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COFACE ECONOMIC APRIL 2018 PUBLICATIONS

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By Ruben Nizard, Coface Economist for Sub-Saharan Africa, based in Paris, France

Currency Risk in Africa: easing in 2018, but reserves have melted

he exchange rate risk is still relevant on the African continent, as evidenced by the depreciation of the Angolan kwanza by more than 30% since the partial liberalisation of the exchange rate regime in January 2018. The shock of falling commodity prices, particularly oil prices from summer 2014 onwards, destabilised many African countries. In the wake of the poor performance of its main economies (Nigeria, South Africa, ), the region’s growth slowed to its lowest level for 20 years in 2016. In addition to the slowdown in activity, commodity price developments have resulted in T 1 deteriorating terms of trade and downward pressure on most African . The exchange rates of exporters of oil (led by Nigeria and Angola) and of mineral resources (Mozambique, Zambia) have been under intense pressure, which in many cases has led to signifi cant depreciations, despite the use of foreign exchange reserves to mitigate their magnitude. Since 2013, the majority of African currencies have lost more than 20% of their value. For companies, these depreciations resulted in accelerating price increases for imported products, and an increase in their foreign -denominated debt burden. For those exporting and/or importing from these countries, currency instability has also meant higher costs for cross- border transactions. In some cases (Nigeria, Angola, Democratic ), liquidity shortages have made it more diffi cult to repatriate profi ts, as well as to trade within borders. Capital controls (Egypt) and/ or import controls (Algeria), implemented to curb pressures on the foreign exchange market, have also had direct consequences on business operations. In 2017, this depreciation movement eased as a result of the rise in commodity prices, but – as indicated by the exchange market pressure index deployed in this study – downward pressures remain signifi cant in some countries (Democratic Republic of the Congo, Ethiopia, Angola, Liberia, Guinea). For the countries that are the most dependent on income from natural resources, imbalances relative to the severe deterioration in fi scal and current account balances between 2014 and 2016 continue to exert pressure on exchange rates. Moreover, with the erosion of international reserves during this period, vulnerability to new external shocks must be monitored closely.

1 - For a given country, the terms of trade are the ratio between the export price index and the import price index.

ALL OTHER GROUP ECONOMIC PUBLICATIONS ARE AVAILABLE ON: http://www.coface.com/Economic-Studies 2 COFACE ECONOMIC PUBLICATIONS CURRENCY RISK IN AFRICA: EASING IN 2018, FOCUS BUT RESERVES HAVE MELTED

Deteriorating terms of trade and Pressures ease in Southern Africa, downward pressures since 2014 Egypt and Nigeria… The shock on commodity prices had a direct impact The results for 2016 and 20175 (Maps 1 & 2) confirm on the terms of trade of countries dependent on their that African currencies suffered significant pressures profits (Chart 1). In the face of deteriorating terms of in 2016, but also reveal their attenuation the following trade and pressures on their currencies, authorities year. This trend is particularly noteworthy in southern reacted in different ways: many had to allow significant Africa (South Africa, Zambia, Mozambique), where depreciation, but those with a less flexible exchange shocks were first absorbed by the floating exchange rate regime relied on their reserves to support parity. rate regime in 2016. The improvement in trade balances CHART 1 in 2017, in large part due to increases in production Change in terms of trade and natural resources rents and the prices of exported commodities, subsequently allowed a relative stabilisation of the exchange rate. 30% Parallel market rate O”cial rate GNB 520 MUS This easing of pressure can also be observed in MWI CIV 500 20% TZA KEN 30% Parallel market rate O”cial rate UGABDI 480 countries with a less flexible exchange rate regime. SWZCPVLSO GNB 520 10% MDGBWA ZWE 460 In West Africa,MUS and more particularly in the West NAM MLI MWI CIV 500 RETHWA 20% TZA 6 SEN 440 SYC TUN African EconomicKENBDI and Monetary Union (WAEMU) , 0% MOZ UGALSO 480 MAR EGY SWZCPV 420 the widening10% MDG BexternalWA deficit resulted in a high EMPI ZAF GHA ZWE 460 -10% ZMB 400 NAM MLI CMR (18%) in 2016.RETHWA Nonetheless, in 2017, reserves began to COD MRT SEN 440 380 SYC TUN 0% MOZ -20% NER SLE LBR replenish in MaliMAR (whereEGY gold production increased 360 420 ZAF GHA 340 by 5%)- 1and0% (with ZMBthe increase in uranium and 400 -30% R = 0,6801 CMR COD MRT DZA 320 oil exports), contributing to an improvement in the 380 -20% NER SLE LBR -40% 300 overall WAEMU EMPI to: -27%. 360

