BusinessDay

Inflation fuels cost of living crisis that is threatening stability in Nigeria and rest of Africa says EIU

Prices of global commodities, including energy, are rising rapidly and fueling runaway inflation and instability in much of Africa including its most populous nation Nigeria.

According to analysts at the Economist Intelligence the cost of living crisis is being exacerbated by the Russia-Ukraine conflict which have resulted in sanctions, airspace bans and security aggravating pandemic-related supply-chain difficulties.

Unemployment across Africa is still very high, and the recovery in jobs is forecast to be largely concentrated in the informal sector.

According to a research by analysts at the Economist Intelligence Unit, EIU, “consumers will continue to be hit hard, and the risk of social unrest will be high, as will the risk of voter disillusionment in countries that are heading to the polls, namely Kenya and Angola, in 2022.

The cloud of covid‑19 may be lifting, but Africa will emerge from the crisis with pre-existing grievances intact and, in many cases, exacerbated by the socioeconomic impact of the pandemic and now rising inflation.

“Civil unrest will prove a major threat to social and political stability for the remainder of 2022 and in 2023, especially for a few highly volatile countries.”

Africa’s natural resource exporters should benefit from a cash windfall driven by a spike in global commodity prices but this does not include Nigeria where falling oil production levels and a fiscal and FX woes have combined to deny the country any such benefit.

In addition for most of Africa this will be a double-edged sword for the region. Many countries including Nigeria are heavily dependent on fuel and food imports, and the cost of imported intermediate goods and manufactures will also rise.

“Supply deficits in the African food market will also be exacerbated by negative climactic factors. There is substantial risk of drought conditions, particularly in the Horn of Africa and West Africa,” said EIU.

“The Famine Early Warning Systems Network estimates that about 50m people across the Horn of Africa will be in need of humanitarian aid by mid-2022 if a crisis is to be averted. The areas most at risk of famine are northern and southern Ethiopia, northern Kenya, South Sudan and Somalia.

Hunger is a significant driver of social frustration and political turmoil. Most of the regions experiencing acute hunger are mired in conflict (Somalia, Mali, northern Nigeria), with social instability causing internal displacement and inefficient markets, further driving rising food insecurity in the broader region.”

An EIU forecast shows a mixed picture across the continent. Inflation in Sub Saharan Africa (SSA) will likely stay broadly unchanged in 2022‑23, averaging 10.8 % a year, compared with 10.5% in 2021 but despite this relatively stable picture in overall terms, inflation trends throughout the region will display marked variations.

Read also: Why Africa must prioritise economic growth over tackling inflation -IMF

Inflation in the Franc Zone is generally kept low by the currency’s peg to the euro, which limits imported inflation. Accordingly, analysts expect inflation in the Franc Zone to average about 5% a year in 2022‑23—the lowest in Africa. Countries without the same monetary anchor will register higher rates such as Ghana (13.1%) and Nigeria (15.3%).

In North Africa, long-standing issues with water scarcity have constrained the development of domestic food production capacities, with more volatile climate patterns leading to shrinking yields in both Algeria and Morocco.

As the world’s largest wheat importer, Egypt is also heavily exposed to rising cereals prices; a 4.6% month-on-month jump in food prices in February has helped push its inflation rate up to near the top of the Central Bank of Egypt’s target range (of 7%, plus or minus 2 percentage points). This target seems certain to be breached over the coming months.

In Southern Africa, inflation is expected to average 8.2% in 2022, before moderating to 7% in 2023. Trends in the subregion will be dominated by the leading market, South Africa; inflation there will quicken to 5% in 2022—a five-year high—owing to rising oil prices, another large increase in electricity tariffs (of 9.6%) and the still-elevated cost of global logistics.

Inflation in East Africa in 2022‑23, at an annual average of 9.8%, will fall just under the forecast average for SSA for this year. However, this will mask relatively low and stable rates of inflation in countries such as Kenya and Uganda (averaging, respectively, 6% and 4.4% over the two-year period) and a more concerning inflation outlook in Ethiopia where analysts expect inflation to hit double digits, averaging over 23%.