As Euro Falls, Africa Must learn from Russia’s Resilience And Utilization of Natural Resources

A few years ago, Ghana pegged 1 cedi to 1 US Dollars. Today, many things have gone bad; you need at least 8 cedi to get 1 USD now. It did not take long.

But for the Euro, that one is intriguing. For the first time in 20 years, 1 USD = 1 Euro and the USD is already pulling ahead in some exchanges. If Russia does go ahead and pause gas supply to Germany, the EU may be rattled.

There are many lessons here: Africa has no reason to be looking for loans and begging the world for help. Look at Russia, they have the same natural resources that we have – and as Europe sanctions it,  both follow the same trajectory: equal opportunity pains. Indeed, they have built a fairly decent economy that can withstand a high voltage sanction. And that voltage is burning kingdoms, empires and nations, with Russia marginally affected, at least in the short-term.

Sure, not here to praise Russia, but I must note that I am impressed by their economic defense and they did it purely from their natural resource wealth. Africa has no reason not to do better. Simply, Russia’s natural resources have worked for it!

In the Igbo Nation, the elders will say “ochu nwa okuko nwe ada, nwa okuko nwe nwenwe oso” [he who chases a chicken will fall and the chicken will get away]. That can only happen when you have economic resilience. I call on the leaders of Nigeria and Africa to architect a future where we build systems that will lift a generation out of poverty and hopelessness.

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Comment: Context is also important here. Russia has been an established empire for centuries, so straight comparison with fragmented African economies is probably inaccurate. That said, I think I understand the message.

My Response: “Russia has been an established empire for centuries” – that is not relevant here. The USSR collapsed because they failed to build a resilient economy. With oil mess, etc, the empire broke down. Before the birth of the new Russia Federation (RF), many African countries have been around. That messed up USSR, out of it, Russia has risen. If they had not done that, what happened to the old USSR would have happened to RF last quarter.

Africa’s key economies are older than the new RF (yes, post USSR Russia) which withstood the sanctions. That is my message. So, the imperial Russia is not relevant; what is relevant is that the post-USSR Russia did not go down on what killed the old communist empire.

Comment 2: For knowledge sake, how does fiat redenomination help a people’s currency? Does it have any positive impact or value adding? Sierra Leone recently did and I would really want to learn how it benefits a country. Thank you in advance Prof.

Another member Responds to Comment 2: There is absolutely little to no economic value for currency redomination. It is mostly done for accounting or record keeping convenience, or other purposes of cosmetic value. Imagine if you had to be accounting for business using too many digits. It’s also to avoid the Venezuela situation where you would now need to weigh currency notes as opposed to counting them on face value to pay for goods or services. To understand the Ghana situation properly, replace 8 cedi to 1 USD with 80,000 Cedi to 1 USD.

I add that this is only to reflect the actual pre-redomination nominal exchange rate cedi versus the usd. To get the equivalent real value of the usd in Ghana of today, you would have to adjust for purchasing power parity.

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