to the dollar on the parallel market as the Central Bank\u00a0of Nigeria\u00a0maintained its benchmark lending rate at 11.5%.\u00a0Governor Godwin Emefiele said this would allow the bank\u00a0to \u201cdeploy liquidity into employment generation and output-stimulating sectors of the economy,\u201d\u00a0\u00a0and help to consolidate the country’s recovery process after the pandemic.\u00a0The CBN cut rates twice last year to try to stimulate\u00a0an\u00a0economy hobbled by the\u00a0Covid-19\u00a0pandemic and oil price crash.\u00a0

Emefiele\u00a0also addressed\u00a0speculation\u00a0about unifying\u00a0the country’s multiple\u00a0foreign exchange rates\u00a0but insisted\u00a0that Nigeria had\u00a0not changed its FX management policy during the past month. The International Monetary Fund and World Trade Organisation have been pushing Nigeria to unify its exchange rates. Vice-President Yemi Osinbajo said on Tuesday that payments made as part of Nigeria\u2019s federal allocation\u00a0would\u00a0use the\u00a0NAFEX\u00a0rate when\u00a0he was\u00a0asked about reported plans for a unified flexible exchange rate rather than a pegged one.

On the I&E\u00a0Window, the currency\u00a0appreciated\u00a0to 394\u00a0to the dollar on Monday, as\u00a0gross\u00a0external reserves\u00a0broke a run of declines to climb\u00a0to $34.59bn on March 23 from a low of $34.41bn on March 18. Gross reserves stood at $35.37bn on Dec. 31, underlying their slide this year. The\u00a0Naira’s\u00a0bullish run was short-lived and the\u00a0currency\u00a0closed yesterday at 408.75 on the I&E window. We expect the\u00a0calmer mood\u00a0to continue in the coming week,\u00a0with\u00a0trading\u00a0around\u00a0486\u00a0on\u00a0the parallel market and\u00a0in the\u00a0408\u00a0to\u00a0415\u00a0range\u00a0on the I&E front.<\/p>\n\n\n\n

Cedi in retreat mode as rates held amid inflation pressure<\/strong><\/h2>\n\n\n\n

The\u00a0Cedi weakened slightly to 5.76 levels\u00a0from 5.75\u00a0at the end of last week. Ghana’s money markets remain very liquid as the Bank of Ghana continues with its $50m\u00a0fortnightly Foreign Exchange Forward Auction to support the currency, yet the mood is risk-averse.\u00a0The Bank of Ghana maintained\u00a0its policy rate at 14.5% this week\u00a0in a bid to contain\u00a0emerging short-term inflation pressures from rising crude oil prices.\u00a0“Risks to inflation in the near-term are broadly balanced, but there are emerging short-term pressures emanating from the rising crude oil prices and the direct and secondary price effects of the revenue measures announced in the 2021 budget,” the bank\u2019s monetary policy committee said.\u00a0“Monetary policy would need to remain vigilant to monitor these risks.”\u00a0The\u00a0MPC lowered the rate by 150 basis points in March last year, following the emergence of the country’s first coronavirus cases. The rate was then maintained in May, July, September, and November, as well as in January this year.\u00a0We expect the currency to weaken further towards 5.80 levels in the coming week amid concerns over inflation as oil prices continue to rise.<\/p>\n\n\n\n

Rand weaker amid fears of another COVID-19 wave<\/strong><\/h2>\n\n\n\n

The Rand traded slightly weaker at 14.90\u00a0to the dollar\u00a0from 14.68\u00a0last Friday during a shortened business week as markets closed for Human Rights Day on Monday.\u00a0Business\u00a0confidence remains subdued amid fears of a third wave of COVID-19 infections and further lockdowns. Retailer\u00a0confidence has\u00a0nosedived, dropping\u00a012 index points to 37 in a trade survey published this week by the Bureau of Economic Research\u00a0for the period between\u00a0Jan. 18\u00a0and\u00a0March 1.\u00a0The decline\u00a0had been expected given the temporary momentum in the final quarter of last year from pent-up demand for alcohol, festive season sales, and the vital social grant top-ups, which\u00a0had\u00a0all petered out by the first quarter. In the longer term, market sentiment towards the\u00a0Rand remains bullish,\u00a0supported by deep liquidity in the financial markets and signs of growing\u00a0trade,\u00a0especially with China. Still, we project further pressure\u00a0on the Rand in\u00a0the coming days\u00a0on the risk of a fresh pandemic resurgence.<\/p>\n\n\n\n

