15 November 2012

Africa Loses Out On Foreign Exchange

Photo: New Times
Stock markets

Casablanca — The currency black market has made it as far as Algeria’s national assembly.

The governor of the country’s central bank, Mohamed Laksaci, held forth to legislators about it in late October. Up to this year, according to the French-language daily L’Expression, Algeria had no official foreign exchange bureau that was independent of the banks. Instead, individuals and even companies carry out their foreign exchange transactions in the street.

“Everybody has resorted at some time to the parallel exchange market,” said Al Watan, another Algerian daily, in an investigation carried out in 2005 which described the difficult life of sidewalk currency sellers.

Informal exchange prospers in Algeria as it does elsewhere in Africa, be it in Morocco, Cameroon, Nigeria or Sudan, even though formal exchange establishments operate in those countries. And the public purse earns nothing from this activity.

Even banks are sometimes drawn into the black market. Back in 2001, 25 Nigerian banks were banned from the foreign exchange market for two weeks in a measure imposed by the central bank.

“In Nigeria, banks are in the habit of cheating on dollar rates and interest rates and selling currency on the black market,” one banker explains. The reason, he says, is the premium on foreign currencies on the informal market.

“The difference with the formal route can sometimes be as much as 22 nairas (about 14 per cent),” he says.

In Cameroon, the most favourable rates can be had from exchange operators working near the hotels in Douala, the economic capital, and Yaoundé, the political capital.

“It’s unfair competition for people like us who pay taxes,” complains the female manager of a foreign exchange bureau. Commissions charged in the official establishments make transactions more expensive for clients. For 50,000 Central African CFA francs, the currency used in Cameroon, a bureau will offer 65 euros, while on the black market a good negotiator can get 75 euros. But there is a risk that the currency will turn out to be counterfeit.

In Morocco, despite a better-organised exchange market, sidewalk operators also buy and sell currencies. The rates they offer are broadly the same as official rates. There is therefore no great benefit to be had from informal transactions, a financial expert at the Casablanca stock exchange believes.

However, the parallel exchange market provides a channel for tax evasion and capital flight. Just how much is lost to the treasury through these operations has not yet been assessed, admits Mustapha Aman, regional director of taxes in Tangier.

This story was written under the auspices of the TRF/NORAD Journalism Training project.

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