Introduction
African currencies have been under pressure over the last five years due to several factors, including the COVID-19 pandemic, rising debt, geopolitical tensions, and a tight global interest rate environment. As inflation surged, central banks worldwide rapidly raised interest rates from near-zero to multi-year highs, drawing investors toward more stable securities in advanced economies. For example, between 2019 and 2024, the South African rand experienced its sharpest annual depreciation in 2021 (8.35%) and 2023 (8.14%). These were due to the spillover effects of the external shocks in 2020 and 2022 that negatively impacted the currency’s performance.
In 2024, African currencies such as the Egyptian pound and Nigerian naira were also devalued as monetary authorities aimed to liberalise exchange rate markets, reduce arbitrage opportunities, anchor exchange rate expectations, and attract investment inflows. So far in 2024, the Egyptian pound and Nigerian naira have shed 45.55% and 36.46%, respectively, significantly underperforming their
South African rand
On average, we predict the South African rand to depreciate by 2% each year from 2025 until 2029. This annual average depreciation rate outperforms the previous five years when the rand lost an average of 6% yearly. While the projected depreciation suggests a marginal loss in value for investments denominated in rand when converted to foreign currencies, an average annual loss of 2% over five years is not severe. It indicates relative stability in the rand’s performance over the medium term.
The rand is expected to outperform other African currencies tracked by Stears, bolstered by growth in key sectors such as mining, construction, manufacturing, and energy. These sectors will benefit from improved power supply, enhancing South Africa’s economic output. Additionally, foreign direct investment (FDI) is set to rebound in industries like consumer retail, energy, and technology. After FDI fell sharply from $40.22 billion in 2021 to $5.2 billion in 2023, we anticipate a recovery driven by a stable policy environment, particularly under the Government of National Unity coalition (GNU).
This sectoral growth and increasing investor interest highlight promising opportunities in South Africa, allowing investors to identify high-growth companies poised to benefit from these positive trends.
Financial and capital market stability, supported by prudent monetary policies to manage inflation and the currency, also plays a critical role in maintaining the rand’s stability over the forecast period. However, key risks include potential political instability leading up to the 2028/2029 elections and a reversal of global monetary easing, which could strengthen the dollar and potentially reverse earlier gains for the rand.
Egyptian pound
Following Egypt’s near 40% currency devaluation in March 2024, the Egyptian pound has remained under pressure, a trend we expect to persist over the medium term.
Our analysis factors in country risk premiums, underpinned by the lingering effects of Egypt's latest foreign exchange rate market reforms and regional tensions. The impact of the risk premium is more drastic in the earlier years of the forecast. This is because the country is under the Extended Credit Facility (ECF) program with the IMF, which will last until 2026/2027, and the Egyptian government is expected to keep phasing out subsidies on regulated goods to expand fiscal space during the period.
Positively, on an annual basis, we expect the depreciation rate of the Egyptian pound to slow down later in the forecast period, reflecting the positive impact of consistent capital inflows into the country from bilateral and multilateral sources, including $8 billion from the IMF and $35 billion from the UAE.
On average, the annual depreciation average (2025-2029) is 7.94%, better than the 13.99% it averaged over the five years prior. Specifically, our analysis shows a 7.61% and 5.52% annual depreciation in 2028 and 2029, contrasting with a 9.31% and 11.43% loss in 2026 and 2027. The slower depreciation trend toward the end of the forecast period shows a gradual return to Egypt’s currency depreciation as far back as 2015 (8.33%). This means there will likely be some reprieve for the currency in the longer term, beyond our 5Y forecast period, potentially benefiting long-term investors.
The expectation of a favourable business environment, as monetary authorities maintain transparency in the foreign exchange market by preventing the reintroduction of capital control measures, will also offer some support to the currency.
For investors, Egypt’s currency dynamics signal both challenges and opportunities for portfolio companies; while phasing out subsidies could lead to higher operational costs, the commitment to a transparent forex market will likely enhance investment predictability. Significant risks that could alter our outlook include a fallout of the reforms, possibly due to public backlash like we have witnessed recently with Nigeria and Kenya, and the escalation of the Middle East tensions that could make Egypt less appetising for long-term investments.
Nigerian naira
Our naira forecast has been significantly revised to reflect the evolving macroeconomic landscape, which is characterised by elevated inflation risks, fiscal policy uncertainty, social tensions, weak investor sentiment, debt sustainability concerns, and sluggish output growth. From the initial projection of crossing the ₦1,500/$ mark by 2028, we now predict that the naira’s official rate will surpass ₦2,000/$ by 2027. Notably, the naira’s annual average depreciation rate over the next five years (10.29%) will be slower than 15.61% five years prior.
