The Economic Intelligence Unit (EIU) has projected a challenging outlook for several African economies, predicting a significant depreciation of their domestic currencies in the coming year.
Nigeria, Egypt, Angola, Ethiopia, and Sudan—key players in the region—could experience currency devaluation exceeding 10%, a result of negative macroeconomic factors that continue to exert pressure on their economies.
The EIU’s Africa Outlook 2024 report, titled “Strong growth amid heated elections and financial woes,” highlights the impending double-digit depreciation of the naira, Egyptian pound, kwanza, birr, and Sudanese pound. This forecast amplifies previous warnings, particularly concerning the naira, citing President Bola Tinubu’s implementation of foreign exchange market convergence as a trigger.
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The convergence led to the closure of multiple official exchange windows, consolidating trading into the Nigerian Autonomous Foreign Exchange Market (NAFEM) and the black market. However, since its implementation in May, the naira has seen a drastic loss in value, plummeting over 50% on both markets and resulting in severe hardships for Nigerians.
EIU’s November report highlighted the Nigerian central bank’s inability to address the FX demand backlog, a critical factor exacerbating the naira’s decline. This, coupled with unsupportive monetary policies, is expected to sustain pressure on the naira, leaving foreign investors unsettled and the exchange rate regime unstable, potentially leading to periodic devaluations.
“In Nigeria, an unsupportive monetary policy implies that the naira will remain under pressure while the central bank lacks the firepower to adequately supply the market or clear a backlog of foreign exchange orders, which will keep foreign investors unnerved.
“High inflation and a continued spread with the parallel market will leave the exchange rate regime unstable and result in periodic devaluations,” the EIU said.
The EIU’s broader analysis indicates a similar trend across much of Africa, foreseeing various degrees of currency depreciation against the US dollar in 2024, albeit less severe than in 2023. Notably, Southern African economies like South Africa, Namibia, and Botswana, which experienced considerable currency devaluation in 2023, are expected to stabilize their currencies in 2024.
“We forecast currency depreciation against the US dollar across much of Africa in 2024, although adjustments are expected to be less severe than those recorded in 2023,” the unit said.
However, Zimbabwe stands out within Southern Africa, grappling with a struggling local currency that is expected to face further devaluation. The country’s weak economy heavily reliant on the dollar, alongside the potential adoption of digital gold coins in 2024, could exacerbate the devaluation of the Zimbabwean dollar.
Countries tied to the euro, such as those in the CFA franc zone, will witness currency fluctuations based on euro-US dollar movements. The euro’s anticipated strengthening in 2024, supported by economic growth and the euro zone’s current account surplus, might lead to currency appreciation for Central and West African countries using the CFA franc.
The EIU’s forecasts paint a complex picture for African economies, indicating potential challenges and fluctuations in currency values in the year ahead, influenced by both domestic policies and global economic trends.