AFCFTA can solve currency crisis in Africa

The Africa Free Trade Agreement has the potential to solve the currency crisis in Africa, according to Joseph Nnanna, chief economist at the Development Bank of Nigeria.

“If we can trade amongst ourselves (Africa), we’re less dependent on an external currency (the US dollar), thereby strengthening our local currencies and economies as well as lifting households from poverty in tandem. So that is an opportunity ongoing,” Nnanna said at the ongoing annual Africa Business Convention 2023, themed “Africa connected” at the Eko Hotels & Suites.

Data from Bloomberg revealed that in 2022, the Ghanian Cedi was the second weakest currency on the African continent with a year-to-date loss of 38.86 percent to the US dollar, the South African rand fell by 0.21 percent Ytd in 2022, while the Kenyan shilling’s indicative value fell by 0.42 percent Ytd in 2022.

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For Africa’s largest economy, declining oil production and the cost of petrol subsidy exacerbated a growing economic and currency crisis, with the Nigerian currency (Naira) falling by 0.89 percent year to date in 2022. The weakness in African currencies buttresses the need to foster trade among economies.

Also speaking at the event, Peter Quartey, Institute of Statistical, Social and Economic Research (ISSER), University of Ghana said Nigeria has structural rigidity in its system, adding that “we need to solve the problem of the high cost of transportation between amongst African countries.”

“The options to trade are quite limited in some respects. So we could diversify and identify where the niche is. If we’re able to trade amongst ourselves, we add value and likely benefit from traffic entry. We don’t have to treat others to the west and stay the same commodity price,” Quartey said.

Nnanna further called on the need for real investments in rail, and road transportation to connect the markets within Africa, thereby reducing the cost of transportation.