In September 2023, Nigeria was hopeful. Emirates Airlines agreed to resume direct flights to the country after an 11-month pause. The reason behind this break was a dire one: $85 million in revenues had been trapped in Nigeria due to a severe currency crisis. Emirates was not alone, Etihad Airlines also pulled out. Global carriers had a staggering $812 million stuck in Nigeria in late 2022, according to the International Air Transport Association.
This airline crisis was just the tip of the iceberg. The reality is that Africa has become a hot zone of suffering for multinational corporations. The main culprit? Weak local currencies. These currencies made repatriating profits a nightmare. Assets held by local subsidiaries lost value. Unlike Emirates, which chose to make noise, most multinationals packed up and left without much fuss. Others, unable to leave entirely, have scaled back their operations, hoping to minimise their losses.
Irmgard Erasmus, a senior economist at Oxford Economics, said, “The high cost of doing business, bureaucratic red tape, and the looming risk of further currency devaluations have rendered operations in Africa unprofitable.”
Across Africa, the currency crisis is spreading. South Africa, Nigeria, Egypt, Kenya, Ghana, Zambia, Ethiopia, and Zimbabwe are all facing the brunt of it. Egypt’s pound, for example, has lost over two-thirds of its value since early 2022. In 2023, Nigeria’s naira was ranked among the worst-performing currencies globally, having depreciated by 49.4%.
Zimbabwe has fared no better. Its dollar has lost over 70% of its value on the official market since January 2024. Traders have abandoned it, favouring US dollars. In response, the Reserve Bank of Zimbabwe launched a new currency, the ZiG, backed by gold reserves and foreign currencies. But for ordinary citizens, the shift has not brought immediate relief. Many are struggling with rising prices and diminishing purchasing power, with basic commodities slipping further out of reach.
Out of Africa
The currency crisis has led to widespread suffering and sleepless nights for policymakers. For foreign companies, the impact has been devastating. Many have found it impossible to endure the economic pain. UK’s financial conglomerate Atlas Mara cited currency volatility as a key factor in its 2021 decision to exit Africa, reporting a staggering $145 million decline in the dollar value of its assets due to depreciating local currencies.
Barclays Bank, Procter & Gamble, GlaxoSmithKline, Cadbury, Eveready, Bayer, Nestle, and Unilever have all exited or drastically scaled down operations. Although other factors have been involved, weak currencies were the common denominator.
Foreign investors in Africa’s capital markets are also feeling the pain. The Johannesburg Stock Exchange saw $53 billion in foreign investment outflows over the past eight years. In 2023 alone, equities worth $8.3 billion were dumped. In Kenya, the situation has been similar: foreign investors sold $17 million worth of stocks in the first quarter of 2024.
The biggest hit for investors is not just repatriation issues; it’s the conversion loss when weak African currencies are exchanged for dollars or pounds.
Jonathan Munemo, an economics professor at Salisbury University, said, “The exits and outflows are a sign of how quickly foreign investors will flee when a cratering currency shakes their confidence.”
The causes of this crisis are both internal and external. Structural imbalances within countries are coupled with pressures from the outside. Tight global funding conditions, geopolitical risks, and aggressive rate hikes by the United States Federal Reserve since March 2022 have all played a role. The result? The dollar soared, and African currencies dived. Many countries are stuck in a cycle of dependency, reliant on external borrowing to stay afloat, with each new loan increasing vulnerability.
Turning up the heat
Global food and energy prices soared due to the war in Ukraine, adding more fuel to Africa’s inflation fire. High debt loads meant countries spent dwindling revenues on costly debt repayments. About 40% of Africa’s public debt is external, and over 60% is in US dollars. Countries like Kenya, burdened with an $82 billion public debt, have faced persistent deficits and shrinking reserves.
Between March 2022 and December 2023, the Kenyan shilling fell by 22% against the dollar. The decline only stopped after Kenya’s government concluded a buyback operation on a maturing $2 billion Eurobond in early 2024.
The broader impact of these conditions has been devastating for ordinary citizens. Inflation has eroded purchasing power, with prices for staples like bread, cooking oil, and fuel surging across the continent. In Ghana, the inflation rate hit 54% in late 2023, and many households have had to make difficult choices: cutting back on meals, delaying healthcare, and even pulling children out of school to save money.
The depreciation of currencies has forced foreign companies to rethink their African investments. Hasty actions by governments to stabilise domestic currencies have, in many cases, made things worse. Risks associated with repatriation are acute, especially in countries with rigid forex regimes. Even in nations with flexible regimes, currency convertibility remains a thorny issue.
