“Egypt allowed the biggest one-time depreciation of the pound since 2003, as Nigeria doubled down on capital controls to shore up the naira”
IF African countries used 2013 as the base year for measuring the size of their economies, then Egypt would overtake Nigeria as the largest economy on the continent.
READ: Africa’s GDP ‘much bigger’ than thought—and Egypt’s economy could be larger than Nigeria’s
But even without that, with Africa’s oil producers battered by low crude prices and enfeebled currencies, it would seem Egypt President Abdel Fattah el-Sisi’s government has a leg up as it is making the tough policy calls that his Nigerian counterpart Muhammadu Buhari is reluctant to do to fix its economic malaise.
Faced with the same currency predicament, the Central Bank of Egypt allowed the biggest one-time depreciation of the pound since 2003 on March 14, and promised to adopt a more flexible exchange rate.
The moves were designed to revive investor interest in Egypt to ease a dollar crunch, much like Nigeria’s, that has hampered economic growth and fueled a black market for the currency.
For its part Nigeria – Africa’s biggest economy and oil producer – doubled down on the capital controls and restrictions on some imports in a bid to prop up the naira, which has been effectively pegged at 197-199 against the dollar since March 2015.
Those measures have deterred foreign investment and led to a scarcity of dollars, with the black-market exchange rate falling to around 325 naira per dollar.
Buhari has backed the central bank’s stance and ruled out a devaluation on the grounds it would cause prices to rise. That’s already happening, with inflation surging to a three-year high of 11.4% in February from 9.6% the previous month.
The contrasting results of Egypt’s actions already clear in this short period. Foreign investors bought $500 million in Egyptian debt and stocks in the weeks since the central bank devalued the currency, according to central bank Governor Tarek Amer, who said more measures will be taken to attract funds.
Amer, in a televised interview late on Saturday, said he expects at least $5 billion in portfolio investments—purchases of stocks and bonds—within the coming four months.
Foreign direct investment from China alone could reach $30 billion in the next two years, he said.
Hard currency deposits in local banks, increased after the central bank started “to fix the status of the currency,” Amer said.
‘Greed and speculation’
The pound weakened in the black market after the devaluation because of “greed and speculation,” and the central bank will take more measures to organise the market over the coming three months, he said, without giving more details. Egypt doesn’t suffer from a currency crisis but a “crisis in regulating the exchange market.”
Amer said the central bank also plans to sell stakes in three banks it owns or partially controls by the end of 2016. It will sell The United Bank to a strategic investor and raise Banque du Caire’s capital by selling a 20% stake on the stock market.
The central bank and Kuwait investors also plan to sell 20% each of their stakes in the Arab African International Bank, Amer said.
For Nigeria,meanwhile, barely a week ago Unilever’s Africa President Bruno Witvoet joined the growing number of business leaders pushing for a different direction, saying it would be misguided for the West African giant to persist with currency policies that have led to a record difference between the naira’s official and black-market rates
Speaking at a conference in Abidjan, Ivory Coast’s commercial capital, Witvoet said; “It would be very insane to continue like this for months and months.” Clarity on what the “right rate” would help businesses “make more sensible decisions,” he said.
READ: Unilever says it’s ‘insane’ if Nigeria currency policy stays
Both Sisi and Buhari are former generals and military rulers of their countries. Buhari has reinvented more successfully as a democrat, having won the presidency in March last year in Nigeria’s first election in which an opposition leader defeated the incumbent.
Sisi, was elected in a vote boycotted by the Opposition in 2014, having earlier masterminded the military ouster of the Muslim Brotherhood government led by president Mohamed Morsi.
He has since overseen what critics say is the most extensive and extreme crackdown on Islamist opponents and secular opposition.
On the economy though, he has shown greater ambition and guts than Buhari. The coming months will indicate if he will also have the last laugh.
–, BLOOMBERG NEWS