Suez canal blockage harming Egypt revenue; pound slides<\/strong><\/h2>\n\n\n\n

As one\u00a0of the world’s biggest\u00a0cargo container ships lies\u00a0on its side in the Suez Canal, blocking all international marine traffic, Egypt stands to lose significant revenue for every day that the waterway remains closed to traffic. Nearly 19,000 ships, or an average of 51.5 ships per day, with a net tonnage of 1.17 billion tonnes, passed through the canal during 2020, according to the Suez Canal Authority. The canal has been a boon for Egypt\u2019s struggling economy in recent years, with the country earning $5.61bn in revenue from the waterway last year.\u00a0Egypt\u2019s Pound\u00a0depreciated to\u00a015.75\u00a0to the dollar from\u00a015.68 at\u00a0last Friday’s close. We project further pressure on the currency\u00a0from the disruption to\u00a0shipping\u00a0in the coming days.<\/p>\n\n\n\n

Remittances to Kenya surge 18.9% in February<\/strong><\/h2>\n\n\n\n

The\u00a0Shilling remained steady\u00a0at\u00a0107.75\u00a0to the dollar,\u00a0from 107.70\u00a0a week ago, as strong dollar demand from manufacturers along with importers of energy and general merchandise was matched with dollar supply from tea exports and remittances\u00a0from the Kenyan diaspora.\u00a0Remittance inflows\u00a0jumped\u00a0by 18.9%\u00a0to\u00a0$260.2m in February, compared\u00a0with $219m in the same month last year, the Central Bank of Kenya reported last Friday.\u00a0Kenya’s\u00a0usable foreign exchange reserves increased to\u00a0$7.41bn\u00a0(4.55 months of import cover)\u00a0on\u00a0March 18, from\u00a0$7.35bn\u00a0on March 11. The central bank extended relief measures on loan restructurings by commercial banks to ease pressure from struggling borrowers. The policy first instituted in March last year has been extended to July.\u00a0As\u00a0month-end approaches,\u00a0we expect to see an increase in dollar demand\u00a0from importers\u00a0and forecast\u00a0a slight weakening of the Shilling.<\/p>\n\n\n\n

Uganda\u00a0inflation creeps higher; expect pressure on Shilling<\/strong><\/h2>\n\n\n\n

The\u00a0Shilling remained steady, trading\u00a0in the\u00a03,660\/3,670\u00a0to the dollar range this week,\u00a0supported by\u00a0money market\u00a0inflows from offshore investors\u00a0and\u00a0exporters of agricultural produce.\u00a0The annual headline inflation\u00a0rate\u00a0increased slightly to 3.8% in February\u00a0from 3.7% the previous month, the\u00a0Ministry of Finance\u00a0reported\u00a0Monday, citing\u00a0higher prices for second-hand vehicles, alcoholic beverages, medical services, and vegetables.\u00a0We\u00a0expect\u00a0a stable\u00a0Shilling in the coming week, with\u00a0a\u00a0slight increase\u00a0in\u00a0dollar demand\u00a0in the approach to month-end import transaction payments.\u00a0As the country’s\u00a0economy\u00a0is\u00a0being opened\u00a0up\u00a0to foreign direct investments\u00a0\u2013 in particular\u00a0in the oil and gas sector\u00a0\u2013 we are longer-term positive on the Shilling.<\/p>\n\n\n\n