6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 8 8 8 8 8 1 1 1 1 1 1 COG 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------. . . ------. - - - - - ...... t t t t t. t. y y t t. t. v v v c v c c ly GAB p p p p c c ch ch ch ch ch a a ne ne p c c ch ch e e o o o e eb eb eb o eb eb r r r r r r r f f f pril pril pril u u u e e e e o o j e o o f f n n n d m m j j n d d 340 a a a a a a a TCD s ugust ugust ugust ugust s s s s uary uary a a a ugust ugust uary

a a a a n n m m m m m a a n m m -50% a a a R = 0,6801 NGA GNQAOA j j -30% j In North Africa, tensions remainDZA high (Algeria, 320 -60% LBY Tunisia),-4 0but% improvements are visible – particularly 300

6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 8 8 8 8 8 1 1 1 1 1 1 COG 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------. . . ------. - - - - - 7 ...... t t t t t. t. y y t t. t. v v v c v c c ly GAB p p p p c c ch ch ch ch ch a a ne ne p c c ch ch e e o o o e eb eb o PERCENTAGE CHANGE IN THE TERMS OF TRADE, 2013 VS. 2016 eb eb eb in Libya, where oil production doubled in 2017 r r r r r u r r e e e e f f f pril pril pril u u e o o f f o o j d d n n n d a a a a a m m j j n a a TCD s -70% ugust ugust ugust ugust s s s s uary uary a a a ugust ugust uary

a a a a n n m m m m m a a n m m -50% a a a NGA GNQAOA j j j 0% 10% 20% 30% 40% 50% 60% 80 Exchangecompared rate to 2016. For Egypt, hit by a shortage of US Reserves RENTS FROM OIL, GAS AND MINERAL RESOURCES (% OF GDP) dollars -6following0% the 2011 revolution, which caused LBY 70 EMPI Sources: UNCTAD, World Bank, Coface foreign capital and tourists to flee and made profit 60 repatriationsPERCENTAGE CHANGE IN THE TERMS OF TRADE, 2013 VS. 2016 -70% more difficult, the EMPI peaked at Above 5 months of imports Between 1.5 and 3 months of imports 0% 10% 20% 30% 40% 50% 60% 60 Given the diversity of exchange rate regimes and nearly 91% at the end of 2016. However, after the 50% 80 Exchange rate Between 3 and 5 months of imports Below 1.5 of imports 50 Reserves responses to this type of shock, the Exchange Market depreciationRENTS linked FROM to OIL, the GAS exchange AND MINERAL rateRESOURCES flexibilisation (% OF GDP) 50 70 EMPI 5 40 Pressure Index8 (EMPI) developed by Girton and in November 2016, the stabilised and 2 Roper is used to quantify pressures on a currency. 60 40 13 30 reserves increased by 80%. Pressures in Egypt are Above 5 months of imports Between 1.5 and 3 months of imports This indicator is relevant whether the exchange rate is therefore60 decreasing, which can be seen in the EMPI’s 17 Between 3 and 5 months of imports Below 1.5 of imports 20 50 30 flexible, fixed, or intermediate. The EMPI is calculated return to a negative figure at the end of 2017 (Chart 2). 17 50 monthly as a weighted sum of both the annual change10 5 40 8 20 in the exchange14 rate against the US dollar3, and the 0 4 40 13 30

