Uganda’s Shilling Seen Extending Latest Gains on Fund Inflows

(Bloomberg) --

Uganda's shilling is expected to keep strengthening against the dollar in the short-term, adding to gains of 1.4% in January and 0.3% in December as the flow of foreign funds increase.

The currency, which is the fifth-best performer in Africa so far this year, posted its highest 2022 close of 3,506.86 on Monday.

“It is a combination of low demand and increased dollar inflows,” according to Benoni Okwenje, general manager for financial markets at Kampala-based Centenary Bank Ltd. “Dollar inflows from NGOs are constant while there's been an increase in returns from coffee on higher volumes and better global markets.”

In the past two months, the East African nation's currency benefited from foreign investors channeling funds to government securities, remittances during the Christmas season as well as in January with the reopening of schools, Okwenje said. As the year progresses, demand for the dollar will rise following the opening of the economy, he said.

Uganda, Africa's biggest coffee exporter, saw shipments of the beans in the fourth quarter jump 21% from a year earlier. The pace of the nation's economic growth is seen increasing to 6% in 2022-23, from an estimated 3.8% in the financial year through June, as effects of the coronavirus pandemic ease and demand recovers, according to the Ministry of Finance.

Bigger dollar inflows are expected as Uganda National Oil Co. plans to sign a final investment decision on Feb. 1 that will unlock more than $10 billion investment into a large oil field and pipeline project. The nation is taking a definitive step toward becoming a crude exporter and expects to start production by 2025.

TotalEnergies SE and Cnooc Ltd., along with the East African country's state oil company, are developing projects expected to reach an output of 230,000 barrels a day -- bigger than some OPEC members on the continent.