Tanzania’s first female president sworn in<\/strong><\/h2>\n\n\n\n

The\u00a0Shilling traded\u00a0flat against the dollar\u00a0in the\u00a02314\u00a0to\u00a02324\u00a0range\u00a0this week, as inflows from\u00a0minerals dealers and\u00a0non-governmental organisations matched dollar demand\u00a0from importers. Samia Suluhu Hassan\u00a0was\u00a0sworn in\u00a0last Friday\u00a0as Tanzania’s first female president following the death of John Magufuli\u00a0on March 17.\u00a0The nation is in 21\u00a0days of\u00a0official\u00a0mourning. The former vice president may cut a different leadership figure than her predecessor.\u00a0Turnover on the Dar es\u00a0Salaam Stock Exchange increased almost 20-fold this week. For the FX markets, we foresee a stable\u00a0Shilling in the coming week as end-month demand for dollars to settle import transactions will be balanced by increasing revenue from commodity\u00a0exports including\u00a0gold.<\/p>\n\n\n\n

Issued\u00a0by\u00a0AZA. This Newsletter is produced as a service to our clients. It is prepared by our dealing professionals and\u00a0is based on their understanding and interpretation of market events. AZA cannot\u00a0be held responsible for any losses of whatever nature sustained as a result of action taken based on comments contained in this publication.<\/em><\/p>\n","protected":false,"gt_translate_keys":[{"key":"rendered","format":"html"}]},"excerpt":{"rendered":"

New ECO currency shelved for at least another year\u00a0 In a blow to trade prospects\u00a0for Senegal and seven other countries in West Africa, the much-discussed plans to replace the CFA Franc with the ECO currency look set to remain stalled for at least another year. Under the ECO initiative, the countries’ central bank reserves would […]<\/p>\n","protected":false,"gt_translate_keys":[{"key":"rendered","format":"html"}]},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[19],"tags":[278,249,22,296,204,205,206,207,316,209,308,26,27,365,32,363,364,354,396,298,299,34,397,217,300,218,357,301,192,231,33,302,252,366,398,257,303,304,182,358,359,305],"class_list":["post-3573","post","type-post","status-publish","format-standard","hentry","category-fx-insights","tag-africa-covid19","tag-africa-debt","tag-africa-foreign-exchange","tag-africa-forex","tag-african-currencies","tag-african-currencies-forex","tag-african-currencies-naira","tag-african-currencies-vs-dollar","tag-cedi-vs-dollar","tag-covid-19-africa","tag-covid-19-kenya","tag-egypt","tag-egyptian-pound","tag-egyptian-pound-vs-dollar","tag-ghana-cedi","tag-ghana-cedi-in-dollar","tag-ghana-cedi-rate","tag-kenya-2021","tag-kenya-maize-ban","tag-kenyan-shilling-rate","tag-kenyan-shilling-vs-dollar","tag-naira","tag-naira-4-dollar","tag-naira-after-lockdown","tag-naira-rate","tag-naira-rate-covid-19","tag-naira-usd-liquidity","tag-naira-vs-dollar","tag-rand","tag-rand-range","tag-rand-rate","tag-rand-vs-dollar","tag-senegal","tag-senegal-economy","tag-senegal-protests","tag-tanzania","tag-tanzanian-shilling-rate","tag-tanzanian-shilling-vs-dollar","tag-uganda","tag-ugandan-election","tag-ugandan-shilling-election-rate","tag-ugandan-shilling-rate"],"acf":[],"gt_translate_keys":[{"key":"link","format":"url"}],"_links":{"self":[{"href":"https:\/\/azafinance.com\/wp-json\/wp\/v2\/posts\/3573","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/azafinance.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/azafinance.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/azafinance.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/azafinance.com\/wp-json\/wp\/v2\/comments?post=3573"}],"version-history":[{"count":0,"href":"https:\/\/azafinance.com\/wp-json\/wp\/v2\/posts\/3573\/revisions"}],"wp:attachment":[{"href":"https:\/\/azafinance.com\/wp-json\/wp\/v2\/media?parent=3573"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/azafinance.com\/wp-json\/wp\/v2\/categories?post=3573"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/azafinance.com\/wp-json\/wp\/v2\/tags?post=3573"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}