Faith Nyasuguta
Across Africa, economic challenges extend beyond currency instability, with significant consequences for nations grappling with underperforming currencies.
Weak currencies impact various facets of these countries’ interactions in the global economy, hindering sustainable growth opportunities and affecting local communities.
A recent analysis by Bloomberg, as featured in Business Day, unveiled a concerning trend – seven out of the ten worst-performing currencies in 2023 were African. The Nigerian Naira took the lead, experiencing a staggering 55% depreciation against the US dollar, marking 2023 as its worst year since 1999.
The sharp decline of the Naira was attributed to the decision of Nigeria’s new administration, led by President Bola Tinubu, to float the currency. In June 2023, the Central Bank of Nigeria (CBN) officially removed the rate cap on the Naira at the Investor’s and Exporters’ (I&E) Window of the foreign exchange market.
Additionally, the president eliminated fuel subsidies, a policy move that contributed to soaring inflation and further devaluation of the national currency.
Kenya faced a similar predicament as its Shilling experienced its most substantial drop in three decades. Rising interest rates in major economies, reduced foreign-exchange inflows from exports, and offshore investors decreasing their holdings were identified as contributing factors.
Kenya’s central bank responded by raising its benchmark interest rate, emphasizing the need to support the struggling Shilling.
Both Nigeria and Kenya witnessed adverse economic effects stemming from policy decisions such as the removal of fuel subsidies and tax increases. In Nigeria, the Naira’s depreciation prompted concerns about rising prices of imported goods, affecting sectors like agriculture, electronics, and automobiles.
The repercussions of weak currencies extend beyond individual nations, encompassing shared challenges faced by many African countries. The multifaceted issues include inflation, political instability, diminished foreign direct investments, abrupt policy changes, and volatile capital flows. These interconnected challenges underscore the complexity of economic landscapes across the continent.
The analysis sheds light on the urgent need for strategic economic measures, transparent policies, and regional collaboration to address the root causes of currency depreciation.
As African nations navigate these difficulties, fostering stability and implementing sound economic strategies become crucial elements in promoting sustained growth and resilience against global economic fluctuations.
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