On July 10 Acumen posted an article entitled “We need new Fx solutions in Africa, now”, calling on interested parties to come together to reinvigorate the discussion about how to deal with Fx risk. The article lays out the magnitude of Fx risk on small and growing African companies and sets forth a framework for working on solutions.
We commend Acumen, and authors Wanji Ng’ang’a and Dan Waldron, for bringing this issue to the forefront. Fx risk is indeed the “Black Box” all early-stage companies are subjected to, except perhaps in countries that use the CFA. Small and growing companies cannot control their future if they have large foreign exchange exposure to hard currencies like the US Dollar, while their revenues are in local currencies. Yet, solutions are rare and, where available, expensive.
Our 2015 seminal piece on Fx risk, “Currency Risk and Mitigation Strategies for the Off-Grid Sector”, recommends that companies balance their assets and liabilities in the same currencies. For example, if a company’s revenues are in, say, Kenyan shillings, it should borrow in Kenyan shillings. See the article for more explanation.