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Home Business News

See What Is Happening To Two African Countries With The Same Forex Policy As Nigeria

Nairametrics by Nairametrics
February 15, 2016
in Business News
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Currency Disparity Between Official and Blackmarket rates
Currency Disparity Between Official and Blackmarket rates

Nigeria is not alone in the battle against the dollar that is currently ravaging its economy. What is different is how each country is dealing with its own challenges. For Nigeria, the government and the CBN have decided to adopt a policy that restricts the sale of forex to end users, banning items from its forex window and pegging the naira at an artificial rate that many believe is over valued. Due to the dollar scarcity imposed by the CBN, the disparity between the black market rate and the official rate is over 100%.

But Nigeria is not alone is adopting this restrictive policy according to a report from Bloomberg which identified 4 other countries as facing a currency crisis that has widened the difference between the official rates and black market rates.  We focus on the two that are African countries;

Egypt – The Egyptians Pounds has been under severe pressure despite being devalued about twice last year. Unfortunately, despite being devalued, the country has like Nigeria restricted sale of dollars to approved imports and instilled capital controls that have effectively shut out other importers. It is important to note that unlike oil, Egypt’s problems have more to do with the Arab Spring which caused civic unrest and increased activities of terrorist. Thus the tourism industry was severely affected, leading to foreign travelers avoiding the country.

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Angola – Angola like Nigeria is suffering from the effect of the drop in oil prices. The country also heavily relies on oil with over 95% of its revenues coming from sale of crude. The country has even devalued twice in the last one year (24% in 2015 and 15% this year) yet the premium between the official rates and black market rates is as wide as 136%. The obvious reason for this is its currency controls and its decision to hold on to a fixed exchange rate. If it decides to relax controls, its reserves will deplete and if it tried to float its currency inflation will spike and most companies could run of out business. Sounds Familiar?

Apart from adopting similar policies, Nigeria, Egypt and Angola also have leaders with military backgrounds. However, Unlike Buhari and el Sisi, Dos Santos the Angolan President served in the army as a radio transmitter. Bloomberg also reports these two countries are not the only ones adopting the same forex policies similar to that of Nigeria. Uzbekistan and Tajikistan also face similar currency woes amidst the same policy. In Uzbekistan for example, the premium is 110%. It is unlikely that these countries will change their policies any time.

 

 

Nairametrics

Nairametrics

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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Comments 1

  1. Emma says:
    February 15, 2016 at 11:18 pm

    Saudi Arabia too

    Reply

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