The Africa’s Pulse report, a biannual look at the sub-Saharan region’s economic trajectory, said this week that Africa’s central bankers are caught in a bind.
“As a result of supply shocks predating the war in Ukraine, emerging signs of stagflation are posing challenges to monetary policy-making. Central banks in sub-Saharan Africa are facing the dilemma of supporting the sluggish economy (at the cost of higher inflation) or combating inflation (at the cost of triggering a downswing in economic activity). Monetary authorities in the region have opted for the second option,” it said.
In layman’s terms, this means central banks are hiking interest rates in a bid to contain inflation, which is slicing across the continent like a scythe. But this policy response in Africa may be a dull blade.
“In response to the monetary policy normalisation in advanced countries, especially the United States, the number of central banks hiking policy rates is on the rise. However, monetary tightening in Africa might not be effective in curbing inflation as it is driven by supply shocks (commodity prices and climatic shocks), and the weak monetary transmission in countries with underdeveloped financial markets and large informal sectors.”
This can be seen in South Africa, where retail trade sales in February fell 0.9% year-on-year, according to data released this week by Statistics South Africa (Stats SA). When demand pressures are muted they tend not to be inflationary, which means inflation is bubbling against the backdrop of economic weakness – a classic sign of emerging stagflation.
“Soaring commodity prices will translate into higher inflation: more specifically, elevated fuel and food prices will affect consumer inflation across several countries in the region. Prior to the outbreak of hostilities in Ukraine, supply chain problems, high transportation costs, and devastating weather effects (from floods, droughts, etc) were already pushing up food prices in several low- and middle-income sub-Saharan African countries,” the World Bank said.
It said more than 80% of the countries in the region for which data was available experienced food inflation of more than 5% in the year to February 2022 and nearly half were saddled with double-digit inflation.
“Food price increases have especially affected poor households in sub-Saharan Africa where food constitutes a higher share of household budgets. Based on Consumer Price Index (CPI) information, food expenses account for 40% of consumer spending while they account for 17% of household expenditures among advanced economies. Consequently, within African economies, the impact of rising food prices will affect poorer households,” the World Bank said.
It also noted that Russia’s invasion of Ukraine was throwing more fuel on the inflationary fires.
“Russia and Ukraine accounted for 15.3% of cereal imports to sub-Saharan Africa (11.4% from Russia and 3.9% from Ukraine) in 2020. The share of cereal imports coming from Russia and Ukraine exceeds 25% for five countries in the region – namely, Democratic Republic of Congo, Republic of Congo, Uganda, Ethiopia, and Nigeria… About one-third of the wheat imported by the region comes from the two Eastern European countries.”
In the 1930s, Stalin orchestrated a famine in Ukraine. Now Putin’s invasion of Ukraine is triggering hunger across Africa.
ANC apologists for Vladimir Putin’s aggression are like the proverbial ostriches with their heads in the sand. The poor across the continent, including in South Africa, are going to suffer because of this war – the very people the ANC always claims to support. But hey, let’s just sing old struggle songs in Russian and remember the good old vodka binges in Moscow – the glory days when potatoes and vodka were cheap, comrade. DM/BM