Inflation is coming back to Africa, and it’s not going away

By Estelle Maussion
Posted on Tuesday, 8 March 2022 12:49

In a grocery shop in St. Louis. © Alfredo CALIZ/PANOS-REA

The prices of most food commodities are soaring on the continent, putting pressure on governments, consumers and the private sector. No short-term solution seems satisfactory.

The price of a 50kg bag of wheat flour has risen from 11,000 to 23,000 CFA francs (€35) in Côte d’Ivoire, the cost of sugar is rising in Senegal, Mali and Mauritania, and the price of a litre of oil and a kilo of potatoes is soaring in Algeria. In traditional markets as well as in supermarkets, the places where the majority of African consumers buy their food, their food shopping bill continues to rise, leading to protests about high living costs.

The situation is particularly tense in North and West Africa and has led several countries – Côte d’Ivoire, Senegal, DRC, Algeria – to introduce a number of measures in an effort to protect purchasing power. These include introducing price ceilings, suspending import and customs taxes, lowering VAT, tightening controls on regulated prices, etc.

Although this inflationary surge is part of a global trend (+28% in one year for food prices, according to the latest data from the UN’s Food and Agriculture Organisation, FAO) and it is certainly not the first to hit the continent, it is occurring amid the difficult context of post-pandemic recovery and is expected to last, according to observers, well into 2022.

This will complicate matters for all economic actors, households, businesses and governments.

Alert in West Africa

The first observation is that this food inflation shock has not hit all African countries in the same way. “Over the course of 2021, only four countries experienced a double-digit annual price increase: Nigeria, Angola, Zambia and Ethiopia,” says David Cowan, Citi’s chief Africa economist. “By the end of the year, this food inflation had spread to Côte d’Ivoire (with an annual rate of 12.2% in November 2021) and Ghana (12.8% over the same period), although this had a differentiated impact on overall inflation (5.6% in Côte d’Ivoire, 12.6% in Ghana),” he adds.

“The same differentiated situation exists in North Africa, where price increases were driven by 13.7% food inflation in November 2021 in Algeria, a level identical to that from 2011-2012, compared to 4.4% in Morocco in December.”

Broadly speaking, it is possible to divide the continent into two categories: on the one hand, Southern Africa and East Africa, which have been relatively spared as inflation has remained at between 2% and 4%; on the other, the Maghreb and West Africa, which have been hardest hit by the phenomenon.

“This impact is all the more painful as it comes at a time when wages are stagnating and even falling as a result of the pandemic, and, in the CFA zone’s case, where the inhabitants are not used to price volatility,” says the Citi economist.

In fact, the situation is the most worrisome in West Africa. “We had a wake-up call at the end of 2021 when we noticed that the average food price in the region over the last quarter was 39% higher than the average over the same period in the last five years,” says Ollo Sib, an FAO and World Food Programme (WFP) analyst for Central and West Africa, who carried out monthly surveys in 1,500 sales outlets (traditional rural and urban markets) by tallying up the price of a basket’s worth of basic products (cereals, sugar, oil, etc.)

In some cases, the increases are spectacular: +181% compared to the five-year average for maize from the Ashanti basin consumed in Ghana but also in Burkina Faso and Côte d’Ivoire; +108% for millet from Kidal in Mali; between +20% and +40% for cereals in the region’s other countries.

While inflation remains limited for rice – except, for example, for rice from Nzérékoré in Guinea, where the price has jumped by 50% compared to the five-year average – it does also affect oil (often the second largest item of expenditure after cereals), sugar, vegetables, meat, fish, etc.

Imported inflation

The second observation is that this inflation is likely to last. “In 2008, just like in 2012, the price peak only lasted a few months. The current rise is much more structural. It is expected to last until at least the next lean season, in August-September,” says Pierre Ricau, a market analyst at Nitidae.

This forecast, which experts have widely shared, can be explained by the interweaving of multiple factors, both internal and external, that are at the root of inflation. Internationally, the Covid-19 pandemic has disrupted supply chains, caused an increase in freight rates and logistical difficulties, tensions that are taking time to resolve and costing African countries – which are still largely importers – dearly.

This pressure is increased by the overall inflationary effect linked to the Chinese economy’s recovery, Western stimulus plans and the soaring cost of energy, which is having a knock-on effect on the continent.

