- Nigeria's Naira plunges 55% against the US dollar in 2023, marking its worst year since 1999.
- The Kenyan Shilling experienced the largest drop in 30 years, attributed to rising interest rates and reduced foreign exchange inflows.
- Common factors contributing to the currency woes include policy changes, and the removal of fuel subsidies.
Beyond economic instability, African nations struggling with underperforming currencies confront a multitude of other difficulties. The drawbacks of weak currencies become evident when these countries negotiate the intricacies of world banking, affecting many aspects of their communities and impeding opportunities for sustainable growth.
While some African nations managed to maintain the integrity of their currencies, a few African nations struggled. As seen in the business publication, Business Day, a chart by Bloomberg, showed the 10 worst-performing currencies of 2023, 7 of which were African.
The chart revealed how much these currencies fell against the US dollar, through last year. The Nigerian Naira (NGN) headed the pack, taking an overwhelming lead with a stunning 55% fall.
An article by Bloomberg detailed this fall, noting that 2023 had been the worst year for the currency since 1999, with no rebound in sight.
As of the time the report was released, the Naira stood at N1,043, per $1 (US dollar). As of Wednesday, however, the naira closed trading at N1035.12/$ on the official Investor and Exporter foreign exchange window.
The steep fall of the Naira is a result of the country’s new administration’s decision led by the president, Bola Tinubu, to float the currency. In June 2023, the Central Bank of Nigeria (CBN) officially confirmed the removal of the rate cap on the naira at the Investor's and Exporters' (I&E) Window of the foreign exchange market.
Additionally, the president had removed fuel subsidies shortly after assuming office in May, as his first official policy, which drove inflation to new highs, and by extension devalued the country’s currency.
Similarly, another article by Bloomberg, revealed that the Kenyan Shilling experienced its largest drop in the past 30 years, “as interest rates in major economies rose, offshore investors reduced their holdings and foreign-exchange inflows from exports declined.”
Kenya's central bank increased its benchmark interest rate on December 5th for the second time since Governor Kamau Thugge took office in June, citing the need to support the country's damaged shilling. “The monetary policy committee increased the rate by 200 basis points to 12.5%, the largest increase since 2011,” the report by Bloomberg reads.
“Outflows by foreign investors on the Nairobi Securities Exchange were 1.18 billion shillings ($7.53 million) in the three months through September, compared with 1.48 billion shillings the previous quarter, according to the markets regulator,” the report adds.
Similar to Nigeria, policies such as the removal of fuel subsidies and the increase of taxes, contributed to the economic challenges faced in the East African country.
In August, Business Insider Africa reported that the Kenyan shilling was under pressure due to some commercial banks in Nairobi already selling US dollars beyond the Sh150 threshold, which spurred a new round of currency-driven price rises on imported goods including fertilizers, electronics, and vehicles.
The disadvantages of poor-performing currencies in African countries are multifaceted and interconnected, most countries on the continent grapple with similar economic complications, as demonstrated by the high level of African representation on such a chart.
Inflation, unstable government, reduced foreign direct investments, drastic policy changes, and unstable capital flows, amongst other issues, have driven the poor performances of the currencies.