Macro Analysis /

ETM Africa Insight 23 April 2021

  • African FX volatility moderates as global risk sentiment improves

  • Tanzania’s 2046 bond almost four times oversubscribed

  • Focus in the oil market is centred on next week’s OPEC meeting

Kieran Siney
Kieran Siney

Head of African Markets

ETM Analytics
23 April 2021
Published byETM Analytics


President Biden is expected to float an historic tax increase on investment gains for the wealthy. Biden will be tapping into the groundswell of support for initiatives aimed at bridging the ever-widening disparity between the rich and poor. The raising of the capital gains tax will no doubt be criticised by the Republicans who will argue that this will chase entrepreneurship and capital abroad. The Democrats will however argue that they need increased funding to pay for a $1.0trln rise in spending on childcare, universal pre-kindergarten education and paid leave for workers. It is also a sign of things to come as governments seek to find ways to rebalance their budgets to render their fiscal positions more sustainable over the long-term.

News from the Climate Change Summit, was that the US committed to reducing its carbon emissions by 50-52% by 2030. The move was widely expected, with the US having re-joined the Paris climate accord. It sets an ambitious target that the US will now need to follow through on which will likely have a material impact on the existing fossil fuel industry which is the cornerstone of America's energy independence. One industry's loss, could however be another's gain, and the imposition of regulations will seek to shift investment into green technologies which over time will become a more prominent source of energy.

In the FX space, it has been a far more consolidative week for the USD after what has been a robust depreciative trend. One of the factors that could be keeping investors cautious, is the FOMC decision and statement next week, where investors will be on the lookout for any fresh guidance that might offer insight into the probability of tapering. Following the ECB comments yesterday, the Fed may well choose to moderate expectations of a taper on the grounds of rising inflation risks and a strong economic recovery in H2. This could have an influence on the performance of the USD.

Shifting to commodities, copper shed some ground overnight however the benchmark 3m LME contract held the $9400/tonne level. The red metal is poised to record its third straight week of gains in line with the performance in gold.  The current strength in the copper price is primarily a function of a weaker USD as no new fundamental drivers have presented themselves. Supply dynamics, economic growth potentials and the spin off in demand from green energy drives are all well-known at present.


Morocco: Consumer price inflation in Morocco slowed in March. For context, headline inflation in Morocco decelerated from 0.3% y/y in February to 0.1% y/y in March. On a monthly basis, consumer prices rose marginally to 0.2% in March, and this upward price growth resulted from the increase in the cost of food and non-food products. The latest annual CPI reading remains low compared to the 1.6% recorded during the same period in 2020. This suggests that the inflation environment is still benign and, therefore, the Bank Al-Maghrib is able to continue providing support for the economic recovery by maintaining its accommodative policy stance.

Kenya: Kenya’s merchandise trade deficit narrowed to KES 92.2bn in February compared to KES 106.4bn in January. The February reading marks the smallest deficit in 3 months. However, the trade deficit recorded in February is notably wider than the deficit of KES 72.7bn recorded in the corresponding month in 2020. The improvement in Kenya’s trade balance was a function of increased exports, which rose from KES 54.3bn in January to KES 67.5bn in February. Imports meanwhile fell to 159.7bn from KES 160.7bn. Although the trade deficit has compressed, it remains significant. Therefore, it will continue to weigh on Kenya’s current account balance and, by extension, the Kenyan shilling.

Angola: Angola’s Economic Coordination Minister Manuel Nunes Junior was in the wires saying that “In 2020, the inflation rate’s clear downward trajectory was interrupted by the impact of COVID, however, this year the downward path of inflation will resume and create the economic fundamentals so that nominal interest rate can be adjusted downwards.” Note that inflation in Angola has trended higher in recent months despite the prudent monetary policy in place. Angola still faces a host of challenges, including rising global commodity prices, a weak local currency and persistent structural challenges that pose upside risk to the inflation outlook. As such, it could be some time before inflation takes a turn and drops to desired levels to allow the central bank to ease monetary policy to support the economy.

