Upcoming Financial Week for AZA Finance: Food Inflation Fueling Protests and Interest Rate Increases
Currency Depreciation and its Impact on Food Supply and Inflation in Africa
Several African countries are experiencing protests as global food supply disruptions drive up the cost of essential goods, particularly in the face of currency depreciation. Here's a snapshot of the effects on specific countries across the continent:
Nigeria
The Nigerian Naira plunged to a record-low this week, with inflation reaching a more than five-year high of 18.6%. In response, the Central Bank of Nigeria raised interest rates by 100 basis points to 14%, a three-year high. Amid surging costs for flour, sugar, and diesel, bread makers have suspended production, adding to the hardships for Nigerian consumers.
Ghana
Ghana's Cedi also slipped to an all-time low against the dollar this week. To combat the impact of soaring inflation and economic hardship, the government agreed to increase the cost of living allowance by 15%. Despite this effort, the continuing heavy debt burden and declining reserves have stifled foreign investment inflows, pushing the Cedi's depreciation.
South Africa
Relief arrived for the South African Rand this week, halting its recent slide, as expectations of lower US interest rate hikes and ongoing increases by the South African Reserve Bank emerge. The inflation rate in June surpassed the central bank's upper limit, but the improved commodity outlook and the potential for another interest rate cut by China's central bank might bring further strength to the Rand.
Egypt
Egyptian Pound depreciated to a five-year low this week, amid higher demand for the dollar to finance imports and declining foreign investment inflows. President Abdel-Fattah El-Sisi announced Egypt's readiness to help alleviate Europe's gas crisis by exporting its natural gas. Despite these efforts, experts anticipate the Pound to continue weakening towards the 19 level in the near term.
Kenya
Kenya's Shilling declined to a fresh record low against the dollar as currency demand from manufacturing and energy sectors persisted. While annual inflation accelerated to 7.9%, the IMF approved a loan to help mitigate the impacts of the COVID-19 pandemic and Russia's war in Ukraine. With a significant presidential election less than a month away, observers anticipate further weakness for the Shilling.
Uganda
In response to rising prices triggering inflation, the Ugandan government aims to cut public spending by 6% in the first quarter of the 2022/23 fiscal year. As a result, the Shilling remains under pressure, with expectation for ongoing depreciation.
Tanzania
Tanzania's currency, the Shilling, remained unchanged against the dollar this week. The IMF approved an extended credit facility for Tanzania, which could stimulate private sector investment and improve food supply.
In conclusion, currency depreciation across Africa increases the cost of imports for essential goods like food, which contributes to higher inflation and makes it more difficult for consumers to afford necessities. However, political and economic responses vary among countries, impacting the degree of struggle faced by consumers.
- The rising inflation in Nigeria, fueled by currency depreciation, has led the Central Bank to increase interest rates, causing challenges for sectors like bread production, adding to consumer hardships.
- Ghana's depreciating Cedi, exacerbated by currency depreciation and economic hardship, has stifled foreign investment inflows, despite the government's effort to increase the cost of living allowance.
- In South Africa, the improved commodity outlook and potential interest rate cut by China's central bank might bring strength to the Rand, offering relief amid high inflation rates brought on by currency depreciation.
- Egypt's declining foreign investment inflows and increased demand for the dollar have led to its currency depreciating, despite President El-Sisi's efforts to alleviate Europe's gas crisis by exporting natural gas.
- Kenya's Shilling, under pressure due to currency demand from manufacturing and energy sectors, remains weak, as the government aims to cut public spending to combat rising prices and inflation caused by currency depreciation.
