By: Crispus Nyaga
on Jul 13, 2024
- The Rwandan franc (RWF) has crashed to a record low ahead of the country’s election.
- Ethiopian birr (ETB) has dropped as the impact of the recent war continued.
- The Ghanaian cedi has also imploded after its recent deal with bondholders.
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The Rwandan franc is imploding ahead of next week’s election, making it one of the worst-performing currencies in Africa. The USD/RWF pair has jumped for all consecutive weeks since March 2021 and is trading at a record high of 1,300. It was trading at 882 in 2019.
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The same is happening in Ethiopia, where the birr (ETB) has tumbled to a record low of 58 against the US dollar. It was trading at less than 25 a few years ago. The Ghanaian cedi (GHS) has also plunged to an all-time low of 15.50 against the greenback.
Other African currencies like the Tanzanian shilling, Zambian kwacha, and Nigerian naira have all plummeted in the past few years.
Rwandan franc, Ethiopian birr, Ghanaian cedi
Rwandan election ahead
The Rwandan franc has crashed hard in the past decades even as the country has made a lot of progress and remained in peace. A currency that was trading at 500 against the US dollar has now crashed to over 1,300.
It will be in focus in the coming week as the country goes to a general election. However, unlike other currencies that show volatility ahead of a general election, the expectation is that the Rwandan franc will have a mild reaction.
Unlike other African countries, Rwanda’s political environment is not all that competitive. Over the years, President Paul Kagame has consolidated power and is expected to win his fourth term by a landslide.
He has won all the past elections by over 90% because of his popularity and the fact that he lacks any meaningful opponent. His popularity is mostly because he has helped the country achieved significant developments in the past three decades.
Unlike in the past, Rwanda has been a beacon of peace in East Africa, with many people still haunted by 1994’s genocide.
Kagame hopes that the country will become a middle-income member in the next decade. To achieve this, the government has invested in infrastructural projects and is working to become a tech hub in Africa.
Recent economic numbers show that the Rwandan economy is doing well. While the unemployment rate remains high and deficits are rising, economic growth has expanded by 7.6% in the past few years. Analysts also expect the growth to expand by over 7.2% in the next few years.
Rwanda faces substantial challenges though. It is a landlocked country that puts it at a competitive disadvantage against Tanzania and Kenya. It also does not have any major exports, with its top products being coffee, tea, and niobium.
Ethiopian birr currency has plunged
Meanwhile, the Ethiopian birr has been in a strong freefall in the past few years because of the political instability in the country.
For a long time, Ethiopia was seen as a beacon of hope in Africa as the economic growth accelerated. At its peak, the country was seeing double-digit annual growth rates, making it the fastest-growing country in Africa.
Ethiopia benefited mostly because of its aviation sector as Ethiopian became the biggest airline in Africa. The government also embarked on big infrastructural projects, mostly with borrowed money.
Most importantly, it attracted many Chinese companies in industries like apparel that were looking for cheaper bases.
All this success got undone a few years ago when Ethiopia started a big conflict that left thousands of people dead. While peace has returned, Ethiopia’s economic growth has been affected.
At the same time, the substantial debt that the government took have come back to haunt it. It recently entered a deal with its lenders on a payment plan.
Ghanaian cedi has imploded
The other notable African currency that has plummeted in the past few years is the Ghanaian cedi. The USD/GHS exchange rate has soared in all weeks since August last year and has now moved to a record high of 15.5. In 2011, the pair was trading at 1.5 and was one of the strongest currencies in Africa.
The Ghanaian cedi has imploded because of the country’s heavy debt load, slow economic growth, and its default. Just recently, the country reached a deal in principle with private creditors to restructure its $13 billion in debt.
This restructuring process has been painful, with these creditors accepting a nominal loss or haircut of 37% on their holdings. Also, bondholders had to forego $4.7 billion of their claims.
Therefore, the Ghanaian cedi has plunged because the country remains in an economic crisis since many local and international creditors will be afraid to extend cash. This explains why the country is paying substantial yields to creditors, with many T-Bills yielding over 20%. The country has also been downgraded by key rating agencies like Fitch and Moody’s.
To be clear: some African currencies are doing well this year. The South African rand (ZAR) has risen by almost 10% from its lowest point this year. These gains accelerated after the ANC and the leading opposition parties made a coalition agreement.
The Kenyan shilling has also rebounded against the US dollar, euro, and neighboring currencies like the Tanzanian and Ugandan shilling. Most recently, the Ugandan shilling has risen by over 6% while the Botswana pula has risen by 3% from its lowest point this year.