The Russian-Ukraine war and the lingering impact of the COVID-19 pandemic have severely weakened West African economies and currencies – but businesses and investors are looking to dollar assets to mitigate the damage.

 

As most West African economies are commodity-driven, any development within the global economy that affects the supply and/or demand of commodities imports and exports portends significant currency weakening effects on the economies.

 

Recent and ongoing global events have created massive demand destruction in crude oil, agricultural products and precious metals such as gold. Supply chains are also still to recover.

 

As a result, most West African currencies such as the Nigerian Naira (NGN) and the Ghanaian Cedis (GHC) have significantly weakened.

 

It is a major source of concern – and an ongoing challenge- for most Nigerian businesses and those in other West African countries.

 

Fiscal and monetary imbalances compound the problem.

 

The import-dependent nature of most West African markets implies huge demand for foreign exchange to pay import bills. Due to declining external reserves, the Central Banks are not able to promptly and adequately meet these demands.

There is also massive fiscal debt overhang in most West African markets. One of the effects is the need to borrow from bilateral and multilateral global lenders who demand deliberate local currency weakening by the local authorities by adjusting their official exchange rates accordingly to fight the demand for foreign currencies. Weaker local currencies makes it more expensive, and less attractive to convert to hard currencies.

 

These factors together have conspired to weaken West African currencies, and the outlook remains negative in the short to medium term. The loss of confidence in the local currencies means that they are no longer considered a stable store of value.

The import-dependent nature of most West African markets implies huge demand for foreign exchange to pay import bills

 

But businesses and investors have responded to hedge themselves and protect the value of their earnings and holdings in fast depreciating local currencies.

 

Investments in dollar denominated securities such as Eurobonds, dollar and other hard currency equities, debt instruments in the form of government and corporate bonds, as well as interest bearing US treasury instruments have become the preferred holdings for investors. And demand is expected to grow.

 

But not holding local currencies has implications for the local economies.

 

It further increases the demand for foreign currencies and continues to create the arbitrage gap between official and unofficial forex markets which create further arbitrage pressure on the local currencies. This places further exchange rate pressure until the governments implement the right monetary and fiscal policies which enable the local currencies to better reflect economic fundamentals.

 

Most West African governments have started taking the right steps in this direction by adjusting their official exchange rates and in some cases borrowing in United States Dollars to shore up their external reserves though it may take some time to materialise.

 

The Nigerian naira in particular has remained under intense pressure since the closely watched election last month.

 

There is a risk the naira will continue to depreciate in the next few months because of the major difficulties in turning around through economic reforms in an economy of its size. The expectation of weaker crude oil and natural gas prices will likely continue to pressure the currency.

 

There is also the challenge of remittances flow to Nigeria: many companies are no longer supporting these transactions. Most importantly, tech investments which represented a significant increase in foreign direct investments (FDI) have all but reduced drastically.

 

As a result of turbulent economic conditions, businesses are increasingly turning to advisors with extensive global know-how for expert advice.

Since the launch of RMB’s direct custody services in Nigeria and Ghana in 2019 and 2021 respectively, we have been advising local and foreign fund managers, pension funds, broker-dealers and banks.

 

RMB is the leading provider for West African investors seeking to invest in foreign markets through our insightful global custody solutions. We also support inbound investors seeking selective portfolio investment opportunities in emerging and frontier markets across the continent of Africa.

 

Today, Meta  released its `2022 Africa Year in Review,  capturing some of the company’s investments and initiatives in Sub-Saharan Africa across innovation, its support of SMBs and Creators as well as its work connecting communities. Showcased through an infographic and short video, this highlights Meta’s ongoing milestones and successes across the region, whilst reinforcing its continued investment and commitment to Africa.

Commenting, Enitan Denloye, Country Director SSA, Meta said: “We remain invested in Africa and the various communities we support here in the region. Our work continues to be rooted in giving people the power to build community, whilst bringing the world closer together – whether as SMBs, creators or tech innovators. We believe Africa, and the immense talent this region holds will continue to play a key role in Meta’s journey.”

Some of the key 2022 Meta Africa Year in Review highlights include:

●        Facebook Reels – Launched Facebook Reels across 20 countries in Sub-Saharan Africa to help creators monetise their crafts, connect with, and discover new audiences in News Feed and Groups

●        Facebook Protect – Rolled out Facebook Protect in Mauritius and South Africa, a programme designed to provide increased protections around the world for journalists, activists and human rights defenders

●        #StaySafeOnInstagram in Ghana and Nigeria – Unveiled an education campaign focused on enabling users to take steps to protect their accounts from phishing and hacking

●        Economic Impact Trainings: Trained over 107,000 SMBs and Non-profits across Sub-Saharan Africa through Meta’s Economic and Social Impact Programs including Meta Boost, SheMeansBusiness and Meta Nonprofit Training Program

 

●        WhatsApp’s first-ever global brand partnership – Launched with Nigerian-born NBA All-Star Giannis Antetokounmpo, this featured a short film about his Nigerian roots – titled ‘Naija Odyssey’

●        ‘Future Africa: Telling Stories, Building Worlds’ – In partnership with Africa No Filter, announced the six finalists of the programme aimed at boosting the use of Virtual Reality in Africa’s storytelling

●        #ReelAdventures – Created #ReelAdventures aimed at highlighting adventure-focused groups in Kenya who use reels to express themselves and share their travel experiences

●         #NoFalseNewsZone – Launched a campaign and comic books across Ghana and Francophone Africa, aimed at helping people to think critically about the messages they see and read online

●        Made in Africa, Loved by the World – Unveiled our 2022 international campaign aimed at celebrating Africa’s ongoing growing cultural impact on the world, whilst spotlighting eight amazing creators and innovators from across the continent, including rolling out Africa’s first Instagram #AfricaMade Reels challenge

●        No Language Left Behind – Unveiled our single AI model that translates over 200 languages, including 56 African languages

●        Creators of Tomorrow – Spotlighted and celebrated emerging talent from around the world who are inspiring a new movement of creative content online, including here in Africa

●        2Africa Deployment Genoa Landing – Alongside eight local and global partners, announced the landing of the 2Africa subsea cable system to Genoa, Italy which now connects three continents — Africa, Europe, and Asia, making it the longest subsea cable system ever developed at more than 45,000 kilometres

 

●        AMBER Alerts in Nigeria – In partnership with the National Agency for the Prohibition of Trafficking in Persons (NAPTIP), launched AMBER Alerts, a programme aimed at helping to find abducted children by sending AMBER Alerts to the local Facebook and Instagram community

●        Launched ‘My Digital World’ in Cameroon – Rolled out a digital literacy program aimed at educating users on responsible social media usage and how to stay safe online

●        NFT Digital Collectibles expansion across Sub-Saharan Africa on Instagram – Enabled creators to share their digital collectibles on Instagram, including how to leverage their fanbase to monetise their craft

●        AR/VR Africa Metathon – Partnered with Imisi 3D and Black Rhino VR to launch an AR/VR Africa Metathon across Africa, aimed at supporting African XR talent to build innovative solutions

●        Flex Naija – Launched ‘Flex Naija’ – Meta’s first campaign in Africa, inspiring Nigeria’s creators to be amongst the first to flex in the metaverse

●        Digital Literacy Trainings: Trained over 80,000 participants (youth, educators and the general public) through ‘My Digital World’, Meta’s Flagship Digital Literacy Program for responsible and safe use of digital platforms in over 9 countries.