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No Holidays for African Currencies

As the currency crisis plaguing Sub-Saharan Africa in 2015 continued through the recent holidays, Nigerians have learned that they can have their naira, but they can’t spend it too. Nigerians saw several restrictions on foreign exchange (“forex”) put in place, limiting what they could do with their naira. Triggered by the dive in oil prices that impacted foreign currency reserves, New Central Bank Governor (“CBG”), Godwin Emefiele, banned the use of forex for the importation of several dozen products in mid 2015. By the holiday season, the annual limit for dollar-denominated ATM transactions dropped from $50,000 to $5,000, after dropping from $150,000 mid-year.

Under directives from the Central Bank, Nigerian banks restricted customers from using their bank cards in foreign exchange transactions during December and January, when many Nigerians travel internationally. For some, the daily spend limit was only $100 a day. Desperate Nigerians resorted to travelling abroad with several bank cards to withdraw forex. The Central Bank discontinued the sale of foreign exchange to Bureau de Change operators in the country in mid-January 2016. Many online payments in foreign currencies remain blocked for Nigerian cardholders and restrictions remain in place for Nigerians looking to send money overseas. In a small reprieve, restrictions on using local cards abroad were removed in January.

The official exchange rate of US dollar to Naira is holding at 199 as President Muhammadu Buhari reaffirms that he will not devalue the currency. Forex restrictions are the government’s preferred alternative to devaluation as President Buhari expressed concerns that Nigeria’s poor would suffer with the rising inflation and costs of such a move.

However, many are critical of President Buhari’s decision. The well-respected former CBG Lamido Sanusi, commented that the drawbacks of this monetary policy outweigh any “dubious benefits.” Currently, the black market exchange rate, called the “parallel market,” has the value of one dollar at 322 N, up from 250 N just at the beginning of January. Though entities such as the IMF have called for more flexible foreign currency policies, there is no indication that official devaluation will occur any time soon. The government is, however, currently in talks with the World Bank seeking a loan package to cover the predicted deficit.

Though Nigeria’s forex restrictions were more unusual, Nigeria is far from alone in its currency troubles.

Zambia. Trouble for its large copper industry put pressure on Zambia’s kwacha in 2015, with copper selling at half its 2012 price. An extreme power shortage also hurt Zambia’s economy in 2015. Zambia resisted turning to the IMF for emergency aid, but by July 2015, the international reserves were only $3.87 billion.  The fate of the Zambian currency has been so uncertain that a national day of prayer was devoted to the struggling kwacha last year. Yet, increased interest amongst foreign investors and purposeful intervention by the Central Bank may show the kwacha making measured gains in 2016.

Ghana. The cedi depreciated 18.75% against the dollar in 2015 in one of the worst dips on the continent, now trading at around GH¢3.9 to a dollar. The dip in oil prices, high levels of imports, and repatriation of foreign currency by multinationals has been blamed for the continuing depreciation. Although the Bank of Ghana believes that depreciation will slow in 2016, others believe that the cedi will lose more value, ending the year between GH¢4.7 and GH¢5.1.

Uganda. Rapidly rising inflation, which the Central Bank believes may reach over 10% this year, is straining the resources of Ugandans. Food prices are on the rise and the value of the shilling is falling; the shilling depreciated something to the tune of 17.5% in 2015. However, most of the depreciation happened prior to September, with the shilling rallying in the latter part of the year. A tightening monetary policy and rise in exports due to the currency depreciation may shape 2016 into a more positive year for the Ugandan shilling and people.

South Africa. After losing over 25% of its value in 2015, the rand hit as low as R17.99 against the US dollar in January 2016. President Jacob Zuma removed the Finance Minister Nhlanhla Nene in December in a move now dubbed “Nenegate,” which led to uncertainty and a noticeable dip in the currency value. Spurred by low commodity prices and weak economic growth, some think that the Rand will sink to 20 ZAR per dollar before even the hike in tourism and the price of gold stems the flow.

Many other Sub-Saharan countries are experiencing similar currency woes as the African continent has not been spared from the currency and economic troubles seen around the world. The above highlighted countries are some of those hit especially hard. The best way for African governments to rein in the currency devaluation and inflation is to implement smart and strict fiscal policies that promote exports, while focusing on an expansion away from the commodity-dependence that has made them vulnerable to sharp currency fluctuations.

Khadijah Robinson is a Law Clerk and attended Harvard Law School. She contributed to this article.

© 2019 Covington & Burling LLP

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