Nigeria: Nigeria’s money supply growth softened for the third consecutive month in March. Specifically, money supply growth decelerated from a downwardly revised 28.0% y/y in February to 22.6% y/y in March, its slowest pace of growth in 8 months. Private sector credit growth also slowed in March, falling from a downwardly revised 13.9% y/y in February to 9.9% y/y. This marked the second straight month of deceleration and its slowest pace of growth in 20 months. Although money supply growth has been trending lower this year, it remains elevated, suggesting that Nigeria’s monetary environment is still loose. This tilts inflation risks to the upside in the coming months.

Forex: African FX volatility moderates as global risk sentiment improves

The improvement in global risk appetite and falling UST yields in recent weeks has seen the USD come under pressure. The combination of the aforementioned has provided some support for emerging and frontier currencies to continue unwinding last year’s losses.

With the exception of the Kenyan shilling (KES), African FX volatility has broadly trended lower in recent sessions. This comes on the back of a decline in emerging market FX volatility. For context, the JP Morgan Emerging Market Volatility Index has fallen notably since reaching this year’s peak in March. Specifically, emerging market volatility has fallen from a peak of 11.6% in March to sit at 9.4% currently.

Zooming in on Africa FX, there has been a notable decline in Nigerian naira (NGN) volatility this month as the currency stabilised following the third devaluation of the NGN from the Central Bank of Nigeria earlier this year. Volatility levels in the NGN fell from a peak of 34.7% in February to currently sit at 3.8%.

The least volatile African currencies have been the Ghanaian Cedi (GHS) and the Zambian Kwacha (ZMW). This could be a result of FX interventions by their central banks to manage volatility.

On balance, given the progress being made on the vaccine front, improving global economic outlook, elevated commodity prices and the massive amount of dollar liquidity in circulation, African volatility is expected to remain relatively anchored in the coming months. Moreover, the USD continues to face several headwinds, which will also ease pressure on African currencies.   

Tanzania’s 2046 bond almost four times oversubscribed  

All eyes in the fixed income space were fixated on the debut auction of Tanzania’s 2046 Treasury bond. Encouragingly, demand for the long-dated local currency bond was robust. Specifically, investors offered to purchase TZS 325.7bn worth of the 25yr bonds at the auction. Due to strong demand, the Bank of Tanzania decided to increase its allotment from an initial offering of TZS 86.0bn to TZS 132.6bn.

The bonds were sold at a price of 97.6296 with a yield of 16.34%. The coupon rate was 15.95%. The high coupon and yield would've helped bolster demand for the bonds. Bloomberg meanwhile reported that more than 800 participants took part in the auction that was reserved for Tanzanian’s and East African citizens.

On balance, the oversubscription of bonds is a positive sign that appetite for longer-dated Tanzanian debt is healthy. Recall that demand for Tanzania’s 20yr bond has also been strong, suggesting that investors are not overly concerned about the fiscal degradation that has taken place over the past year as a result of the COVID-19 pandemic.

Focus in the oil market is centred on next week’s OPEC meeting

Oil prices are paring their weekly loss this morning when looking at the front-month Brent and WTI contracts. Both have gained around 0.2% this morning but are still on track to post a loss for the week of more than 2%. This comes as investors digest the ups and downs of the market, with a still positive longer-term outlook being weighed down by rising demand concerns for the near term as COVID cases continue to increase in the likes of India and Japan.

Focus now turns to the OPEC+ ministerial meeting scheduled for next week. The organisation will assess the current state of play in the markets, but it is unlikely that we will see any changes to their plans to increase supply by around 2mn barrels per day. There is, however, a slight chance that recent weakness in the market could see them hold off on this for just a little longer. Russia seems to support this, with Deputy Prime Minister Alexander Novak saying that the market looks balanced. Delaying this output normalisation could actually turn out to be bearish for the market if investors take it as a sign that demand is not going to be as strong as OPEC initially predicted.

The OPEC meeting could have a significant impact on African countries if the outcome of the meeting alters the path of international oil prices. For oil producers, a decision from OPEC to maintain its current output stance would be supportive as it would help buoy crude prices. Note that African oil producers such as Nigeria and Angola are heavily dependent on oil as a source of foreign currency earnings and tax revenue. The opposite is said to be true if OPEC decides to ease its supply curbs. For oil importers, high oil prices underpin inflation. Note that for most African countries, oil is one of their main imports and currently the main driver of topside inflationary pressures on the continent.