Serious Dollar Shortage Crisis
The forex crises have already dealt a huge blow to many economies on the continent. For instance, foreign airlines operating in Nigeria are finding it difficult to repatriate their earnings due to the country’s inability to raise dollars for them. In the same vein, other businesses in the West African countries are struggling to raise dollars to facilitate essential imports. In Kenya, many businesses are also struggling due to dollar scarcity. In the past months, the Kenya Association of Manufacturers has repeatedly raised concerns over the economic risks posed by the country’s worsening dollar scarcity.
The situation is so bad such that the Central Bank of Kenya recently directed commercial banks to ration dollar sales. And the implication of this is that not everyone who needs the currency is able to get it. The constitutions of different African countries require their central banks to maintain external assets in the following forms: bullion or gold coins, foreign short-term treasury bills, bonds, the IMF’s special drawing rights, account balances in foreign banks, etc. Each of these assets must possess a basic feature of liquidity and can easily be converted to either dollar, pound sterling, Euro, or other similar hard currencies.
Is this an opportunity for Africa? One of the factors hindering intra-Africa trade is reliance on third currencies – US dollars, Euros, and the British Pound – for the clearing and settlement of cross-border payments and transactions, which in turn leads to excessive costs and long transaction times. Just recently, on his State visit to Kenya, Zambian President Hakainde Hichilema captured the impact of this obstacle aptly. “… how strange it is that sometimes we (Zambia) trade in goods from Kenya through Europe and vice versa. Really? Does that make sense? Absolutely not,” he told guests at a state banquet hosted by President Uhuru Kenyatta.
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