Egypt is exploring a barter arrangement with Kenya to secure tea supplies due to a shortage of dollars in the Egyptian market, hindering its ability to import the commodity. According to reports, Egypt is extending a unique proposition to Kenya, presenting a blank check for the exchange of goods produced within Egypt’s borders.
Kenyan Treasury Secretary Njuguna Ndung’u cited Egypt’s ambassador, stating that Egypt is currently unable to obtain Kenya’s tea, held up in Mombasa port, due to a lack of US dollars for export payment. “We’ll get your tea and you also come and decide what you get from us,” Ndung’u quoted the ambassador.
In 2023, several African nations, including Kenya and Egypt, have faced an unprecedented scarcity of dollars within their economies. Kenya’s Shilling lost its value by almost 24% against the US dollar last October following a drop in foreign currency flow from tea and diaspora remittances. Since March 2022, the Egyptian pound has undergone a series of sharp devaluations, resulting in a nearly 50% decline in value against the US dollar. This prolonged depreciation has subjected the currency to relentless pressure, particularly within the black market, heightening the economic challenges in Egypt.
Between 2022 and June 2023, Egypt devalued its currency on three occasions. It did so in a bid to secure a vital $3 billion arrangement from the International Monetary Fund (IMF) under the Extended Fund Facility (EFF). The support aimed to help Egypt meet its balance of payments needs and boost the national budget. However, the country fell into a negative net international investment position, and living standards significantly dropped following surging inflations.
Usually, a shortage of dollars in any country, hampers trade, hurts currencies and raises debt costs. Roughly 50% of global trade transactions are conducted in US dollars, and approximately half of all global loans and international debt securities are executed in dollars. During significant economic crises, the dollar is preferred by investors as a “haven” currency.
The barter system predates formal currencies in Africa
Trade by barter, a system where goods and services are exchanged directly without using money, has deep historical roots in Africa. It predates the introduction of formal currencies and financial systems. In ancient African societies, communities engaged in trade by swapping goods and services they had in surplus for items they needed. This method allowed them to acquire essential resources, fostering economic interactions and cultural exchange among different tribes and regions.
Before the arrival of cowries (shells used as a form of money) and later, fiat money (government-issued currency not backed by a physical commodity), trade by barter was the predominant mode of economic transactions. Communities would trade goods like agricultural produce, handmade crafts, or livestock, establishing a system of mutual benefit and interdependence. But over time, as civilisation advanced and external influences shaped economic practices, traditional barter systems gradually gave way to more structured trade and monetary systems, marking a significant evolution in African economic history.
Barter system in modern-day Europe
Are you acquainted with the “Instrument in Support of Trade Exchanges” (INSTEX)? INSTEX, founded by France, Germany, and the United Kingdom in January 2019, serves the purpose of enabling lawful trade between European enterprises and Iran. This mechanism empowers them to circumvent the United States sanctions imposed on Iran following the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA), widely recognised as the Iran nuclear deal, in 2018.
INSTEX is a barter system that enables European and Iranian companies to exchange goods and services without direct financial transactions. It helps companies bypass the complications and risks of financial dealings with Iran due to U.S. sanctions. As of November 2019, Belgium, Denmark, Finland, the Netherlands, Norway and Sweden joined the body. Spain also became a member. But as of March 2023, all ten members voted in favour of the dissolution of INSTEX due to Iran’s persistent refusal to engage with the barter facility.