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Egyptian pound, naira, rand, cedi… African currencies in the eye of a storm - THE AFRICA REPORT

APRIL 22, 2024

In recent months, 23 of the African continent’s currencies have hit all-time lows against the US dollar – the consequences range from very high inflation to falling investment. What has caused it, and what are the implications?

Since 2023, most African currencies have been falling against the United States dollar: the Egyptian pound, the Nigerian naira, the rand, the Ghanaian cedi, the Congolese franc, the Kenyan shilling… In all, 23 of the continent’s currencies have hit all-time lows against the dollar in recent months.

In recent years, the Covid-19 crisis and the war in Ukraine have led to a breakdown in supply chains and global inflation. To limit the resulting rise in prices, the US Federal Reserve has raised interest rates, causing the dollar to rise and, in turn, weakening African currencies.

The situation is particularly worrying in Nigeria. On 5 April, it took 1,267 naira to buy a dollar, compared with 600 in June 2023 and 450 a year ago. In the second instalment of our series on the collapse of African currencies, experts examine the likelihood of a scenario similar to that experienced by Zimbabwe, which had to bid goodbye to its own currency in 2009 in favour of the US dollar.

Nestlé weighed down by foreign exchange losses

This situation is not without consequences for investments. Several multinationals, including MTN, Nestlé and Nigerian Breweries, have posted record losses for 2023, weighed down by currency losses. Some have even decided to leave Nigeria, such as GSK and Procter & Gamble. By comparison, the countries of the CFA franc zone in West and Central Africa are islands of monetary stability. Is this enough to benefit from a redirection of investment? We deal with this question in the fourth instalment in our series.

Monetary instability in Ghana and Nigeria could also jeopardise the launch of the Economic Community of West African States (ECOWAS) currency, scheduled for 2027. To launch the eco, several “convergence criteria” must be met: a budget deficit of less than 3% of GDP, inflation limited to 10% and a debt of less than 70% of GDP. But those are a long way from being met, as our third instalment explains. Finally, several African countries are redoubling their ingenuity to protect their currencies from external shocks. But how successful have these attempts been?


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