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Africa’s third-best performing currency may have more to run

Uganda’s shilling is benefiting from forex flows.
An employee of Nakumatt retail store in Nairobi counts a bundle of 1 000 Kenyan Shillings bundle. Image: Bloomberg

Uganda’s shilling, Africa’s third-best performing currency this year, gained for a fourth straight day on Tuesday, buoyed by dollar inflows from coffee exporters and foreign investors chasing yield.

“We are seeing more dollar receipts, especially from coffee,” said Benoni Okwenje, general manager for financial markets at Kampala-based Centenary Bank Ltd. “We have seen an increase in portfolio investments, which are being attracted to emerging markets. We continue to receive a lot of dollar inflows to non-governmental organizations.”

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The East African nation’s currency gained 0.1% to 3 529.50 against the dollar by 1 p.m. in the capital, Kampala, increasing year-to-date gains to almost 4%, the most on the continent this year after Zambia’s kwacha and Mozambique’s metical, according to data compiled by Bloomberg.

Uganda is Africa’s biggest coffee exporter and shipments climbed to a record in June on better yield from new trees, favorable weather and improved prices, according to the Uganda Coffee Development Authority. Exports in the first 10 months of the season that started Oct. 1 rose 20% year-on-year.

The coronavirus pandemic has hurt economic output from the net importer, resulting in less demand for the greenback, Okwenje said. In addition, the shilling has benefited from the dollar’s general weakness against major global currencies, he said.

The local unit is projected to remain strong to the end of the year as portfolio investors are expected to stay active as economic growth accelerates.

© 2021 Bloomberg

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