Desperation has driven many African governments to take extreme measures. Nigeria’s President Bola Tinubu has pursued reform policies such as unifying exchange rates and allowing market forces to determine the exchange rate. His government aims to raise $10 billion to boost foreign exchange liquidity. These reforms have also included subsidy removal and public sector cost-cutting, moves that have made life tougher for ordinary Nigerians in the short term but aim to restore economic balance in the future.
Egypt, too, has been forced to acknowledge that economic transformation requires painful sacrifices. The country adopted a flexible exchange rate to access an $8 billion IMF bailout. Moreover, it secured $35 billion from the UAE, $7 billion from the European Union, and $6 billion from the World Bank.
These funds eased Egypt’s forex crunch and allowed the pound to float more freely. But the effects on the ground have been mixed; while foreign reserves have stabilised, the impact on inflation and the cost of living has been severe. Many Egyptians are finding it hard to afford necessities like bread and electricity.
Hard road ahead
The efforts to fix structural issues, such as liquidity problems, market distortions, and a lack of transparency in forex markets, have yielded mixed results. Nigeria’s naira took a turn for the better in early 2024, becoming one of the world’s best-performing currencies, rising 12% in April after a 14% rise in March, according to Goldman Sachs.
However, it’s a hard road ahead. Many African countries are willing to accept tough measures for long-term currency stability. Ethiopia, for instance, still clings to a rigid forex regime. As a result, foreign interest in Ethiopia’s ambitious privatisation and liberalisation plans remains lukewarm.
The government has tried to incentivise investment, in September 2023, the National Bank of Ethiopia approved offshore accounts for strategic investors, making it easier for them to manage their funds and guaranteeing currency convertibility for dividends and loans.
Despite these initiatives, progress has been slow. Ethiopia’s economy remains under pressure, and the reluctance to fully open up its forex market is holding back potential growth. Businesses continue to struggle with access to foreign currency, which has hindered imports of essential goods and stunted industrial activity. Meanwhile, inflation in Ethiopia climbed to 30% by early 2024, driven by rising food prices and a depreciating birr.
The parallel forex market is thriving across Africa. In some countries, it’s a lifeline, offering better rates than official exchanges. While the black market may provide a crucial source of foreign exchange, it also undermines stability.
When restrictions are imposed to stabilise exchange rates, companies and individuals look for ways around them. This fuels black market activity.
That entanglement with the dollar, and other hard currencies, has caused tremendous suffering for Africa. This is why leaders, including Kenya’s William Ruto, are calling for de-dollarisation and the development of local currency debt markets. There is a belief that advanced economies, in pursuit of stability, often ignore how their actions create havoc for developing nations. Borrowing in their currencies would shield African nations from volatile exchange rates and the impact of rising global interest rates. But this is easier said than done.
A lack of deep financial markets, political instability, and the sheer scale of existing foreign-denominated debt make de-dollarisation a daunting task. Still, some progress is being made. In 2024, Nigeria announced plans to issue more bonds in naira rather than in dollars, attempting to wean itself off foreign dependency. Ghana is also exploring options to tap into domestic capital markets to finance public projects.
Moving forward
To address this crisis, Africa will need support and must continue demonstrating the resilience it has always shown. Leaders must make tough decisions, often unpopular ones, to bring stability. Citizens must keep adapting, keep working, and keep believing that better times will come. And the rest of the world? It must not look away. Africa’s struggle is a shared challenge, one that demands a collective response.
International support must go beyond loans and aid. There is a need for technology transfer, capacity building, and fairer trade practices that allow African economies to flourish. The international community must help create an environment where African nations can stand on their own, reduce their debt burden, and build resilient economies.
Africa’s currencies may be shaky, but its spirit remains unbroken. It is this resilience that will ultimately prevail, because it always has. Within the hardship lies an opportunity for change, a chance for a more balanced and just global economy, where no nation is so vulnerable to another’s economic whims.
These nations are now taking steps to boost regional trade and reduce dependency on foreign goods. The African Continental Free Trade Area (AfCFTA), launched in 2021, aims to create the largest free trade area in the world by connecting over 1.3 billion people. This initiative could be a game-changer, reducing reliance on external markets and fostering intra-continental economic resilience.
However, for AfCFTA to fulfil its promise, political will and infrastructure development must align to remove trade barriers and streamline customs processes.
If successful, such initiatives could allow African economies to diversify, boosting manufacturing and value-added services that have long lagged. For now, Africa remains at a crossroads, one path leads to deeper crisis and greater dependency, while the other points toward sustainable development and self-sufficiency. The choice will depend on the decisions made by its leaders and the support provided by the global community.