One month into 2024, and it is clear that FX is going to be one of the central topics of the year across the continent.
As the below graphic shows, many African currencies have been battered over the past two years. Needless to say, there is a significant concern about how much more some of these currencies will fall. Hand-in-hand with the currency devaluations, there is a dollar shortage in many countries.
The two major implications of this that we are seeing are:
- Dollar shortages are putting a major crunch on manufacturers and distributors that rely on imports. Businesses have to spend more time scrambling for forex than focusing on growth or even their core business, and the shortages are decreasing factory outputs and product sales across markets.
- Investors are particularly concerned about exchange rate risk, and we see investors focusing on this to a far greater degree as they assess their current pipeline. The vast majority of debt providers are doing hard currency lending, while equity investors are likely to focus on whether or not they can repatriate profits.
While there is a lot of optimism across the markets we work in, the currency situation has the potential to temper growth plans and execution across the continent.