This year has seen a sustained currency plunge in several African countries, with central banks across the continent scrambling to defend their currencies. The Nigerian naira has lost more than 20% of its value in the past 12 months; Standard & Poor’s said last month another naira devaluation is “inevitable”—possibly by more than 15%.

The South African rand has retreated 11% this year, and touched 13 to the dollar for the first time in 14 years. The Ugandan shilling, Kenyan shilling and Tanzanian shilling have all lost at least 12% of their value in the past 12 months; the Zambian kwacha, Angolan kwanza and Egyptian pound are similarly under pressure.

What’s going on?

Africa’s Currency Slide Explained

1. China slowdown

China’s economy has slowed down considerably this year; the country is Africa’s largest trade partner. Reduced demand from China negatively affects Africa because the Chinese market is a major source of foreign exchange for Africa.

2. Commodity markets slump

Reduced demand in China has also depressed the prices of global commodities. China is the world’s largest consumer of commodities, including 72% of the world’s met (coking) coal, and 40-50% of thermal coal, aluminium, nickel, zinc, copper and iron ore. It hits Africa hard because commodities make up a large chunk of Africa’s export revenue.

3. Expected rise in US interest rates

The US Federal Reserve Bank is expected to raise interest rates later this year, for the first time since 2006. Higher interest rates dampen the attractiveness of commodities such as gold, which don’t pay interest or give returns like bonds and equities do. That prompts investors to pull their money from commodities, metals and riskier emerging-market assets, meaning less hard currency for Africa.

4. Troubles in Europe

Europe has been in turmoil this year; the Greek crisis sent jitters in the international markets, and reduced investor confidence and demand in Europe. This also affects Africa as Europe is a major market for African exports, and a source of foreign direct investment.

5. Crude price slide

The price of crude oil has spiralled downward in the past year, posting the longest run in losses since 1986. This is particularly bad news for African oil exporters such as Nigeria and Angola, which have had to revise their budget estimates downwards and dip into their forex reserves to support their currencies.

6. Depreciation of the yuan

On Aug. 11, 2015, China took the rare move to depreciate the yuan in order to make its exports cheaper, and so protect its domestic industries. That triggered another wave of currency depreciations in emerging markets as countries try to stay competitive. Analysts see the Egyptian pound, Nigerian naira, Zambian kwacha and Ghanaian cedi at risk of going even lower, following the yuan.

7. Poor fiscal management

There has been a material deterioration in fiscal policy across a number of countries. Debt is rising faster than the economies are growing; in the past few years, there has been a flurry of Eurobonds offered by African countries including Côte d’Ivoire, Ethiopia, Ghana, Kenya and Senegal. But low oil and commodity price environment is reducing export revenues – the very revenues that countries need to service debt.

This article is published in collaboration with Mail & Guardian. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Christine Mungai is a writer & journalist with Mail & Guardian Africa.

Image: Residents stand outside a spaza convienience shop in Cape Town’s Imizamo Yethu township South Africa. REUTERS/Mike Hutchings