The African currency crisis: what are the effects on international money transfer?
After years of growth, the bubble has unfortunately burst for many important parts of Sub-Saharan Africa. With South Africa expected to slide into recession, Nigeria's currency plummeting to record lows and credit agencies downgrading their outlook on commodity exporting countries Angola, Ghana, Mozambique and Zambia, we investigate what the crisis means for international money transfer.
What's causing Africa's currencies to tumble?
We're starting to see the knock-on effects of China's economic slowdown in the wider global economy. China is South Africa's biggest trading partner, but the country's demand for African goods dropped markedly during 2015, with imports plunging by nearly 40%. In Nigeria – Africa's economic powerhouse – 70-80% of government revenue comes from crude oil sales. The global oversupply and resulting crash in oil prices has created real fiscal trouble for the state.
What's being done about it?
In response to the crisis, Nigeria has delved into its reserves to avoid devaluation of the naira, keeping the exchange rate at a steady 197-199 to the dollar. Limits have been placed on the buying of foreign currency as a means to reduce the flow of hard currency out of the country. South Africa is expected to raise interest rates by 50 base points at the end of January. These forecasts have already had a positive effect on the rand, with the exchange rate starting to ease back from the recent high of 17 to the dollar.
What this means for you
The rand will rise in value if South Africa's rate hike is successful, so we recommend waiting to get a higher value for your money transfers if possible. The outlook for the Nigerian Naira isn't as bright, however. Following the current course of action, the currency will strengthen in the short term, but the bubble may well burst due to this artificial value. It isn't great for a long-term investment, but if you want to get in and out it's worth keeping an eye on. Regular readers of The Money Cloud will already know that volatility in any market can rock the wider world of international money transfers. At the moment it's best to keep tracking the Forex market, stay up to date with our market insights and wait to get the best rates.