As the world continues to struggle with growing inflation, impeding efforts to reduce poverty, global headwinds are hurting Africa’s economic growth. There is already a risk of stagflation, which is arising at a time when high interest rates and debt are pressuring African governments to make tough choices in an effort to safeguard citizens’ jobs, purchasing power, and development benefits.
The same thing is happening in Ethiopia, where supply-side problems and a sharp decline in the value of the local currency relative to major baskets of foreign currencies have caused inflationary pressure to outpace the interest rate paid on deposits by a significant margin.
Though policymakers of developing economies like Ethiopia believe they can withstand the global problem that is wreaking havoc on the world’s poor, the World Bank recently released a report showing the worst is yet to come.
According to the Bank’s bi-annual publication, dubbed Africa’s Pulse, the number of people facing severe food insecurity in Sub-Saharan Africa has increased sharply, with more than one in five people facing hunger and more than a quarter of a billion people undernourished.
Food security crises are becoming more frequent and more acute in the subcontinent. About 140 million people are estimated to be acutely food insecure in the region in 2022, up from 120 million in 2021, says the Bank, which estimates 55 million people will be acutely food insecure—up from 41 million in 2021—in East Africa alone.
Figures about the economies of sub-Saharan countries are even gloomier.
The World Bank predicted economic growth in Sub-Saharan Africa (SSA) is set to decelerate from 4.1 percent in 2021 to 3.3 percent in 2022, a downward revision of 0.3 percentage points since its April forecast, mainly as a result of a slowdown in global growth, including “flagging demand from China for commodities produced in Africa.”
“The war in Ukraine is exacerbating already high inflation and weighing on economic activity by depressing both business investments and household consumption,” the bank said.
Out of the 33 SSA countries, 29 are registering an inflation rate of about 17 percent. Ethiopia is ranked third for inflationary economies, with the average headline inflation exceeding 30 percent this year.
“These trends compromise poverty reduction efforts that were already set back by the impact of the COVID-19 pandemic,” Andrew Dabalen, World Bank Chief Economist for Africa, said.
For him, what is most worrisome is the impact of high food prices on people struggling to feed their families, which threatens long-term human development. “This calls for urgent action from policymakers to restore macro-economic stability and support the poorest households while reorienting their food and agriculture spending to achieve future resilience,”Dabalen said.
What is more concerning is also the inability of the countries to respond to the interconnected crises, first initiated by the COVID-19 pandemic and later worsened by the war between Ukraine and Russia.
Governments have already spent resources to counter the economic fallout of the COVID-19 pandemic, according to the World Bank, even though resource-rich countries have benefited from high commodity prices and managed to improve their balance sheets.
“The overlapping crises of the war in Ukraine, the ongoing pandemic and the surge in food and fuel prices are painful reminders that governments need to be prepared to manage massive, unexpected shocks that unravel very quickly,” Anna Bjerde, World Bank Vice President for the Europe and Central Asia region, said.
For Bjerde, social protection systems, which are the bedrock of anti-poverty efforts, need to be modernized to make them effective in the face of shocks as well as longer-term challenges.
While reflecting on the views of over 50 chief economists from all over the world in the World Economic Forum’s Chief Economist Outlook report, Saadia Zahidi, managing director of the World Economic Forum, warned that global inflation will remain high in the months to come.
“Real wages, unsurprisingly, will continue to fall and are expected to not keep pace with this rise in prices. Around nine in 10 expect real wages to decline in low-income economies and eight in 10 in developing economies. Food and energy prices continue to remain very large risks,” she underscored.
Above all else, Zahidi worries that social unrest will intensify as citizens in both developing and developed economies with the lowest incomes continue to feel the pinch of rising living costs, making it much harder to restore an economic order for economies across the world.
