Christopher Adam, University of Oxford

A number of African countries, including Kenya, Egypt, Zimbabwe, Nigeria, Ghana and Zambia, are currently experiencing shortages of US dollars. The dollar is the dominant currency in international transactions. These countries rely on the US currency to pay for foreign debts, essential goods and industrial inputs. Development economist Christopher Adam explains to The Conversation Africa’s George Omondi what causes US dollar shortages and how they can be remedied.

What is a dollar shortage?

Global trade is conducted in the currencies of the world’s major economic powers, principally the US dollar, the European Union’s euro, the Japanese yen and, to a lesser extent, the Chinese renminbi and the UK’s pound sterling. Individuals, firms and government elsewhere in the world need these currencies to import goods and services and make other payments overseas.

A dollar shortage is simply a situation where the demand for this foreign currency exceeds the available supply, at the current exchange rate.

Depending on how the exchange rate is determined, a dollar shortage will present itself in different ways.

In countries operating a fixed exchange rate regime – where the national currency is pegged to a hard currency – the shortage may be physical. The banks that normally supply their customers with dollars may simply have none to sell or are forced to ration their limited stock.

But most countries today operate some form of flexible exchange rate. Their central banks don’t intervene in support of a particular exchange rate. Here, there may be no actual shortage. Dollars may still be available but can only be purchased at a higher cost. There’s a shortage only in the sense that the same amount of domestic currency buys fewer imports.

Even with a fixed exchange rate, dollars can usually be obtained on the parallel or black market, though at a less favourable exchange rate. It takes more of the domestic currency to buy the hard currency.

The domestic currency’s loss of value against the US dollar is often taken as an indicator of the severity of the dollar shortage.

What causes dollar shortage and what are the impacts?

The immediate cause of a dollar shortage is a deterioration in the country’s balance of payments, meaning a country’s financial transactions with the rest of the world. This might be due to some unexpected event like a natural disaster that destroys a country’s dollar-earning tourism sector. It could also be due to increased demand for essential imports such as food and medicines. Other causes include an increase in debt service payments falling due and a fall in remittances from workers abroad. The worsening balance of payments may also reflect deterioration of the country’s terms of trade meaning the value of what a country exports relative to what it imports.

World prices are determined by the actions of the large economies of the world. Small economies – including most developing countries – are price-takers: they have little or no capacity to alter their terms of trade.

What’s behind the current dollar shortage in Africa?

Many African countries now face a combination of disrupted exports and worsening terms of trade. Exports grew substantially in the later 2010s because of high and rising world prices for primary products. Then the 2020s opened with a series of shocks that have contributed to the dollar shortage.

COVID-related lockdowns and the associated global recession drove down prices for many of Africa’s key exports. Tourism – an important source of dollar earnings – came to a halt. The resurgence of global inflation and the resulting tight monetary policy (higher interest rates) have driven up prices for key imports and the cost of foreign borrowing.

On top of this, prices for oil, food and fertiliser spiked when Russia invaded Ukraine. Rising oil prices ease dollar shortages for oil producing countries such as Angola and Nigeria but have an adverse impact on other countries.

The effect is stark. When imports are fewer and more expensive, prices rise and spending falls. When the squeeze on imports reduces investment, there is lower growth and less economic progress.

Can the dollar shortage be avoided?

The only sure-fire way to avoid a dollar shortage is self-sufficiency – referred to in economics as autarky. But this is not a realistic option and certainly not for countries at early stages of development. Low-income developing countries need not just essential imports like food, fuel and medicines. They also need imported capital goods and intermediate inputs to develop their own productive capacity.

Over the medium term, as countries become able to produce more of the goods and services people want and need, they will depend less on imports. And they will be able to export more. Their vulnerability to periodic dollar shortages will ease. But this will take time.

Dollar inflows from trade, supported by remittances and aid inflows, may be temporarily augmented by foreign direct investment and dollar borrowing from official and private lenders. But capital inflows must eventually reverse as debts are repaid and foreign investors seek dividends and repatriation of their capital. If well used, though, capital inflows can support the export-led growth strategies that the most successful developing countries have pursued.

What should be done?

The moderation of global inflation and the recovery of global growth are likely to bring an improvement in the terms of trade and the recovery in export demand. There is little domestic policymakers can do about this but wait.

While they do so, they can take policy measures to address the immediate reality of the dollar shortage. Few of these measures are easy.

The usual advice is to cut public spending. That will reduce the demand for imports. It’s politically difficult. Governments are also usually advised to encourage the production of exports and import substitutes. That is challenging and takes time.

Effective adjustment therefore will also rely on external support. This means new and additional balance of payments support from the international financial institutions and multilateral development banks. And it means debt-restructuring initiatives such as the G20’s Common Framework mechanism.

Periodic dollar shortages are an enduring fact of life for many low-income countries, even as growth and development mean they are likely to become less frequent and less severe over time. The current pressures experienced by some countries in Africa are certainly severe, but these can be managed if countries maintain the high-quality macroeconomic management that they have developed over the last decade, especially if this domestic economic discipline is accompanied by decisive support from the international financial institutions and external development partners.

Christopher Adam, Professor of Development Economics, University of Oxford

This article is republished from The Conversation under a Creative Commons license. Read the original article.

John Carlaw, Toronto Metropolitan University

A recent press release from the Institute for Canadian Citizenship that cites Statistics Canada data has highlighted concerns over a 40 per cent reduction in Canada’s “naturalization rate” — the rate at which permanent residents are becoming citizens.