4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 change in reserves . As such, it can be either positive 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------. - - . ------. - - - . - 10 ...... t . . t t y t t. y t t. y t t. y t t. v c v c v c v c ril ly ly 16 a ly c a ne p c ch a ne ly p c ch a ne p c ne p e e e o e eb o eb o eb o eb p r r u rch- u f rch- pril u u u u f pril u f u e o e o f pril e o j e o 17 j j d j j d m j n d m j n a m j n d a m n a a a s 12 uary s a ugus s a s uary a ugust ugus ugus

or negative. A higher EMPI – indicating a depreciationn a a m a n m a m nuary m nuary a a j a a j 20 j 30 j 0 and/or depletion of reserves – reflects increased 2014 2017 17 tensions in the foreign exchange market. 10 20 14 200 Exchange rate 80 0 Reserves 4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 MAPS 1 AND 2 CHART 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------. - - . ------. - - - . - 10 ...... t . . t t t t. y t t. y t t. y t t. 150 y v c v c v c v c ril EMPI a ly a ne ly p c ch a ly c ch a ne ly p c 16 c ne p ne p e e e o e eb o eb o eb o eb p rch- u r u r u u rch- u u f pril u e f pril u f pril e o f e o j o e o j j j j n d m j n d j j n d a m n d a a m a a m 60 uary s a s a s uary a ugust s EMPI in Africa – 2016 vs. 2017 12 ugus Monthly EMPI and its contributions - Egypt ugus ugus n a a m a n m a m nuary m nuary a a j a a j j j 100 0 40 2014 2017 50

20 200 Exchange rate 0 80 Reserves 0 150 -50 EMPI 60

-100 -20 100 Exchange rate 40 -150 -40 Reserves50 EMPI 20 -200 6 -60 -1 6 16 16 16 16 16 17 17 17 17 17 17 17 17 17 17 17 17 0 -1 - .- - .- .- .- .- - .- - - .- t- .- - .- .- l. t t. v c b t t. v c 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 une u p c o e e ch ay ne p c o e 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 j j e o f r pril u e o .- .- - .- - - .- t- .- - .- .- .- .- - .- - - .- - .- - .- .- ugust s n d uary a a m j july ugus s n d y t t. v c y t t. v c n ch a ne ly û p c o e ch a ne ly p c o e a a m a feb r pril u u o e o feb r pril u ju e o j uary a a m j j a s n d uary a a m j ugust s n d 0 n m n m a ja -50 ja

> 20% -100 -20 15% - 20% Exchange rate % % 10 - 15 -150 -40 Reserves 5% - 10% EMPI % % -200 2 - 5 6 -60 -1 6 16 16 16 16 16 17 17 17 17 17 17 17 17 17 17 17 17 -1 - .- - .- .- .- .- - .- - - .- t- .- - .- .- l. t t. v c b t t. v c 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 % % une u p c o e e ch ay ne p c o e 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 - 2 j j e o f r pril u e o .- .- - .- - - .- t- .- - .- .- .- .- - .- - - .- - .- - .- .- ugust s n d uary a a m j july ugus s n d y t t. v c y t t. v c n ch a ne ly û p c o e ch a ne ly p c o e a a m a feb r pril u u o e o feb r pril u ju e o j uary a a m j j a s n d uary a a m j ugust s n d % n n m a < 0 a m a 2016 2017 Sources: IMF International Financial Statistics, Coface calculations j j

Sources : IMF International Financial Statistics, Coface calculations

2 - Girton, L., & Roper, D. (1977): “A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience”. The American Economic Review, 67(4), 537-548. http://www.jstor.org/stable/1813387 3 - For the countries of the franc zone (UEMOA, CEMAC, and Comoros), São Tomé and Príncipe and Cape Verde, the variation of the exchange rate against the was used because the respective currencies of their countries/zones are anchored to the euro.

5 - EMPI values are calculated by averaging the EMPI value calculated at a monthly frequency for the last three months available in 2017 and 12 months earlier in 2016. In this study, foreign exchange markets are considered as particularly under stress when the EMPI score is above 10%. 6 - The WAEMU has eight member states: , , Côte d’Ivoire, Guinea-Bissau, , Niger, and . The EMPI has been calculated for each country, as well as at the regional level. 30% Parallel market rate O”cial rate GNB 520 MWIMUS 20% TZACIV 500 KEN UGABDI 480 SWZCPVLSO 10% MDGBWA ZWE 460 NAM MLI RETHWA SEN 440 SYC TUN 0% MOZ MAR EGY 420 ZAF GHA -10% ZMB 400 CMR COD MRT 380 -20% NER SLE LBR 360

