Inflation rates of 20% or more mean that per head GDP is likely to fall, which in terms increases the chances of political upheaval, the research argues.
In most global emerging markets in 2022, even falling GDP per head has little impact on political risk, because most markets are simply too wealthy and stable, Robertson says. That, he argues, does not apply in many parts of Africa. The continent’s low-income countries face more risks when there are destabilising external events, such as the Russia-Ukraine war, because food represents a higher share of the consumer price basket than in richer economies.
Further, while in richer countries packaging, labour and transport costs represent a large part of the final food prices paid by consumers, in Africa, the raw material costs of food makes up a higher share of the sale price.
For political change, Robertson uses the “Polity Score” produced by the Center for Systemic Peace (CSP). The score ranks regimes on a 21-point scale ranging from -10 (hereditary monarchy) to +10 (consolidated democracy). Robertson’s analysis is based on 183 countries which have both GDP figures and Polity scores since 1960. A shift of even one point in either direction is counted as political change, and larger moves may involve “regime change”.
- The annual risk of a shift towards democracy trebles to 14% when inflation is rising and in a 20%-30% range, according to Robertson’s research.
- The risk of a shift towards autocracy more than doubles to 7% when inflation rises above 50%.
- African countries with a one in four risk of regime change if per head GDP falls are Ethiopia, Tanzania, Sudan, Zimbabwe, Morocco and Egypt, Robertson writes.
Research from Chapel Hill Denham in Nigeria this month says that Africa may need to brace up for a long inflationary period. A persistent rise in energy prices will directly stoke further pressures on non-food inflation and indirectly raise the cost of the food basket across the board, which African central bankers are unlikely to be able to contain, the firm says.
Lower global commodity prices including for oil, and improvements in food supply chains will be needed for a consistent moderation in inflation, Chapel Hill Denham says.
Within the universe of emerging markets, Robertson writes, Egypt in a normal, non-inflationary year is the most likely country to experience regime change, with only an 84%-87% chance of the current regime remaining in place.
- Egypt’s annual urban inflation rate increased to 10.5% in March, the highest since June 2019. If such rates lead to a fall in per head GDP, there is a one in four chance that Egypt’s regime will change, Robertson calculates.
- That includes a one in 20 chance of a shift to full autocracy, and about a one in five chance of a shift towards democracy.
- The rational course for a political leader who is happy with the political status quo is to do all he can to keep per head GDP in positive territory, Robertson writes. “This would not be a good time to remove bread subsidies.”
Egypt’s President Abdel Fattah al-Sisi may be the African leader most politically exposed by rising prices.
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