By PATRICK MCGROARTY
African countries are trying to shoo the U.S. dollar away, even if it means threatening to throw people who use greenbacks in jail.
Starting next year, Angola will require oil and gas companies to pay tax revenue and local contracts in kwanza, its currency, rather than dollars.
Mozambique wants companies to exchange half of their export earnings for meticais, hoping to pull more of the wealth in vast coal and natural-gas deposits into the domestic economy. And Ghana is seeking similar ways to reinforce “the primacy of the domestic currency,” after the cedi plummeted more than 17% against the dollar in the first six months of this year.
The sternest steps come from Zambia, a copper-rich country in southern Africa where the central bank has banned dollar-denominated transactions. Offenders who are “quoting, paying or demanding to be paid or receiving foreign currency” can face a maximum 10 years in prison, the central bank said in a two-page directive in May.
That puts an uncomfortable squeeze on foreign mining companies and tour operators that shepherd thousands of travelers a year to Zambia’s side of Victoria Falls. “No one has been prosecuted or jailed for contravening the law yet, but the monitoring process is in progress,” Kanguya Mayondi, the Bank of Zambia’s spokesman, said. The penalty for not using the kwacha is well within the bank’s mandate, he added.
The moves aim to strengthen thinly traded currencies and steer more capital into isolated financial markets. But the new rules are an abrupt change for foreign and local companies used to doing business in U.S. dollars.
“There will be an adjustment period,” said Mike Keenan, an African currencies analyst at Absa Capital, a South African subsidiary of Barclays PLC. “But the story with Africa and commodities has been one where the proceeds kind of circumvent the country. These authorities are trying to clamp down on that.”
Zambia’s central bank sees upside to a strong and liquid kwacha. The move to promote the currency’s use gives authorities leverage over monetary policy they lacked without control of the dominant market currency. The crackdown also could bring local banks new business in hedging instruments and foreign-exchange transactions.
Some of Zambia’s high-end hotels and luxury travel companies still advertise rates in dollars, irking local residents. Their complaint: The kwacha can’t be used in the U.S., so why are dollars used in Zambia?
“The kwacha is legal tender,” said Caeser Siwale, chief executive in Zambia for Renaissance Capital, an investment bank. “There tends to be a different yardstick for us,” with big companies expecting small economies like Zambia to live with a reliance on foreign currency that would never happen in Europe or China, he added.
In Zambia, the measures appear to be working. Heightened demand for kwacha pushed the currency to its highest level in more than a year in July, when it reached 4,640 to the dollar. It has slipped a bit since then.
Fueling the demand were foreign-owned manufacturing and mining companies racing to acquire kwacha even as they asked the government to reconsider the policy. The companies complain it make operations more expensive and cumbersome.
“It might be hard to find kwacha when you need it,” said Frederick Bantubonse, general manager of Zambia’s Chamber of Mines. Mining companies also are worried about the cost of hedging their copper production against kwacha volatility. The group has appealed to government to limit the types of transactions affected by the move.
In the long run, strengthening the kwacha by decree will take less time than demonstrating political stability and a commitment to controlling inflation, said John K. Wakeman-Linn, mission chief for Zambia at the International Monetary Fund.
“I don’t think it’s necessarily an adverse policy, but I don’t see it providing a lot of additional long-term confidence in the kwacha, either,” he said. “Regulation like this cannot substitute for policies that generate confidence in the market.”
Policy makers elsewhere in Africa are watching Zambia. Ghana, another fast-growing African economy with rich mineral deposits and a nascent consumer class, also is seeking to boost its currency’s value.
Since May, Ghana’s banks have had to keep all of their deposits at the central bank in cedi, rather than a mix of cedi and U.S. dollars. The switch encourages banks to seek deposits in cedi rather than foreign currency, according to Millison Narh, a deputy governor of the Bank of Ghana.
The central bank’s pro-cedi policies aim to make life easier for people like Sterre Mkatini, who recently lugged a backpack filled with $8,000 worth of local currency to a nearby bank to pay one year’s rent upfront. Many landlords demand such payments to sidestep high inflation.
At the bank, the television producer converted the money into dollars, deposited them into a dollar-denominated bank account and then had the funds transferred to her landlord’s bank in London.
The landlord is Ghanaian but keeps his rental income in British pounds to protect it from Ghana’s nearly double-digit inflation. “So I guess I paid in pounds,” Ms. Mkatini said.
Those who demand payments in dollars are a boon to money changers like Assistant Manager Robert Asiedu at Qwick Bureau D’Change Ltd, located on a clamorous street in downtown Accra, Ghana’s capital.
A central bank ceiling on over-the-counter dollar transactions at banks has sent Ghana’s class of China-bound traders into street-side foreign-exchange bureaus that normally cater to fanny-pack-clad tourists. Chinese importers often show up just before flights back to China desperate to buy $100,000.
Kwaku Asente Addo, a cashier at Penta Forex Bureau, isn’t sure Ghana’s government can or will do much to purge the greenback. “They can’t do that; they’re bluffing,” he said.
Mr. Narh, Ghana’s central banker, said the government is considering rules like those in Mozambique that require companies to convert some of their export earnings into cedi. Without such moves, the government won’t be able to counteract a weak exchange rate and large trade deficit.
Those are side effects of growing consumer demand in Ghana’s population of 25 million. “Unless something is done about it. it’s likely to affect us for a long, long time,” he says.
—Drew Hinshaw in Accra, Ghana, and Peter Wonacott in Lusaka, Zambia, contributed to this article.
Write to Patrick McGroarty at email@example.com
A version of this article appeared August 13, 2012, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: Africans Chase Away Almighty Dollar.
See online: Africans Chase Away Almighty Dollar