340 -30% R = 0,6801 DZA 320 -40% 300

6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 8 8 8 8 8 1 1 1 1 1 1 COG 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------. . . ------. - - - - - ...... t t t t t. t. y y t t. t. v v v c v c c ly GAB p p p p c c ch ch ch ch ch a a ne ne p c c ch ch e e o o o e eb eb eb o eb eb r r r r r u r r e e e e f f f pril pril pril u u e o o f f o o j d d n n n d a a a a a m m j j n a a TCD s ugust ugust ugust ugust s s s s uary uary a a a ugust ugust uary

a a a a n n m m m m m a a n m m -50% a a a NGA GNQAOA j j j

-60% LBY

PERCENTAGE CHANGE IN THE TERMS OF TRADE, 2013 VS. 2016 -70%

0% 10% 20% 30% 40% 50% 60% 80 Exchange rate Reserves RENTS FROM OIL, GAS AND MINERALCOFACE RESOURCES (% ECONOMIC OF GDP) PUBLICATIONS CURRENCY RISK IN AFRICA: EASING IN 2018, 3 70 EMPI

FOCUS 60 BUT RESERVES HAVE MELTED Above 5 months of imports Between 1.5 and 3 months of imports 60 Between 3 and 5 months of imports Below 1.5 of imports 50

50 5 40 8

40 13 30

17 20 30

17 10 A 20similar situation can be14 seen in Nigeria, where CHART 3A CHART 3B – once the effects of the June 2016 devaluation on Monthly0 EMPI and its contributions – Naira-to-US dollar exchange rate:

