A weak currency can have significant consequences for an African economy, driving up the cost of imports, stoking inflation and increasing expenditure for both governments and businesses.
Although currency depreciation can, under certain circumstances, enhance export competitiveness, many African economies remain heavily dependent on imports of fuel, machinery, medicines and food. In this context, a loss of value in the national currency represents a serious economic challenge.
The effects of this pressure are already being felt across several countries. In South Africa, for example, the rand fell to its lowest level against the US dollar since April after the central bank decided to hold its benchmark interest rate unchanged.
At the same time, a Reuters poll of currency traders indicated that several African currencies — including Nigeria’s naira, Ghana’s cedi and Uganda’s shilling — could remain under pressure due to rising demand for dollars and higher international oil prices, both of which push up import costs.
Currency depreciation also tends to feed inflation. Because a large share of consumer goods and production inputs are sourced abroad, businesses and consumers end up paying more for products priced in dollars or euros.
The impact is felt across food prices, fuel, transport and other essential goods. Meanwhile, companies that rely on imported equipment, raw materials and spare parts face higher operating costs — a burden that falls particularly hard on sectors such as manufacturing, aviation, logistics and trade.
Small and medium-sized enterprises are, as a rule, the most vulnerable, given their narrow profit margins and limited capacity to absorb rising operational costs.
Based on data from the Forbes currency calculator, the following were the African countries with the weakest currencies in July.
Source: Diário Económico
Original article: https://www.diarioeconomico.co.mz/?p=525574