“Food products, but also agricultural inputs, iron, cardboard, plastic, cables… It is difficult to find an input whose price has not risen, the price increase is almost generalised,” says Celestin Tawamba, who is in charge of Cameroon’s employers, heads the Groupement Inter-Patronal du Cameroun (Gicam) and deplores “imported inflation.”

The situation is both more serious and more complex than it was in 2007-2008, since an improvement in external factors would not necessarily be enough to curb inflation.

The state of affairs is hardly any better on the domestic front. In West Africa, harvests are not good overall. This has created an imbalance between supply and demand, which is synonymous with soaring prices. This poor performance is due to an accumulation of unfavourable conditions: lack of rain, the high cost and scarcity of fertilisers, difficulty in finding labour due to closed borders, political tensions that lead to population displacement and land not being cultivated, and tight government budgets resulting in minimal support to the agricultural sector.

Few winners, many losers

“The supply of fertiliser is this period’s big failure. Apart from Benin, Nigeria and Côte d’Ivoire, which did well, other countries – Mali, Senegal, Ghana, Burkina Faso, Togo and Niger in particular – struggled to carry out their tenders amid a context of rising prices,” says Ricau. “As a result, more than a million tonnes of fertiliser were not imported into the continent, which reduced this year’s harvest and will have an impact on the next.” There is a strong possibility that this will lead to further price pressure.

The Ivorian rubber industry, which was in crisis, has been able to recover, while the groundnut industry in Senegal and Gambia has done well.

“The situation is both more serious and more complex than it was in 2007-2008, since an improvement in external factors would not necessarily be enough to curb inflation,” says Sib, pointing out the “significant risk to economic and social progress” in West Africa. Overheating has created few winners and many losers.

The big agricultural commodity traders, the so-called ABCDs – ADM, Bunge, Cargill and Louis Dreyfus – as well as Olam, are undoubtedly in the first category, as they benefit from both higher commodity prices and freight rates. Although they are more difficult to identify and quantify, intermediaries and economic actors (formal and informal) who are good speculators are also doing well.

Finally, producers of export crops (rubber, palm oil, cotton, groundnuts) are also smiling, as the rise in prices has increased their income. “The Ivorian rubber industry, which was in crisis, has been able to recover, while the groundnut industry in Senegal and Gambia has done well,” says Ricau. The same is true for cotton in Côte d’Ivoire and Burkina Faso.

Arm wrestling

However, the situation is difficult for other actors and tensions between the private sector, consumers and governments are growing. This is illustrated by the tug of war between the authorities, millers and bakers over the increase in the price of baguettes in Cameroon, and the pressure that civil society has exerted on those in charge to defend purchasing power in Côte d’Ivoire and Senegal.

On the one hand, industrialists and companies, whose production costs are exploding, are urging the authorities to authorise price increases, including on basic products, as they risk falling into the informal sector or going out of business. On the other hand, consumers and citizens, whose stock market is being undermined by the pandemic and its consequences, refuse to pay more, with some threatening to take to the streets.

States, which are stuck between a rock and a hard place, are increasingly choosing to favour the latter to the detriment of the former in order to avoid any new Arab Spring-type movement. This forces the private sector, says Gicam boss Célestin Tawamba, also head of Cadyst Invest, a conglomerate active in the agri-food and pharmaceutical industries, to “make survival adjustments when confronted with the public authorities’ silence and the inadequate measures taken.”

Untenable position

Ultimately, this crisis highlights the impasse that has been reached regarding the political economy of food prices. “Since the price of flour has doubled, how can the price of a baguette stay the same?” asks Sib, summarising the untenable position in which most governments find themselves.

[…]2022 will be more difficult than 2021 for many African consumers.

Some, such as the Malian authorities, are widely criticised for what has been described as a counterproductive reaction. Measures involving closing borders and banning agricultural exports by reinforcing official and unofficial controls on goods tend to increase the cost of transport and therefore the final price on the national market.

“Elsewhere, governments have generally reduced import taxes and/or lowered VAT on agricultural products, measures that work in the short term but only affect about 10% of the final price,” says analyst Ricau. “This is the only card they have. So, for those who have already used it, what will they do when the next lean season approaches?”

After growth recovered in 2021 to a higher level than anticipated by the IMF and the World Bank, the pace is likely to be slower this year, says Cowan. “In other words, 2022 will be more difficult than 2021 for many African consumers.” This is all the more true given the war between Russia and Ukraine, as it will be harder for many African countries to obtain wheat supplies.

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