Nigeria is facing a historic foreign exchange (FX) crisis but this problem is not unique to Africa’s biggest economy as findings showed three other African countries have also suffered a similar fate.
Several economic and political factors, such as inflation, government instability, reduced foreign direct investment (FDI), and fluctuating capital flows, have been associated with the weakness of some other African currencies.
The naira has been on a steady decline since the Central Bank of Nigeria (CBN) floated it in June 2023, collapsing all the segments in the FX market into the Investor’s and Exporters’ Window. It depreciated to as low as 1,534.39 per dollar last Monday at the Nigerian Autonomous Foreign Exchange Market.
Although at the time of writing this story on Thursday, the shilling was up almost eight percent, according to LSEG data, which was fuelled by foreign inflows into Kenyan domestic debt of $2 billion Eurobond maturing in June.
Egypt
In December 2022, the International Monetary Fund approved a $3 billion loan for Egypt in exchange for several economic reforms including a move to a flexible exchange rate to stablise its currency.
The dollar exchange rate was more than 70 pounds in the black market over the past few days, compared to 31 pounds in the official market, with a 130 percent gap between the two rates. On Sunday, the exchange rate in the black market fell to less than 60 pounds, bridging the gap to 100 percent, but still maintaining confusion and chaos in Egypt’s currency market.
Factors that contributed to the currency devaluation included the scarcity of foreign currency; the government’s inability to provide dollar bills; traders’ tendency to speculate on prices of dollars, gold, and properties; some food suppliers’ tendencies to stockpile basic commodities to make more profits, and some people stockpiling on basic commodities for fear of a rise in prices or decrease in supply.
Egypt’s economy was hit hard after Russia’s invasion of Ukraine in February 2022 unsettled global investors and led them to pull billions out of the North African country.
The war sent wheat prices spiralling – heavily affecting Egypt, one of the world’s largest grain importers, and piling pressure on its foreign currency reserves.
Currently, there are limits to how much money can be withdrawn from banks and ATMs, whether in dollar bills or Egyptian pound.
As a result of the dollar volatility, prices of gold, iron, electrical appliances, and other commodities have experienced record rises.
Although Egypt’s inflation slowed to 29.8 percent in January 2024 from 33.7 percent in December, it remains well above the upper limit of the central bank’s target range of 5-9 percent.
