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Global inflation is pushing millions of Africans back into poverty

by SuperiorInvest

Jadson Mankwala has been hit so hard by rising prices that he is reduced to collecting twigs for firewood and can no longer afford the small plastic bags of charcoal to sell in the Malawian city of Blantyre.

“At home, I’m trying to buy energy for cooking, so I collected wood,” said an unemployed 39-year-old man with a few thin branches under his arm.

The conflict in Ukraine, combined with currency depreciation triggered by US rate hikes and years of economic mismanagement at home, has seen inflation in Malawi reach 25 percent. The rising price of staples such as maize, which makes up almost half of Malawi’s inflationary basket, means there is little money for other items, even a bag of charcoal worth just 30 US cents.

While Russia’s invasion of Ukraine sent prices of essentials such as food, fuel and fertilizer soaring around the world, the human cost was particularly high in more vulnerable African economies such as Malawi. “You really talk about things [coming] per head,” the country’s president, Lazarus Chakwera, told the Financial Times.

The result, the International Energy Agency says, is that by the end of this year, up to 30 million Africans may not be able to afford liquefied petroleum gas (LPG) to cook the food they eat. Such a development would mean an economic regression that, according to the World Bank, could increase the total number of Africans living in extreme poverty from 424 million before the pandemic in 2019 to 463 million this year.

“There’s a lot of poverty that’s hard to measure, but we know it’s pervasive,” said Jacques Nel, head of Africa macro at Oxford Economics Africa.

Many African economies have been hit particularly hard by global price rises, as food accounts for a relatively larger share of national inflation baskets compared to developed economies, Nel added.

Food, for example, makes up about half of Nigeria’s basket. “If a household already spends more than 50 percent of its income on food [and prices increase even further]that are not spent on other goods, and that has a spillover effect on economies,” Nel said.

The situation in Malawi is repeated in some of the continent’s largest economies.

In Nigeria, where the real rate of the naira has fallen 25 percent against the dollar since the beginning of the year, it costs twice as much to fill a 5kg LPG cylinder as it did a year ago. This has forced many to resort to cheaper but dirtier energy sources such as kerosene or charcoal. Food inflation is 22 percent, leading consumers to cut back on meat and fish.

Years of underinvestment in infrastructure, oil subsidies and rampant oil theft have left Africa’s largest oil producer unable to benefit from rising oil prices. Due to a shortage of foreign currency, many businesses raised prices to reflect increased import costs.

Ladi Delano, co-founder of Moove, a Nigerian vehicle finance company, described the situation as a “perfect storm”. “The cost-of-living crisis has made it harder for people to save,” Delano said, adding that they removed the down payment requirement to encourage buyers.

Similar woes befall Ethiopiadescribed by a senior economic official in Addis Ababa as facing a “cocktail of challenges”, including inflationary pressures and a crippling shortage of foreign exchange, compounded by war in Tigray. This contributes to the shortage of imported products such as medicine and baby formula.

Prices are rising 32 percent and the informal market value of the birr fell to around 82 to the dollar, from 60 in early June.

Rahel Atnafu, a 46-year-old single mother, cleans apartments and beauty salons in Addis Ababa. He earns 5,000 birr ($95) a month and spends 1,500 birr ($28) on rent. Her employers “mostly give me cooked food or injera“, she said. “Still, I’m trying to survive.” The price of onions alone has doubled in the last two months. “How do poor people like me manage and survive the high cost of living?”

As governments lack the capacity to provide adequate levels of support across sub-Saharan Africa, the onus is increasingly falling on central banks to ensure stability.

Monetary policymakers are “throwing everything they have at the problem,” said Virág Fórizs, Africa economist at Capital Economics.

With prices in Ghana up 31 percent and a depreciating currency, Accra has raised rates in recent months at the most aggressive pace in 20 years. Nigeria’s central bank has raised rates by 250 basis points since May.

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But with the dollar continuing to strengthen as markets expect more rate hikes from the US Federal Reserve and food commodity prices remaining high, economists are skeptical that inflation will change anytime soon.

“Outside of South Africa, like Ghana and Nigeria for example, I don’t think we’ve seen the peak of inflation yet,” Fóriz said. “In both [the Ghanaian and Nigerian] inflation baskets, food is very important – and we don’t see food inflation going down any time soon.”

Landlocked, import-dependent Malawi symbolized the structural weakness of many African economies caught up in this crisis. In 2021, the country imported twice as much as it exported, with fuel and fertilizers dominating its $3 billion bill. While Malawi President Chakwera believes the country can “weather” the pain through cash transfers and low-interest loans to small farmers, the country is reliant on outside support, including the approval of a $750 million loan from the IMF.

With the cost of food making up a large portion of people’s expenses, many are left in dire straits. “These are the conditions that the most [people] they find themselves inside,” Mankwala said.

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