Devaluation has promoted extreme poverty in Africa's MICs
Since 2020, a large number of African nations have seen moderate to significant devaluations of their national currencies. These devaluations, which occurred in African MICs and LICs alike, raise many complex questions.
It would behoove advice-pushers to evaluate the consequences of their previous counselings. Bad advice can be fatal, especially when more poverty has taken hold as a result. (Afolabi Sotunde/Reuters)
Several African MICs in particular have lost large amounts of national wealth due to devaluation. A significant portion of their populace has dropped below the poverty line due to devaluation, and the middle class has lost significant ground. Devaluation has also altered the Gini coefficients of these nations making income inequality an issue of concern.
For several African MICs, devaluation has led their currencies to lose a significant amount of value, in some cases depreciating by over 200 percent from 2020 to 2023.
Savvy rich and middle class Africans in several MICs, upon seeing their purchasing power parity deteriorate early on, didn’t hesitate to convert their savings to hard currencies, and gold. Those that were able to offshore their savings, and to transfer their holdings into hard currency, quickly transferred out what was legally allowable. This behavior was, of course, entirely rational.
By comparison, those that weren’t economically savvy, and took no action, watched their wealth evaporate. Since 2020, they saw their purchasing power parity deteriorate by between 100 to 200 percent.
For those who took corrective action in early 2020, and found alternative stores of income, the majority have prospered. For those who did nothing, their future prospects are that much bleaker.
Devaluation in several African MICs, has also severely reduced real incomes for those paid in local currency. While several African MICs have modestly raised civil service pay, and pensions, since 2020, the purchase power parity of these incomes have been severely reduced. For example, elderly pensioners today who kept their savings in domestic currency, and saw their pensions moderately rise since 2020, would all now be below, or at the poverty line. There are very few pensioners in African MICs, that at today’s exchange rates, are receiving real income of over $2 a day.
Without question, devaluation in African MICs since 2020 has severely altered Gini coefficients. These devaluations have pushed more African MICs into becoming nations of haves and have nots.
In the instances when one particular IFI required African MICs to devalue as a condition for further financing, did they understand what this meant for tens of millions of Africans? Did they understand how many Africans would fall below the poverty line? If they did, are they fighting extreme poverty, or promoting it?
For those still peddling economic advice to Africa’s MICs, it would best to evaluate the consequences of the advice already provided, before providing further guidance. Bad advice can be just as fatal to the adviser, especially when more extreme poverty has taken hold as a result.