4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------. - - . ------. - - - . - 10 ...... t . . t t y t t. y t t. y t t. y t t. v c v c v c v c ril ly 16 a ly c a ne ly p c ch a ne ly p c ch a ne p c ne p e e e o e eb o eb o eb o eb p rch- u r u r u u rch- u u f pril u e f pril u f pril e o f e o j o e o j j j j n d m j n d j j n d a m n d Nigeriaa a m a a m official vs black market s 12 uary s a ugus s a s uary a ugust ugus ugus the value of the 2017 EMPI dissipated – pressures n a n a a m a m m nuary m nuary a a j a a j j j fell0 into negative territory This fall in the 2014 201(Chart7 3A). EMPI in 2017 is linked to a more favourable domestic 200 30% Parallel market rate O”cial rate Exchange rate 80 and externalReserves context, particularly withGNB the rise in oil 520 MUS 150 EMPI 20% MWI CIV 500 prices and the stabilisation of productionTZA in the Niger 60 KENBDI UGALSO 480 Delta.100 In addition, the opening of a SWZCPVdedicated foreign 10% MDGBWA ZWE 40 460 NAM MLI exchange50 platform (the Investors’R ETHWAand Exporters’ SEN 440 8 SYC TUN 0% MOZ 20 FX Window) helped reverse the declineMAR inEGY reserves. 0 420 30% It also reduced the spread between theZAF officialGHA rate Parallel market rate O”cial rate GNB -10% ZMB 520 400 -50 CMR MUS COD MRT 20% MWI CIVand the parallel market rate, which exceeded 40% in 500 380 TZA NER KEN -20% -20 SLE LBR UGABDI -100 480 360 SWZCPVLSO February 2017 (Chart 3B). 10% MDGBWA Exchange rate ZWE 460 340 NAM -150 MLI -40 RETHWA -30% RReserves = 0,6801 SEN 440 0% SYC TUN DZA EMPI 320 MOZ -200 MAR EGY6 -4620 -1 6 16 16 16 16 16 17 17 17 17 17 17 17 -4170%17 17 17 17 300 -1 - .- - .- .- .- .- - .- - - .- t- .- - .- .- GHAl. t t. v c b t t. v c 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 ZAF ch c 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 8 8 8 8 8 une p c ay ne p e 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 j u o e e o - - - - COG------1 1 1 1 1 1 1 1 1 j r ------e o f pril u e o ...... ------n d j july n d t ...... s uary a a m s 400 y t t. y t t. c . . . . . ZMBugust ugus v c v y y t t. t. û t t t t t. t. -10% ch a ne ly p c ch a ne ly p c e v v v c v c c a n m a o e eb o ly eb r GAB o r u p p p p c c ch ch ch ch ch a a ne ne p c c ch ch u pril u e e e a f pril u e o f j e o o o o eb eb eb o eb eb j j n d a m j n d r r r r r u r r j a m a f f f pril pril pril u u …but pockets of risk remain in uary a s uary a ugust s e e e e o o j e o o f f d d CMR n n n d a a a a a m m j j n a a TCD s n a ugust ugust ugust ugust s s s s uary uary a a a ugust ugust uary MRT n m a m COD a n n a a j j a a a a m m m m m n m m -50% 380 a a a NGA GNQAOA j j j -20% NER SLE LBR Angola, Algeria, Tunisia, CEMAC, Sources:360 IMF Financial Statistics, Coface calculations Sources: of Nigeria, AbokiFX -60% LBY 340 -30% R = 0,6801 320 and Ethiopia.DZA PERCENTAGE CHANGE IN THE TERMS OF TRADE, 2013 VS. 2016 -70% -40% 0% 10% 20% 300 30% 40% 50% 60% 6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 8 8 8 8 8 80 Exchange rate 1 1 1 1 1 1 COG 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------. . . ------. - - - - - ...... t t t t t. t. y y t t. t. v v v c v c c ly GAB p p p p c c ch ch ch ch ch a a ne ne p c c ch ch The role of Nigeria’s new exchange platform in mitigating e e o o o e eb eb eb o eb eb r r r r r u r r e e e e f f f pril pril pril u u e o o f f o o j d d n n n d a a a a a m m j j n a a TCD s Reserves ugust ugust ugust ugust s s s s uary uary a a a ugust ugust uary RENTS FROM OIL, GAS AND MINERAL RESOURCESa a a a (% OF n GDP)n m m m m m a a n m m -50% a a a GNQAOA CHART 4 j j j exchangeNGA rate pressures appears all the more significant 70 EMPI Monthly EMPI and its contributions – Angola -60% in light of the evolution of Angola’s EMPI,LBY another major 60 oil exporter from sub-Saharan Africa.Above Unlike 5 months ofNigeria, imports Between 1.5 and 3 months of imports PERCENTAGE CHANGE IN THE TERMS OF TRADE, 2013 VS. 2016 -70% 60 Angola’s international reserves continuedBetween 3 and to 5 m onthsdecline of impo rts Below 1.5 of imports 50 0% 10% 20% 30% 40% 50% 60% 80 Exchange rate at an alarming rate in 2017, despite50 a devaluation in Reserves RENTS FROM OIL, GAS AND MINERAL RESOURCES (% OF GDP) 5 40 April 2016. The country’s EMPI therefore remained 70 8 EMPI 40 13 30 positive throughout the year, averaging 15% (Chart 4). 60 Above 5 months of imports Between 1.5 and 3 months of imports 17 60 These pressures have resulted in a widening spread Between 3 and 5 months of imports Below 1.5 of imports 20 between the official kwanza 3–0 US dollar pegged rate 50 50 17 5 40 10 (AOA 166 to USD 1) 8and the parallel rate (more than 20 14 AOA 420). Despite the greater exchange rate flexibility 0 40 13 30

4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------. - - . ------. - - - . - 10 ...... t . . t t y t t. y t t. y t t. y t t. and a 30% depreciation17 of the kwanza, the disparity v c v c v c v c ril ly 16 a ly c a ne ly p c ch a ne ly p c ch a ne p c ne p e o e o e o e eb o eb eb eb r rch- p u rch- u r u u u f u f pril u e o f pril u e o f pril e o j e o j d j j j d m j n d m j n a m j n d a m n a a a s 12 uary s a ugus s a s uary a ugust 20 ugus ugus n a a m a n m a m nuary m nuary a a 30 a a j j with the black market remained substantial in the j j 17 0 first quarter of 2018, indicating a persistent2014 imbalance 10 2017 20 between supply and demand14 for the Angolan currency. 0 200 Exchange rate 5 5 5 5 5 5 5 5 5 5 5 5 7 7 7 7 7 7 7 7 7 7 7 7 4 4 4 4 4 4 4 4 4 4 4 4 6 6 6 6 6 6 6 6 6 6 6 6 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------8-0 - - However, while depreciation is expected to continue in ------. . - - - - - . . 10 ...... t . . t t y t t. y t t. y t t. y t t. v c v c v c v c ril ly 16 a ly c a ne ly p c ch a ne ly p c ch a ne p c ne p e e e o e eb o eb o eb o eb p rch- u r u r u u f rch- u u f pril u e o f pril u f pril e o Reserves j e o j j e o j j d d m j n d m j n a m j n d a m n a a a s 12 uary s a ugus s a s uary a ugust ugus ugus

