Africa’s Foreign Currency Dependence Costs USD 5 Billion Annually
Africa’s heavy reliance on foreign currencies such as the U.S. dollar and euro is draining its economies, increasing financial instability, and stifling growth. With essential imports, including fuel and machinery, priced in these currencies, fluctuations in their value directly escalate costs, driving inflation and widening trade deficits.
A 2024 report by the United Nations Conference on Trade and Development (UNCTAD) revealed that currency volatility particularly impacts small businesses reliant on foreign currency transactions. Energy dependency further compounds the challenge for African economies.
Speaking at the 57th session of the ECA Conference of African Ministers of Finance, Planning, and Economic Development in Addis Ababa, Dr. Melaku Geboye Desta, Coordinator of the African Trade Policy Centre (ATPC), stated, “By removing non-African currencies as intermediaries and eliminating the costs associated with currency conversion and reconversion, we can significantly reduce transaction costs. This will make trade cheaper, more efficient, and highly competitive.”
Dr. Melaku emphasized that Africa’s dependence on foreign currencies costs the continent approximately USD 5 billion annually, citing data from Afreximbank. He highlighted the Pan-African Payment and Settlement System (PAPSS) as an innovative solution developed to address this issue. PAPSS allows for direct clearing of transactions between African countries, bypassing the need for an intermediary currency.
“With PAPSS, there are vast opportunities to cut transaction costs, speed up trade, and make intra-African trade more competitive,” Dr. Melaku added.
Supported by 15 central banks, PAPSS is set to launch an African currency market platform later this year. The initiative aims to facilitate direct exchanges between local currencies, eliminating the need for intermediate currencies like the U.S. dollar and strengthening Africa’s financial independence.
Additional Source: Ethiopian Business Review
