When the United States fed raised its rate by a quarter point December last year, after a nine year hiatus, there were palpable fears that many African currencies would be further weakened leading to a more unfavorable exchange rate against the dollar. This is against the backdrop that major African currencies had already suffered depreciation due to the falling commodity prices in the international market. Already Currencies such as the Algerian dinar and South Africa rand had suffered about 23 and 36 per cent deprecation respectively before the rate hike in 2015.
It was therefore no surprise that some investors, anticipating a further depreciation in the local African currencies pulled billions of their funds from Africa. “Since the US feds raised its rate, foreign investors have pulled their funds from our equity market,” says Patrick Ajayi, a financial analyst. Clearly the exchange rate is a key barometer for investors as it determines if they would get less or more for each dollar invested.
A review of the exchange rate this year has however proved that it has not all been gloomy for the investors that left their funds in some particular African economies.
The Rand is not yet out of the Woods
The South African economy is no doubt the model for many African economy as it is the most diversified with the strongest industrial base in the country. That still did not stop the rand from falling rapidly against the dollar last year. Though the rand seems to have stopped bleeding against the dollar, it is still not yet out of the woods as it has depreciated by about 2.97 per cent this year. The translation is that if an investor wanted to pull out a million dollar he invested in South Africa at the beginning of the year, the money would be worth $971, 161 representing a loss of $28,839. For those who invest in billions like fund managers, then the losses will be significant.
Wide Difference between the Official and Black Market Rate of the Naira
If one looked strictly at the official exchange rate of the Nigerian government then the naira has appreciated slightly by 0.305 per cent. Meaning that if an investor wanted to pull out a million dollar he invested at the beginning of the year, the money would be worth $1,003, 000 representing a gain of $3000. However the Nigerian economy is a peculiar one where the difference between the official and black market rate is as wide as 50 per cent, unlike other African countries where such difference is usually between 5 to 10 per cent. Since most businesses in Africa’s largest economy source their dollars from the black market, then the official rate is at best cosmetic and the naira might have actually depreciated against the dollar.
Egyptian Pound is somewhat Sterling
Africa’s third largest economy has had a somewhat stable rate against the dollar this year. Though the Egyptian pound lost about 9 per cent against the green back last year, it has appreciated by 0.251 per cent this year. Meaning that if an investor wanted to pull out a million dollar he invested at the beginning of the year, the money would be worth $1,002, 515 representing a gain of $2515.
Algerian Dinar Enjoys Marginal Gains
After losing 22.6 percent against the dollar last year, the Algerian dinar has gained about 0.56 against the green back this year. . Meaning that if an investor wanted to pull out a million dollar he invested at the beginning of the year, the money would be worth $1,005, 600 representing a gain of $5600.
Dirham is King
Of all the major African currencies, the Moroccan dirham has appreciated the most this year. Though it lost about 10 per cent against the dollar last year, it has appreciated by 1. 69 per cent this year. Meaning that if an investor wanted to pull out a million dollar he invested at the beginning of the year, the money would be worth $1,017, 000 representing a gain of $17,000. In billions this would be quite significant.
The Angolan kwanza has fallen by 15 per cent against the dollar this year, which is quite substantial. The Ethiopian birr also fell by 0.44 per cent against the green back. Similarly, the Ghanaian cedi fell by 4.9 per cent and the Sudanese pound fell marginally by 0.1 per cent, while the Kenyan shilling rose by 0.06per cent.