As a frontier market, the countries of Africa represent both tremendous opportunities and tremendous risks. On the risk side of the ledger are all the usual complications of international trade and investment compounded by the problems inherent in a developing, emergent continental market consisting of 54 countries and 1.1 billion people – it’s a lot to keep track of.
Luckily, the ups and downs of the African currency markets aren’t one of them if you know where to look. To help with that, AFK Insider has compiled all the news you need to know now in order to slim down your currency risk in the week ahead. Let’s see what’s happening out there.
No country for gay men
As if Western investors did not need another reminder that Africa was neither Europe nor the United States, this past February the president of Uganda signed into law a provision imposing harsher penalties on Ugandan homosexuals than previously existed before.
Though homosexuality was already penalized under Ugandan law the new provisions included life sentences for those found guilty of “aggravated homosexuality” and penalties – including fines and jail terms of up to three years – that could be imposed on those, including non-homosexuals, found to have aided or abetted the practice within Uganda’s border.
At one point the barbaric law actually imposed the death penalty, but vigorous condemnation by aid agencies, donors, and most every civilized country on the planet put enough heat on Kampala to eliminate the addition of capital punishment to the onerous list of new penalties that effectively strips Uganda’s gays and lesbians of both their humanity and legal rights simply for being who and what they are.
Indeed, the similarity between Uganda’s anti-homosexuality laws and the anti-Jewish, racial-purity laws enacted in Germany during the 1930s is hard to miss.
Almost immediately upon the signing of the anti-homosexuality bill the Ugandan shilling dropped 3 percent as investors and traders worried that the law’s passage would mean a drop off in aid or even the imposition of sanctions.
Since then the Ugandan currency has continued to lose value vis-à-vis the US dollar and now stands at around 2,644 shillings to the greenback—a drop off of nearly eight percent from early February. Proof, say critics, that Uganda’s discriminatory attitude towards gays and lesbians has had economic consequences despite protestations this past May by the government’s finance minister that fallout from the law has been minimal.
Fundamentals, not Fundamentalists
So, has the drop off in the value of the shilling been caused by investor unease with these anti-gay laws, or is the decline due to underlying economic factors? Put simply, is politics or economics more to blame for the shilling’s recent loss of value? Unfortunately for Western cultural crusaders, the fall in value is most likely due to economics and not any long-term impact the law may have had so far.
There are several reasons for this. First and most importantly, sanctions and divestment appeals take time to work and there has simply been too little time yet for the anti-Uganda campaign to have yet had much effect.
True, future grants and loans from the US, EU, and the international financial institutions they control may be put at risk, but that is a future concern, not an immediate one.
Also important, cash-flush China has become an important source of finance for many developing countries and so even if Western lenders and aid donors were to shun Uganda, Kampala may find succor from Beijing. China, after all, cares not one bit about rights for oppressed minorities.
Second, if one looks at the larger East African region one can see that neighboring Kenya and Tanzania have also seen their currency drop against the dollar as have many others across Africa. Kenya’s shilling, for instance, has so far lost about 1.7 percent against the dollar this year while Tanzania’s has lost about 5-percent.
The law’s impact may have had some role to play in pushing down Uganda’s currency but clearly it is part of a larger regional trend towards lower currency valuations.
Those trends, moreover, have been evidence since the beginning of the year.
The Fed’s tapering program, China’s slowdown, weakness in US and European labor markets, and security issues in both western and eastern Africa have all worked to put a limit on how high Africa’s currencies can soar, Uganda’s included.
Combine that with the fact that these are mostly still very poor countries heavily dependent upon aid, commodity trade, and investment from abroad— particularly from China—and naturally these larger external factors will have a lot greater impact on the value of the shilling than short-run fallout over the passage of Uganda’s anti-gay law.
The grim truth is that so long as the African growth miracle is one premised on selling commodities to industrializing countries elsewhere then what happens inside any given African country—unless it is truly horrific—will not be more concerning to currency traders and the markets than what happens outside.
In the short and medium terms markets are moved by the gyrations of macroeconomic variables and large-scale geopolitical events, not whether a group is being persecuted or not.
Uganda’s leaders would be wise to understand this and so not go too far in their new found interest in persecuting their country’s gays and lesbians. So long as it remains mostly unenforced and more a symbolic measure than an actual tool of oppression, the market is likely to shrug its shoulders and write off the law as an example of cultural backwardness and nothing more.
If, on the other hands, large numbers suddenly find themselves being persecuted, imprisoned, and driven out of their country, then the markets might not be so sanguine as it could entail a significant economic backlash from the West—and that’s not a risk Uganda’s economy can bear for very long.
Jeffrey Cavanaugh holds a Ph.D. in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFKInsider, Mint Press News and BAM South.
