CERI II African Continent and Challenges of Currency Devaluation- Prof Oyedokun.pptx

Being a Paper Presented at the Centre for Economic Reform Initiative Training Held at the Kenya Institute of Monetary Studies, Nairobi from October 14 -16, 2025.

1. African Continent & Challenges of Currency Devaluation - Comparative Advantage in Production as the Way Out Prof. Godwin Emmanuel Oyedokun Professor of Accounting and Financial Development Department of Management & Accounting Faculty of Management and Social Sciences Lead City University, Ibadan, Nigeria Principal Partner; Oyedokun Godwin Emmanuel & Co (Accountants, Tax Practitioners & Forensic Auditors) Being a Paper Presented at the Centre for Economic Reform Initiative Training Held at the Kenya Institute of Monetary Studies, Nairobi from October 14 -16, 2025.

2. ND (Fin), HND (Acct.), BSc. (Acct. Ed), BSc (Acct & Fin.), LLB., LLM, MBA (Acct. & Fin.), MSc. (Acct.), MSc. (Bus & Econs ), Ph.D. (Acct), Ph.D. (Fin), Ph.D. (Forensic Acct.), CFA, CFE, ACS, ACIS, ACIArb (UK), FBR, MNIM, FCA, FCTI, FCIB, FCNA, FCFIP, FCE, FERP, FFAR, FPD-CR, FNIOAIM, FCCrFA , FCCFI, FICA, FCECFI, FTPL, JP Prof. Godwin Emmanuel Oyedokun Professor of Accounting and Financial Development Department of Management & Accounting Faculty of Management and Social Sciences Lead City University, Ibadan, Nigeria Principal Partner; Oyedokun Godwin Emmanuel & Co (Accountants, Tax Practitioners & Forensic Auditors)

3. African Continent & Challenges of Currency Devaluation - Comparative Advantage in Production as the Way Out

4. Contents

5. Introduction Overview of African Currency Systems Diverse exchange rate regimes and the persistent volatility impacting regional economies. Persistent Currency Decline Addressing the sustained devaluation of major currencies like the Naira, Cedi, and Shilling against global standards. Economic Implications The cascading effects, including rising import costs, inflation, and challenging external debt servicing. The search for sustainable solutions through comparative advantage in production .

6. Devaluation vs. Comparative Advantage Currency Devaluation Definition & Purpose Refers to a deliberate downward adjustment of a nation’s currency value relative to foreign currencies, typically aimed at correcting balance of payment deficits and boosting export competitiveness. Policy-driven action under managed exchange rate systems. Difference from Depreciation: Devaluation is policy-driven; Depreciation is market-driven. Long-term Risks: Import inflation, reduced purchasing power, and increased external debt burden. Comparative Advantage in Production Concept Origin: David Ricardo (1817) Nations should specialize in producing goods they can create at a lower opportunity cost than others, optimizing global resource allocation. Africa possesses vast natural resources , labor force , and arable land that remain underutilized. Key Insight: Currency stability must be anchored on productive strength and export diversification , not just financial engineering.

7. Governing Currency Stability 1 Purchasing Power Parity (PPP) Suggests exchange rates adjust to equalize the price of identical goods. For Africa, persistent high inflation necessitates devaluation to restore parity unless production efficiency improves significantly. 2 Balance of Payments Theory Devaluation is intended to correct external imbalances. However, due to inelastic exports (raw commodities) and essential imports, devaluation often worsens the trade balance in African economies. 3 Comparative Advantage Theory Countries should specialize where they are most efficient. Africa's advantage lies in raw inputs and labor, but this remains latent without industrial processing and value addition. 4 African Structural Transformation Theory Promotes growth anchored on value addition, industrial upgrading, and technological innovation . Devaluation without structural change only deepens instability.

8. Overview of Devaluation Trends Across Africa (2020–2025) Magnitude of Depreciation Average currency depreciation across major economies has ranged between 35% and 70% relative to the USD in recent years, fueling inflation often exceeding 25% annually. Key Drivers Overreliance on commodity exports (oil, minerals), high external debt servicing, weak manufacturing bases, policy inconsistencies, and political instability. Regional Impact From the oil dependence in West Africa (Nigeria/Ghana) to public debt issues in East Africa (Kenya/Ethiopia), devaluation is tied to structural weaknesses and external shocks. Outcome Devaluation has rarely resulted in sustained export booms; instead, it has intensified import inflation, capital flight, and fiscal pressures across the continent.

9. Five Core Causes of Currency Devaluation These internal and external pressures combine to undermine the value of African currencies. High Import Dependence Lack of self-sufficiency in essential goods and raw materials. Declining Commodity Prices Over-reliance on primary exports subject to volatile global markets. Fiscal Mismanagement & Debt Large fiscal deficits and external debt denominated in foreign currency. Weak Production Base Low industrial output and limited capacity for value addition. Political Instability Policy inconsistency and insecurity discouraging long-term investment flows.

10. The Unintended Consequences of Currency Devaluation While intended to boost trade, recurrent devaluation creates instability and erodes economic gains. Escalating Inflation Higher costs for imported goods and raw materials drives up the overall cost of living. Reduced Purchasing Power Citizens’ income buys less, impacting poverty levels and domestic consumption . Input Cost Spike Increased cost of essential imported inputs (machinery, fertilizers, pharmaceuticals) stalls local production. Weakened Confidence Investor confidence suffers due to exchange rate volatility and capital flight intensifies.