n a a m a n m a m nuary m nuary a a the coming months, a relatively restrictive monetary a j a j 150 EMPI j j 0 policy, reduced imports, and increased export revenues 60 2014 2017 Sources: IMF International Financial Statistics, Coface calculations (commissioning of the Kaombo1 0oil0 production unit and 40 200 Exchange rate higher crude oil prices), should50 allow for a gradual 80 Reserveseasing of tensions on the kwanza. 150 EMPI 20 0 60

100 0 The EMPI also indicates that-5 0 the Central African The EMPI also indicates that the Democratic Republic 9 40 50 Economic and Monetary Community (CEMAC) is still of Congo – still plagued by domestic instability and -100 -20 CHART 2 struggling with significant downward pressure on the external20 imbalances, despite the rise in prices of Monthly EMPI and its contributions - Egypt 0 CFA franc. In total, the indicator is estimated to average exported minerals – continues to experience significantExchange rate -150 -40 Reserves 0 -50 over 45% in 2017. The decline in reserves continued in tensions on the foreign exchange market. This is alsoEMPI -200 the zone in 2017, reviving intense rumours6 of a possible the case for the countries that suffered-60 the 2014 -1 6 16 16 16 16 16 17 17 17 17 17 17 17 17 17 17 17 17 -1 - .- - .- .- .- .- -2- 0 .- - - .- t- .- - .- .- -100 l. t t. v c b t t. v c 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 une u p c o e e ch ay ne p c o e 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 j j e o f r pril u e o .- .- - .- - - .- t- .- - .- .- .- .- - .- - - .- - .- - .- .- ugust s n d uary a a m j july ugus s n d y t t. v c y t t. v c devaluation, and a break between the value of nthe Ebola virus outbreak: Guinea, Liberia, and Sierra Leone.ch a ne ly û p c o e ch a ne ly p c o e a a m a feb r pril u u o e o feb r pril u ju e o j Exchange rate uary a a m j j a s n d uary a a m j ugust s n d n m n m a -150 CFA franc in West Africa and . However, -Although40 Reserves less intense, pressure also remainsja in North ja as a result of developments in international crude oil Africa, andEMPI particularly in Algeria, which banned imports -200 6 -60 -1 6 16 16 16 16 16 17 17 17 17 17 17 17 17 17 17 17 17 -1 - .- - .- .- .- .- - .- - - .- t- .- - .- .- l. prices,t t. va policyc b rate increase int Marcht. v c 2017 (from 2.45% of around6 6 6 6 9006 6 6products6 6 6 6 6 at7 the7 7 7beginning7 7 7 7 7 of7 7 20187 in une u p c o e e ch ay ne p c o e 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 j j e o f r pril u e o .- .- - .- - - .- t- .- - .- .- .- .- - .- - - .- - .- - .- .- ugust s n d uary a a m j july ugus s n d y t t. v c y t t. v c n ch a ne ly û p c o e ch a ne ly p c o e a a m a feb r pril u u o e o feb r pril u ju e o to 2.95%)j and, above all, the International Monetary orderuary atoa reducem j j a itss traden d uary deficit.a a m Inj addition,ugust s n d pressure n m n m a Fund’s approval of loans for three countries in the onja the (whichja has been overvalued since region (, , and ) between April 2014-2015) also intensified in 2017, leading to a 15% and September 2017, the CEMAC balance of payments devaluation of the currency in October: estimated at improved, albeit slightly. The external coverage ratio10 – around 20% by the IMF12 before the devaluation, the the Bank of Central African States’ preferential indicator overvaluation is still around 7%, and the disparity with for assessing monetary stability – thus improved the black market remains around 20%. The persistent (again, slightly) from 56.8% in 2016 to 60% in 201711. current account deficit will therefore likely continue While it remains well above the minimum threshold of to put pressure on both the country’s reserves and 20% set by the Bank of Central African States, this level currency, especially as the outlook for coffee prices remains well below the 90% recorded in December – the main positive contribution to Ethiopia’s trade 2014. Reserves have begun to stabilise, but remain balance – remains weak, and the rise in oil prices could low, and their evolution could trend downwards if the affect imports. The increase in imports, oil purchases IMF fails to reach an agreement with the Republic of in particular, is one of the factors contributing to the Congo and . The risk of devaluation increased pressure on both Tunisian reserves and the of the Central African CFA franc can therefore not be dinar in 2017 and early 2018. completely ruled out. n n n

