- In Kenya for instance, the shilling has lost about 19 per cent of its value to the dollar, year-to-date, to trade at 138.33 yesterday.
- This has so far pushed up the cost of imports as the country remains a net importer.
Image: PCS
African countries should end reliance on the dollar in trading among themselves and instead embrace local currencies, President William Ruto said on Monday.
This comes in the wake of the recent weakening of most African currencies against major global currencies, with the dollar shortage and high exchange rates pushing up commodity prices.
In Kenya for instance, the shilling has lost about 19 per cent of its value to the dollar, year-to-date, to trade at 138.33 yesterday, pushing up the cost of imports, as the country remains a net importer.
Since early 2020 when it started depreciating, it has lost about 39 per cent, meaning importers would now incur an extra Sh39 on every shilling spent to buy a dollar for imports.
“Although there has been introduction of several regional payment infrastructures in the continent, we lack a single system that seamlessly facilitates trade among our nations, eliminating the obstacles posed by varying currencies,” Ruto said.
“It is imperative that we proactively seek a resolution to the disparities in currencies and the consequential impediments it poses.”
He spoke at the third Kenya International Investment Conference in Nairobi that seeks to engage the African private sector on the African continental free trade area (AfCFTA).
The President added that without a single payment platform, payment instructions from one African country to another typically passes through several intermediary financial institutions pushing up costs.
Ghana, Cameroon, Egypt, Rwanda and Tanzania are also among those leading the pilot phase.
The move is more likely to benefit Kenya, which is among the pioneers of the free trade initiative since its adoption in March 2018.
Trade in African currencies would help Kenya bridge its balance of payment gap which stood at Sh1.62 trillion as of 2022, according to the 2023 economic survey report by KNBS.
Imports during the year rose by 17.5 per cent to Sh2.5 trillion as earnings from exports of goods grew by 17.4 per cent to Sh873.1 billion.
The growth in total exports was however not sufficient to offset the growth in imports, resulting to the widening of the balance of trade deficit from 1.41 trillion in 2021.
Local currency trading would mean increased exports from Kenya to other African countries as the continent remains the country's biggest export market with goods worth Sh357.7 billion sold within the continent last year.
East African Community accounted for majority of the volumes.
The currency deal could also mean reduced import costs and a boost to the dollar shortage, which could be used to facilitate external import trade.
President Ruto also reiterated the need to tap into the infrastructure demand under the AfCFTA to realise its full potential.
"Lack of efficient transport networks increases the price of goods traded among African countries by 30 to 40 per cent, rendering Africa effectively uncompetitive," Ruto said.
He said bearing in mind that African countries are landlocked and underdeveloped; transport connectivity hampers intra-Africa trade and drives up the cost of imports and exports with regard to other parts of the world.