No fewer than 5 currencies of African countries including the Zambian Kwacha, the Angolan Kwanza and the Nigerian Naira are among the 10 worst-performing currencies globally.
According to a report by Bloomberg, while emerging-market currencies have generally benefited from a softer U.S. dollar this quarter, the African currencies are defying the trend due to significant local economic challenges.
A lack of Dollar liquidity, inflationary pressures as well as volatile commodity prices are among the reasons for the weak performance.
Many African economies, such as Nigeria and Angola, are reliant on oil exports, leaving them exposed when prices drop. But “it’s not just oil prices,” said Keonethebe Bosigo, portfolio manager at Mazi Asset Management. “Poor currency management and imbalances are the real culprits,” Bosigo said.
Bosigo emphasised that the naira’s overvaluation and subsequent loss of confidence were due to the currency not being allowed to adjust.
“Oil prices are a factor, but the real issue is that the naira wasn’t allowed to adjust, which led to its overvaluation and a subsequent loss of confidence in the currency,” he added.
Irmgard Erasmus, an economist at Oxford Economics, concurred, stating that the naira faces significant pressure despite reforms aimed at liberalizing the current account.
“The naira remains undervalued relative to its long-term neutral value due to ongoing issues around liquidity and dollar supply,” Erasmus said.
Erasmus attributed the naira’s struggles to declining Brent crude prices, tightening regulations on the banking sector, and risk aversion.
“The government’s slow pace of reforms, combined with haphazard monetary policies, continues to keep the currency in undervalued territory,” Erasmus noted.
Nigeria’s Naira woes
The naira has faced an all-time low valuation following economic reforms by the Tinubu-led administration, and Nigeria’s inflation only dropped in August, the first time since December 2022, from 34.19% in June to 33.40% in July.
This has weakened the purchasing power of most Nigerians as the recently declining headline inflation rate didn’t affect the core inflation rate which has risen by 0.10%.
As of Saturday morning, according to the Central Bank of Nigeria (CBN) official exchange rate, the naira is trading against one dollar at N1,603.
In his analysis, Erasmus suggested that the naira should be trading closer to N1,100 per dollar in the absence of distortions, compared to the current rate of N1,544/$.
However, he cautioned that without significant policy changes and improved dollar liquidity, the outlook for the naira remains fragile.
Angola’s Kwanza Free Falls
The Angolan kwanza has depreciated almost 12% this year, to about 950 per dollar as the country faces structural challenges. That’s the lowest level in 25 years.
“The kwanza’s decline is linked to oil prices, but liquidity challenges are the bigger issue,” Erasmus said. Angola’s reliance on oil for over 60% of its budget means that falling crude prices hurt the country’s
hard-currency reserves. The central bank has scaled back its interventions, further weakening the currency.
“Despite Angola’s efforts to diversify, the debt burden and structural issues keep the currency under pressure,” Bosigo said. Angola is expected to prioritize debt repayments over increasing FX supply, meaning the kwanza will likely remain weak through the end of the year, he said.
The nation’s central bank on Thursday ruled out intervening in the market to stabilize the currency.
“We’re ready to carry out all the measures that are necessary,” Governor Manuel Tiago Dias said at a press conference in Luanda, the capital.
“For now, our understanding is that it’s premature to intervene,” he said at the briefing where he announced that the Banco Nacional de Angola will leave borrowing costs unchanged at 19.5%.
Zambia’s kwacha trading lowest since June
The Zambian kwacha has touched its weakest level since June, trading as low as 26.4698 per dollar Wednesday amid concerns over fiscal sustainability.
Ongoing droughts are increasing the country’s external financing needs, with food and power imports depleting reserves.
“The government’s revised interbank FX rules have had some success in stabilizing the kwacha, but investment confidence remains weak due to new regulatory changes in the mining sector,” Erasmus said.
Zambia, which has a $1.7 billion economic program with the IMF and is considering asking for more help, faces a tricky balance between fiscal reforms and social spending. With copper prices showing little sign of recovery and political uncertainty rising, the outlook for the kwacha remains clouded.
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