Atta Africa Financial Update

Executive summary for the week: Zimbabwe's surrogate currency

Zimbabwe’s President Robert Mugabe has issued regulations providing the legal basis for the issuance of ‘bond notes,’ a surrogate currency his government hopes will ease a biting US dollar bank note shortage, according to a government notice issued late Monday.

Zimbabwe informally dollarised in 2009 to tame hyperinflation which peaked at 500 billion at the height of a political and economic crisis in 2008, but has experienced an acute shortage of US dollar notes since the beginning of the year, blamed on the country’s ever widening trade gap, among other factors.

According to an extraordinary government gazette, Mugabe used the Presidential Powers (Temporary Measures) Act to amend the Reserve Bank of Zimbabwe Act to designate bond notes as legal tender. A bond note unit (dollar) will trade at par with one US dollar, according to the notice. The central bank is now expected to bring the local currency into circulation this week.

The central bank says the surrogate currency will be backed by a US$200 million facility provided by the African Export Import bank.

After the hyperinflation crisis which wiped savings and deepened poverty, the central bank’s plans to issue a local currency have raised fears that the Mugabe government, which projects a US$1 billion budget deficit this year (7 percent of GDP and 25 percent of the 2016 budget) will once again stoke inflation by resorting to printing money.

The plans have triggered some legal challenges and a series of street protests, including possibly the biggest anti-Mugabe demonstration in a decade, held on July 6.

Fact: Zimbabwe experienced 200 million percent inflation in 2008

Russian firm to build nuclear reactor in Tanzania

  • Russia’s nuclear energy agency has signed agreements with Tanzania and Uganda, only a few months after inking similar deals with Kenya, Zambia, Ghana and Nigeria, signalling Russia’s intention to become Africa’s key partner in nuclear development
  • The agency, Rosatom, said it was planning to start developing nuclear energy in Tanzania following discovery of uranium and because of the mining activities in southern Tanzania
  • According to the AF-Consult Switzerland report on Uganda’s nuclear ambitions, the country will require to invest US$26 billion to have an installed capacity of 4300 MW from nuclear energy by 2040

Nigeria to sell US$500 million forex forwards to meet manufacturer demand

  • The Central Bank of Nigeria will this week sell US$500 million through FX forwards to banks, for onward sales to their customers
  • The move would cater to some of the FX demand of manufacturers that want to import plants and machinery, raw materials and agriculture equipment
  • To maintain its pledge to continue to support critical sectors of the economy, the Central Bank a fortnight ago allocated US$314 million to banks to sell to their customers in the manufacturing, aviation and some other critical sectors of the economy through Special Secondary Market Intervention Retail Sales

Vumatel to acquire Fibrehoods

  • Vumatel, the South African fibre-to-the-home provider, is acquiring competitor Fibrehoods in an undisclosed deal
  • The comany's backers include Investec and Vantage Capital
  • Fibrehoods has been building an aerial fibre network while Vumatel lays trenched fibre