For many African countries, joining BRICS is a given
African economies are reeling from a series of sharp currency devaluations that started in 2020. The size of these devaluations continue to challenge Central Banks across the African continent.
African countries with unpegged currencies cannot manage monetary stability on their own. Their ascent into BRICS is a given. After all, is there an alternative? (NDB)
Nigeria’s naira has depreciated against the dollar by 48.8% since January 2020. Similarly, the Egyptian pound has seen an extended decline that saw it lose 50.1% of its value since 2022. Ghana has done no better, with its cedi depreciating 42.57% against the dollar since January 2020.
In lower income African nations, the Sudanese pound has depreciated against the dollar by 84.9%, Malawi’s kwacha depreciated against the dollar by 39.5%, Sierra Leone’s leone has depreciated against the dollar by 31.2%, all since January 2020.
These significant devaluations are eating away the wealth of millions of Africans, the profits of their investors, worsening foreign debt exposure, and undoing the economic gains of the past decade. The fear now is which less developed African nation will become the next Zimbabwe, and be considered the next junk currency.
The rapid devaluation, in select African MICs, is also drawing parallels to what is happening in Turkey. The Turkish lira lost some 30% of its value against the dollar in 2022, and 44% the year before. The fear is that select African MICs won’t just become the next Turkey, but at worst the next Lebanon. The Lebanese pound has devalued by approximately 90 percent against the dollar since 2020, as it continues to struggle with rampant inflation, capital flight, and the ascent of a large percentage of its populace towards the poverty line.
These rapid currency devaluations, however, have not affected several Western and Central African nations as egregiously. The reason for this is that nations in the West African CFA franc zone (Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo) and the Central African CFA franc zone (Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea and Gabon) have their currencies effectively pegged to the euro.
Given the relative currency stability of West and Central Africa, several African nations with challenged currencies are considering similar pegging schemes. If the US Treasury does not consider novel ways to support major African economies against the onslaught of the dollar, African nations will likely turn to China for support.
In the current state of play, African countries with unpegged currencies, have only their own monetary policy interventions to thwart off further devaluations. Accordingly, they are looking down the barrel of a very big gun. There are too many exogenous factors that will prevent African governments from effectively managing future currency crises on their own.
This is why the ascent of various African countries into the BRICs coalition is now a given. For affected African economies large and small, what is the alternative?