Global inflation pushes millions of Africans back into poverty

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

“I’m having trouble buying energy to cook at home, so I picked up some wood,” says the 39-year-old unemployed man, a few thin branches under his arm.

The conflict in Ukraine, combined with currency depreciations triggered by rising US rates and years of economic mismanagement in the country, has left inflation in Malawi at 25%. The rising cost of staples such as maize, which accounts for nearly half of Malawi’s inflation basket, means there is little money for other items, even sacks of charcoal which are only worth 30 US cents.

While Russia’s invasion of Ukraine has caused the prices of basic necessities such as food, fuel and fertilizer to soar around the world, the human cost has been particularly high in larger African economies. vulnerable like Malawi. “You really talk about things [coming] one-headed,” the country’s president, Lazarus Chakwera, told the Financial Times.

The result, according to the International Energy Agency, is that by the end of this year, up to 30 million Africans may no longer be able to afford liquefied petroleum gas (LPG) for cook the food they eat. Such a development would mark an economic regression which, according to the World Bank, could push the total number of Africans living in extreme poverty from 424 million before the pandemic in 2019 to 463 million this year.

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

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

Food, for example, accounts for about half of Nigeria’s basket. “If a household already spends more than 50% of its income on food [and prices increase even further]which are not spent on other goods, and which have a ripple effect on savings,” Nel said.

The situation in Malawi has been replicated in some of the largest economies on the continent.

In Nigeria, which has seen the real rate of the naira plummet by 25% against the dollar since the start of the year, it costs twice as much to fill a 5 kg bottle of LPG as it does year. This has forced many people to resort to cheaper but more polluting energy sources such as kerosene or charcoal. Food inflation is 22%, prompting consumers to reduce their consumption of meat and fish.

Years of underinvestment in infrastructure, oil subsidies and widespread theft of crude oil have meant that Africa’s largest oil producer has failed to benefit from rising crude prices. With foreign currency in short supply, many companies raised their prices to reflect rising import costs.

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

Similar woes plague Ethiopia, described by a senior economics official in Addis Ababa as facing a “cocktail of challenges” including inflationary pressures and a crippling shortage of foreign currency, exacerbated by the Tigray war. This is in addition to a shortage of imported products such as medicines and infant formula.

Prices increased by 32% and the value of the birr fell to around 82 against 1 dollar in the informal market, against 60 at the beginning of June.

Rahel Atnafu, a 46-year-old single mother, cleans apartments and beauty salons in Addis Ababa. She earns 5,000 Birr ($95) a month and spends 1,500 Birr ($28) on rent. Her employers “usually give me ready meals or injera“, she says. “Still, I am struggling 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 ?”

With governments lacking the capacity to provide appropriate levels of support across sub-Saharan Africa, the onus increasingly falls on central banks to provide stability.

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

With prices up 31% in Ghana and a falling currency, Accra has in recent months raised rates 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 appreciate as markets price in further rate hikes by the US Federal Reserve and food prices remain high, economists doubt inflation will reverse any time soon.

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

Malawi, landlocked and dependent on imports, symbolized the structural weakness of many African economies entering this crisis. In 2021, the country imported twice as much as it exported, with a $3 billion bill dominated by fuel and fertilizers. While Malawi’s President Chakwera believes the country can ‘overcome’ the pain with cash transfers and low-interest loans to smallholder farmers, the country is dependent on outside help, including approval of a $750 million loan from the IMF.

With the cost of food making up a large portion of people’s expenses, many remain in dire straits. “These are the most [people] find each other,” Mankwala said.

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