7 - From 390,000 barrels per day in 2016 to 817,000 in 2017, according to data compiled by the Organisation of Petroleum Exporting Countries 8 - Central Bank of Nigeria, 21st April 2017, “Establishment of investors’ & exporters’ FX window”. https://www.cbn.gov.ng/out/2017/fmd/establishment%20of%20investors%27%20&%20exporters%27%20fx%20window.pdf 9 - CEMAC has six member states: Cameroon, , Republic of the Congo, Gabon, Equatorial Guinea and Chad. The EMPI has been calculated for each country, as well as at the regional level. 10 - Ratio between the BCEACS net foreign asset and its short-term liabilities 11 - “Lettre de la Recherche”, Numéro 3, janvier 2018, Banque des États d’Afrique Centrale. URL : https://www.beac.int/download/LR_03_2018.pdf 12 - The Federal Republic Democratic of Ethiopia: 2017 Article IV Consultation, http://www.imf.org/en/Publications/CR/Issues/2018/01/24/The-Federal-Democratic-Republic-of-Ethiopia-2017-Article-IV-Consultation-Press-Release-Staff-45576 30% Parallel market rate OŽcial rate GNB 520 MUS MWI CIV 500 20% TZA KEN UGABDI 480 SWZCPVLSO 10% MDGBWA ZWE 460 NAM MLI RETHWA SEN 440 SYC TUN 0% MOZ MAR EGY 420 ZAF GHA -10% ZMB 400 CMR COD MRT 380 -20% NER SLE LBR 360

340 -30% R = 0,6801 DZA 320 -40% 300

6 6 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 8 8 8 8 8 1 1 1 1 1 1 COG 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------CURRENCY RISK IN AFRICA: EASING IN 2018, ------. . . . COFACE ECONOMIC PUBLICATIONS ...... t t t t t. t. y y t t. t. 4 v v v c v c c ly GAB p p p p c c ch ch ch ch ch a a ne ne p c c ch ch e e o o o e eb eb eb o eb eb r r r r r u r r e e e e f f f pril pril pril u u e o o f f o o j d d n n n d a a a a a m m j j n a a TCD s ugust ugust ugust ugust s s s s uary uary a a a ugust ugust uary

a a a a n n m m m m m a a n m m -50% a a a BUT RESERVES HAVE MELTED j j FOCUS NGA GNQAOA j

-60% LBY

-70%

0% 10% 20% 30% 40% 50% 60% 80 Exchange rate Foreign exchange reserves CHART 5 Reserves PERCENTAGE CHANGE IN THE TERMS OF TRADE, 2013 VS. 2016 RENTS FROM OIL, GAS AND MINERAL RESOURCES (% OF GDP) 70 EMPI have melted African countries by level of import cover 60 Nevertheless, with Coface forecasting an average Brent Above 5 months of imports Between 1.5 and 3 months of imports oil price of USD 65 per barrel for 2018 (against nearly 60 Between 3 and 5 months of imports Below 1.5 of imports 50 USD 55 in 2017), the rise in crude oil prices is unlikely to destabilise the terms of trade of net importers of black 50 5 40 gold: in most cases, they have reduced their import 8 volumes in recent years. However, recent developments in the region’s economies have made them vulnerable 40 13 30 to new shocks. 17 20 30

Despite a relative stabilisation of fiscal deficits and 17 current account balances, the imbalances inherited from 10 20 14 this period continue to weigh on currency developments. For example, the debt crisis in Mozambique and Zambia’s 0 4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 ------. - - . ------. - - - . - 10 ...... t . . t t y t t. y t t. y t t. y t t. v c v c v c v c ril ly 16 a ly c a ne ly p c ch a ne ly p c ch a ne p c inability to reach an agreement with the IMF have led to ne p e o e o e o e eb o eb eb eb r rch- p u rch- u r u u u f u f pril u e o f pril u e o f pril e o j e o j d j j j d m j n d m j n a m j n d a m n a a a s 12 uary s a ugus s a s uary a ugust ugus ugus

n a a m a n m a m nuary m nuary a a further depreciations of both the metical and the kwacha a a j j j j in recent months. 0 2014 2017