11. Comparative Advantage: The Way Out The long-term solution to currency instability is shifting focus from financial maneuvers to leveraging inherent productive strengths. Production-Led Competitiveness Move away from devaluation as a policy tool and focus on increasing the volume and quality of domestic output. Export Diversification Utilize natural and human resources to broaden the range of goods and services exported beyond volatile primary commodities. Promote Specialization Identify and invest heavily in sectors where the nation has a clear relative efficiency advantage over competitors. Foster Intra-African Trade Increase regional trade and integration (AfCFTA) to build resilient value chains and reduce reliance on external markets.

12. Africa’s Key Comparative Advantage Sectors Identifying sectors where Africa can achieve lower opportunity costs and drive global competitiveness through specialization and value addition. Sector Comparative Strength Potential for Growth Agriculture Vast arable land, suitable climate for crops like Cocoa, Coffee, and Cassava. Agro-processing , advanced food exports, reducing post-harvest losses. Mining & Energy Rich deposits of Gold, Oil, Lithium, and other critical minerals. Local refining, beneficiation (processing raw minerals domestically), and renewable energy production. Manufacturing Large, youthful labor force providing competitive labor costs. Light industries, textiles, automotive components, driving mass job creation and diversified exports. Services Cultural diversity, growing digital connectivity, high-demand tourist destinations. Tourism, ICT outsourcing, fintech, and the global creative industry (music, film).

13. Strengthening the Industrial Base for Currency Resilience Investing in fundamental infrastructure and human capital is essential to translate comparative advantage into economic stability. Develop Industrial Zones Establish specialized industrial and agro-processing zones with supportive regulatory environments to attract investment. Encourage Local Content Mandate and incentivize value addition and processing of raw materials within the continent, increasing export earnings. Improve Infrastructure Invest heavily in reliable power supply, modern logistics, roads, and digital connectivity to reduce the cost of doing business. Invest in Skilled Labour Prioritize technical and vocational education (TVET) to meet the demand for skilled workers in emerging industrial sectors. Support SMEs and Innovation Provide funding and incubation support for Small and Medium Enterprises (SMEs) and innovation hubs, fostering homegrown solutions.

14. The Role of AfCFTA: Unifying the Market for Stability Create a Continental Market Establish the world's largest free trade area, facilitating the movement of African goods, services, and capital across the continent. Reduce Dependence on Foreign Currencies Promote intra-African trade using local currencies, reducing the strain on foreign reserves and mitigating external shocks. Harmonize Policies Standardize industrial and trade policies to encourage continental value chains, making African products more competitive globally. Strengthen Regional Stability Implement mechanisms that support regional currency stability, providing a predictable environment for long-term investment and growth.

15. Case Study One Nigeria: Oil Dependency and Naira Devaluation Background: Nigeria has faced over six major devaluation episodes since 1986. The Naira depreciated from ₦197/USD (2015) to ₦1,400/USD (2025). Drivers: Heavy reliance on crude oil exports (90% of FX earnings), low manufacturing capacity, and high import dependency. Impacts: Inflation rate hovering around 30% in 2025, rising cost of living, and loss of foreign investor confidence. Comparative Advantage Pathway: Strengthening agro-processing, solid minerals, and ICT-based industries . Policies must promote local content , renewable energy , and regional value chains under AfCFTA.

16. Case Study 2 Ghana: Cedi Instability and Cocoa Advantage Background: Ghana’s cedi has consistently lost value, moving from GHS 4.9/USD (2017) to over GHS 15/USD (2025). Drivers: Dependence on cocoa, gold, and oil exports, combined with fiscal mismanagement and high importation of consumer goods. Impacts: Rising public debt and cost of imported raw materials, leading to a decline in real wages and industrial output. Leverage Cocoa Value Chain Shift from exporting raw beans to producing high-value chocolate and cosmetics. Diversify Exports Focus on gold refining, renewable energy, and premium tourism sectors. Support Local SMEs Strengthen local businesses through initiatives like the "One District, One Factory" (1D1F).

17. Case Study 3 South Africa: Rand Volatility and Industrial Base Background: The South African Rand (ZAR) is a market-determined currency supported by a diversified production base . Drivers of Fluctuation: Commodity price shocks, global financial shifts causing portfolio capital outflows, and domestic energy constraints. Impacts: Rand depreciation increases import costs but effectively boosts export competitiveness in mining and manufacturing. Lesson for Africa: Currency stability is achieved through diversified production, institutional credibility, and trade competitiveness , not through devaluation policies alone. Automotive Sector Financial Services Advanced Mining

18. Six Pillars of Economic Resilience Policy recommendations for shifting Africa toward production-led economic growth. Promote Export-Oriented Industrialization Focus manufacturing capabilities toward producing goods for global and regional markets. Encourage Value Addition Process raw materials domestically to capture higher margins and create skilled jobs. Strengthen Infrastructure & Human Capital Invest in reliable power, logistics, and quality education/skills training. Implement Sound Policies Maintain strict fiscal discipline and coordinated monetary policies to build credibility. Expand Intra-African Trade Fully utilize the AfCFTA to build large-scale production hubs and regional supply chains. Diversify FX Sources Move beyond reliance on 1-2 primary commodities by boosting services, tourism, and manufactured exports.

19. Conclusion: The Path to Sustainable Stability Devaluation is Insufficient Devaluation alone cannot stabilize African currencies; it often exacerbates inflation and debt burdens. Focus on Competitiveness The sustainable path lies in enhancing production capacity and achieving export growth . Leverage Comparative Advantage Utilizing inherent national strengths will enhance currency stability and economic self-reliance. Shift Economic Model Africa must transition from consumption-driven dependency to a strong, production-driven economy.

20. Prof. Godwin Emmanuel Oyedokun Professor of Accounting & Financial Development Lead City University, Ibadan, Nigeria Principal Partner; Oyedokun Godwin Emmanuel & Co (Accountants, Tax Practitioners & Forensic Auditors) [email protected]; [email protected] [phone] & 2348055863944