The release, headlined Newcomers falling out of love with Canadian citizenship generated a number of other media headlines.

Concerns over how and whether those living and working in Canada are attaining citizenship and important rights — including to vote and run for office — are of course well placed. But love of country by immigrants is not the primary problem.

Individual choices and sentiments are a relevant factor, but there are observable structural explanations. Beyond Canada’s control, not all countries permit dual citizenship. That includes major source countries China and India where many immigrants to Canada are from. It is understandable that some permanent residents prefer not to renounce the citizenship of their country of origin.

But within Canada’s control, there are troubling shifts in our overall citizenship and immigration model. Inequalities connected to its colonial nature have left growing numbers of residents without citizenship or even a pathway to it.

Annual immigration levels, for example, only represent those accepted as permanent residents and obscure the number of those admitted to Canada under less secure conditions.

This has occurred thanks to under-discussed but at times controversial shifts from permanent to temporary or multi-step migration.

These shifts can be obscured by focusing primarily on the naturalization process and the sentiments some attach to it rather than the larger settler colonial landscape of migration and immigration and its relationship to citizenship and belonging at each stage.

Unkept promises and unlearned lessons

In recent years, Canada has apologized for past discriminatory immigration measures and its treatment of Indigenous Peoples. And there have been recent symbolic advances recognizing First Nations, Inuit and Métis communities and Canadians’ treaty responsibilities in the citizenship oath.

However, social exclusions in modern forms related to the project of Canadian nation-building, citizenship and belonging persist. They are even intensifying in important respects.

A recent report from the Yellowhead Institute found that, despite an expressed commitment to fully implement the Truth and Reconciliation Commission’s 94 Calls to Action, the Federal government has only fulfilled 13, with those providing symbolic rather than structural remedies.

This example is indicative of why many Indigenous people — themselves denied the vote for much of Canada’s history — understandably view Canadian citizenship as, at best, a “kinder, gentler form of colonialism.”

These realities also remind us that the terms and hierarchies of citizenship and societal membership in Canada shift over time. They are subject to social struggle. And apologies and symbolic advancements do not relegate mistreatment to the past.

Hierarchies of belonging persist

“White Canada” immigration policies that favoured European immigrants and largely excluded those from elsewhere were in place until the 1960s.

These entrenched institutional and demographic dominance by white settlers. Europeans immigrating to Canada in earlier periods had ready access to permanent residence and eventual citizenship, unlike many of their contemporary racialized counterparts.

Institutional racism continues to be felt in the country’s immigration system and political life as tiers of citizenship and belonging continue to be practiced in old and new forms.

Canada adopted official multiculturalism in 1971, yet two years later it entrenched migrant worker programs, primarily for racialized workers from the Global South. As with past exclusions, these workers still have to navigate programs and realities that prevent or make it difficult for them to access permanent residence and citizenship.

This is particularly the case for those working in what are deemed to be “low skill” positions. Many such workers become “permanently temporary” despite ongoing demands for their labour.

Today, Canada’s political institutions are still disproportionately composed of men of primarily European descent. And they continue to set and enforce problematic terms of citizenship and societal membership.

Today’s more difficult pathways to citizenship

Today’s immigrants — who mostly come from the Global South — face a system of complex chutes and ladders when it comes to their status in Canada. That system leads many migrants to remain stuck in an immigration purgatory, far away from pathways to permanent residence, let alone citizenship.

Even those often characterized as the perfect immigrants — international students who pay vast sums that subsidize our post-secondary education system — face limited and precarious pathways to permanent residence and citizenship.

As economist Armine Yalnizyan recently noted, today for each person granted the security of permanent residence, there are two migrant workers or international students who have uncertain or no access to permanent status.

This could prove an obstacle to attracting and retaining workers. When it comes to citizenship and societal membership, it hinders inclusion by creating an exploitable class of workers who lack full political and social rights.

In the face of these realities, many migrants, students and workers are mobilizing to address these exclusions. This includes protests in several cities demanding “status for all” to mark the International Day for the Elimination of Racial Discrimination.

To return to the later stages of the process of becoming Canadian by adopting citizenship, under the former Conservative government, citizenship became harder to get and easier to lose by design.

Unfortunately, amidst the last decade’s battles between more exclusionary Conservative and rhetorically warmer Liberal visions of citizenship, tougher and more expensive procedures than previously existed remain under both.

The costs of applying for citizenship increased significantly under the Conservatives, and have remained prohibitive for many. The Trudeau government has made some positive reforms, such as reversing changes that made it take longer to become a citizen. But it has failed to follow through on its election promises to eliminate citizenship fees.

One recent study argues that it is likely that fee hikes and tougher, often expensive language requirements negatively impact a significant number of applicants.

Even those who have managed to obtain permanent residency and fulfilled their residency requirements face further “boundaries related to management flaws, classed naturalization, and cultural biases.” That means many, particularly refugee claimants and family class immigrants, struggle with the citizenship process.

For those who can reach the end of the process, some find it distasteful to continue to have to declare an enforced oath to a colonial figure, a reminder of the structures and hierarchies discussed in this article.

Given this context, the significant decline in Canada’s naturalization rate should be less surprising, though no less alarming as Canada continues to foster and even intensify inequalities of societal membership in its citizenship and immigration regime.

John Carlaw, Postdoctoral Research Fellow under the Canada Research Chair (CERC) in Migration and Integration Program, Toronto Metropolitan University

This article is republished from The Conversation under a Creative Commons license. Read the original article.