In addition, the reserves that supported the currencies Sources: IMF World Economic Outlook, Coface have largely been depleted. While the median level of 200 Exchange rate 80 import coverage in African countries was 3.9 months Reserves in 2014, it declined to 3.2 months three years later. fluctuations.150 EMPI Countries exporting agricultural raw Therefore, 32 out of 51 countries have a lower cover materials could therefore be put under pressure, as 60

ratio in 2017 than in 2014. Seven additional countries in prices100 remain relatively low for certain cash crops particular saw their reserves fall below the traditional – such as cocoa (Côte d’Ivoire, Ghana, Nigeria, 40 3-month import coverage reserve adequacy indicator Cameroon) or coffee (Ethiopia, Uganda, Tanzania) – 50 (Chart 5), including Zambia, Mozambique, Guinea, and and Africa remains particularly exposed to the effects members of the CEMAC zone. Countries with higher of climate change. 20 RÉSERVE levels of foreign exchange reserves are not immune 0 Le présent document reflèteeither: l’opinion de given la direction the de la recherchedependence économique de onCoface, natural à la resources, In addition to these vulnerabilities, political risk (as 0 date de sa rédaction et en declinesfonction des informations in reserves disponibles ; ilcan pourra beêtre modifiéextremely à tout rapid. For in-5 0Burundi, where sanctions relating to the political moment. Les informations,example, analyses et opinions the qu’ilcoverage contient ont ratioété établies in surAlgeria la base de fell from 33.4 to crisis have put pressure on the exchange rate) and the -20 multiples sources jugées fiables19.3 et sérieuses months ; toutefois, of Cofaceimports ne garantit in en just aucun casthree l’exactitude, years. -acceleration100 of the United States’ monetary tightening l’exhaustivité ou la réalité des données contenues dans le présent document. Les informations, cycle could once again intensify capital outflows from Exchange rate -150 -40 analyses et opinions sont communiquéesThis dependency à titre d’information on et raw ne constituent materials qu’un complément – with many countries the region, putting pressure on exchange rate. In Reserves using only one product as a source of liquidity13 short, currency risk, although shrinking, could once EMPI aux renseignements dont le lecteur dispose par ailleurs. Coface n’a aucune obligation de résultat -200 – exposes the foreign exchange market to very large again permeate6 the African continent. -60 -1 6 16 16 16 16 16 17 17 17 17 17 17 17 17 17 17 17 17 mais une obligation de moyens et n’assumera aucune responsabilité pour les éventuelles pertes -1 - .- - .- .- .- .- - .- - - .- t- .- - .- .- l. t t. v c b t t. v c 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 une u p c o e e ch ay ne p c o e 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 j j e o f r pril u e o .- .- - .- - - .- t- .- - .- .- .- .- - .- - - .- - .- - .- .- ugust s n d uary a a m j july ugus s n d y t t. v c y t t. v c subies par le lecteur découlant de l’utilisation des informations, analyses et opinions contenues n ch a ne ly û p c o e ch a ne ly p c o e a a m a feb r pril u u o e o feb r pril u ju e o j uary a a m j j a s n d uary a a m j ugust s n d n m n m a 13dans - Bossuet le présent P., document.Daudier J.L.,Ce document Fèvre A.S., ainsi Marcillyque les analyses J. (2015). et opinions “Sub-Saharan qui y sont Africa: exprimées sunny in the east, cloudy in the centre”. Coface Economic Publications. ja ja appartiennenthttp://www.coface.com/News-Publications/Publications/Global-Country-Risk-Outlook-June-2015 exclusivement à Coface ; le lecteur est autorisé à les consulter ou les reproduire à des fins d’utilisation interne uniquement sous réserve de porter la mention apparente de Coface et de ne pas altérer ou modifier les données. Toute utilisation, extraction, reproduction à des fins d’utilisation publique ou commerciale est interdite sans l’accord préalable de Coface. Le lecteur est invité à se reporter aux mentions légales présentes sur le site de Coface.

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