Our initial positive outlook on the exchange rate performance was driven by the expectation of investment-friendly policies under President Tinubu, which were anticipated to spur growth. However, recent trends—including recurrent government spending priorities reflected in the 2023 supplementary budget, rising debt, petrol pricing and subsidy issues, and insufficient long-term focus on addressing food security threats—have prompted us to revise our forecast.
A significant country risk we factored in our analysis is the potential escalation of Nigeria’s debt situation. We anticipate the gross public debt (% of GDP) surpassing the 50% IMF threshold amid weak government revenue due to sluggish oil production and export earnings, leading to a credit rating downgrade over the forecast period. This downgrade will negatively impact the currency’s performance, offsetting any gains that could emanate from a weaker US dollar as the global monetary policy environment is expected to loosen over the 5Y forecast timeframe.
Notably, we foresee short-term relief for the naira due to recent developments, including a stronger commitment to orthodox monetary policy. Since liberalising the foreign exchange market and the policy shift in May 2023, foreign portfolio investments have nearly tripled YTD, indicating rising but cautious investor appetite.
However, until we see more consolidated fiscal efforts addressing structural issues, such as insecurity hindering productivity in the industrial and agricultural sectors, increased gains from the oil and gas sector translating to substantial forex inflows, and a reduction in living costs through improved fuel supply, we are unlikely to revise our projections for the naira soon. Additionally, more significant government spending in critical sectors like education and health, aimed at boosting socio-economic development, is essential for a sustainable recovery in investor confidence that will attract more stable capital inflows to support the currency.
In the meantime, we still expect currency risks to impact companies' operating expenses and negatively impact investors' portfolio performance. Forex supply challenges will continue to outweigh demand, driving price fluctuations.
We will reassess and consider a more favourable outlook for the naira if oil production consistently exceeds the OPEC+ benchmark of 1.5 million barrels per day (mmbpd), if the capital importation mix shifts towards more stable foreign direct investments (FDIs), and if government spending becomes more impactful, with a positive multiplier effect on the real sectors of the economy to boost productivity.
Ghanian cedi
Ghana's currency is expected to depreciate by 20.29% between 2025 and 2029, marking the fourth-highest 5Y depreciation after Nigeria, Egypt, and Ethiopia. This downward trend reflects the country’s ongoing fiscal challenges, particularly the debt situation.
Ghana’s 36-month Extended Credit Facility (ECF) program, initiated to address the debt crisis following its 2022 default, will conclude in 2027—two years before the forecast period ends. The first significant principal repayment is due in July 2029, with another one scheduled for 2035. The gap between these repayment dates heightens fiscal risks, especially given Ghana’s track record and tepid export earnings from cocoa, hampered by domestic challenges.
We expect these fiscal concerns to keep investors cautious about more stable investment inflows into the Ghanaian economy over the medium term, which will negatively impact currency performance. We will likely see improvements compared to 2022 when the cedi lost nearly 30% due to the debt default, but they will be gradual.
From our analysis, the annual depreciation rate in the Ghanaian cedi will likely slow down, underscoring a slow but steady move towards a stable depreciation path in the long term that will likely be positive for investors factoring currency risk on their portfolio companies. For instance, our analysis shows a 5.56% and 5.57% currency loss in 2026 and 2029, respectively, levels not seen since 2017 and 2021.
Apart from the debt sustainability risk we priced in the cedi, we also captured the sustained impact of the December 2024 presidential elections on the currency’s performance. The outcome of the elections, which we anticipate to be highly contested, will also play a crucial role in shaping the short-term macroeconomic environment.
Recent polls suggest that the principal opposition party, the National Democratic Congress (NDC), is gaining ground and could potentially displace the incumbent President Nana Akufo-Addo of the New Patriotic Party (NPP). Following the decline in public trust in the ruling party and the track record of the opposition party flag bearer and former president (2017-2017), John Dramani Mahama, an opposition win could gradually stabilise Ghana’s economy. If this scenario occurs, these gains are not expected until later in the forecast period (2028-2029), just before another election cycle that could disrupt progress.
We will likely revise Ghana’s currency outlook upwards if the December 2024 elections are free and fair, reflecting the people's will without instability or violence. Additionally, significant improvements in government revenue, particularly from gold and cocoa export earnings, which are crucial in cushioning the country’s debt obligations, will also support the upward revision.
Kenyan shilling
Following the 2024 Finance Bill fallout, the Kenyan shilling, which had appreciated by 21.57% between January and June 2024, has since come under pressure. Concerns over debt sustainability and constrained government revenue have further downgraded Kenya’s credit rating, pushing it closer to junk status (Moody’s: Caa1, Fitch and S &P: B-).
Looking ahead, we anticipate an 11.95% depreciation of the Kenyan shilling between 2025 and 2029, driven by weak investor sentiment, particularly as the country approaches the maturities of its Eurobonds: $900 million (7% coupon) due in 2027 and $1 billion (7.25% coupon) due in 2028. We considered the potential for market uncertainty to surpass the levels experienced in 2023 when concerns spiked ahead of Kenya’s $2 billion Eurobond repayment in 2024.
In response to these challenges, we expect the Kenyan government to rely on multilateral and bilateral funding and syndicated loans to meet these debt obligations and bolster its foreign reserves. While we expect these fundings to pull through to ensure Kenya does not default on its obligations, debt risks remain significant, and the market will likely continue favouring long dollar positions.
Additionally, while the debt environment may not deter new investments in Kenya, especially in sectors like technology, the currency risks and potential macroeconomic uncertainty will pose significant challenges for existing investments. As the Eurobond maturities coincide with the lead-up to the election season, investors are likely to strategically plan their exits during the forecast period to mitigate exposure to currency fluctuations and economic volatility risks.
Our forecasts will be updated if the Kenyan government addresses its revenue challenges without inciting disruptive social tensions and meets its maturing debt obligations without significantly drawing down its reserves below the $7-8 billion thresholds (~4 months of import cover).
Ethiopian birr
Ethiopia has initiated comprehensive macroeconomic reforms, including liberalising its foreign exchange market, to unlock about $16.6 billion in multilateral funding over the next three years. Since these reforms were implemented in July 2024, the birr has depreciated by 51.10%, quickly converging with the parallel market rate, which trades at Br111-120/$. In this report, we forecasted the birr’s fair value at Br95/$.
The liberalisation of the forex market and other expansive reforms are expected to drive a sharp depreciation of the Ethiopian birr until 2025, when we predict an annual depreciation of 11.10%, down from about 51% in 2024. We also anticipate the pace of depreciation to slow even further to 10.30% in 2027 and 5.36% in 2028, mainly due to the positive impact of the three-year (2024-2027) grant and bailout funds provided by the IMF and World Bank. These inflows are expected to stabilise the forex market temporarily, offering some respite to the birr’s decline.
Beyond 2027, however, our forecasts indicate a much faster depreciation of the birr towards 2029. This trend is anchored to the renewed fiscal concerns and the lingering structural challenges facing Ethiopia’s economy, especially port challenges that will likely impact the country’s trade.
The initial depreciation of the birr will likely enhance Ethiopia’s trade competitiveness, benefiting critical sectors like agriculture, contributing about 80% to Ethiopia’s export earnings. However, the rapid increase in import costs, particularly for essential goods and inputs, exacerbates inflationary pressures and erodes the benefits of a more competitive export sector.
Ethiopia’s economic landscape presents both opportunities and challenges. The initial phase of currency depreciation creates attractive entry points for investments, particularly in export-oriented sectors that could benefit from enhanced trade competitiveness. The long-term outlook is more complex. As the birr is expected to depreciate more sharply towards 2028 and 2029, currency risk will be a significant concern.
Fundamental changes to our outlook in the coming months will largely depend on Ethiopia's progress in strengthening trade relations with neighbouring countries like Somalia and Somaliland and maintaining social stability, particularly after the 2026 parliamentary elections.
Rwandan franc
The Rwandan franc has experienced significant depreciation against the US dollar since 2022, a trend observed in many African countries due to widening trade deficits and an unfavourable global interest rate environment. The franc first came under severe pressure in 2020 when lockdown measures dramatically reduced tourism dollar revenues, which contribute about 10% to Rwanda’s GDP. This initial shock was compounded by the rise in geopolitical tensions in 2022, weakening the currency.
More recently, political uncertainty surrounding the July 2024 presidential elections also negatively impacted the franc. Concerns about a flawed democracy have grown as President Kagame’s actions against the opposition have raised domestic and international alarms.
Our forecasts account for these ongoing challenges, including a potential increase in political risks in the latter years of the forecast period. We anticipate that political risks will escalate if President Kagame decides to run again in 2028/2029, coupled with the emergence of stronger opposition parties. Our analysis predicts faster annual depreciation rates from 1.91% in 2025 to 2.76% in 2028, towards the end of the forecast period when the next elections will likely occur.
This heightened political uncertainty will likely exert further downward pressure on the Rwandan franc, undermining economic stability and growth prospects. The depreciation of the Rwandan franc and the rising political risks present substantial risks to investment.
Noteworthy is that the Rwandan franc's annual average depreciation over the forecast period is 2.55%, which is relatively better than the 6.87% performance over the last five years (2019-2023). This suggests that the Rwandan franc will likely start recovering from the recent 2020, 2022, and 2024 shocks within our forecast period, eventually returning to its historical depreciation trend. This indicates a degree of stability for the Rwandan franc over the long term.
Reduced political uncertainty ahead of possible 2029 elections will be a major factor in revising our forecast for the Rwandan franc's performance.
