Fitch Solutions has warned that sub-Saharan African countries that are heavily reliant on Russian imports could soon be faced with political instability due to rising fuel and food prices.
Russia’s invasion of Ukraine last month has added pressure on global supply chains, resulting in sharply rising costs for energy and food, and adding a new dimension to the inflation picture.
Fitch Solutions global head of country risk, Cedric Chehab, yesterday said the direct impact of Russia’s war on African economies was limited, but secondary effects would be larger.
Chehab, however, said rising energy prices were going to be painful for economies that were dependent on fossil fuels to generate electricity, as energy costs would hit markets hard.
As a result, Fitch Solutions downgraded South Africa’s economic growth forecast from 1.8 percent to 1.5 percent for 2022.
“While the economies of sub-Saharan Africa are not as immediately exposed to the Russian invasion of Ukraine as emerging markets close to the conflict, the war will still have significant economic effects,” he said.
“South Africa is vulnerable to oil price rises, with transport accounting for around 16 percent of the consumer price index, while state-owned Eskom has been using diesel-fuelled turbines as an emergency power-supply measure, and has warned that higher fuel prices could mean that it is unable to run the emergency units.”
Though he did not mention South Africa, Chehab said they expected higher risks to social stability in countries such as Sudan, Ethiopia and Nigeria, where unrest and inflation were already elevated.
However, South Africa remained at the precipice of a violent eruption as the rising level of unemployment had pitted locals against foreign nationals, with only a spark missing to unleash civil unrest experienced in July last year.
Fitch Solutions yesterday also revised downward its global growth forecast to 3.6 percent for 2022, from 4.1 percent, due to the Ukraine-Russia conflict.
The agency said global growth was slowing, affected by disrupted supply chains, inflation risks pushed up by rising commodity prices, and monetary policy responses.
Chehab said more downward revisions to the global economic outlook were yet to come.
He said higher inflation could push central banks around the world to tighten monetary policy as some central banks were already doing so, including the US Federal Reserve.
Last week, the South African Reserve Bank (SARB) also continued its rate hike cycle, increasing interest rates by 25 basis points to 4.25 percent as inflation was assessed on the upside.
South African motorists are expecting to pay more at the pumps in April as the fuel price is forecast to increase by yet another record high.
Global oil prices escalated to 14-year highs above $130 per barrel earlier this month on fears of supply chain disruptions as the US and European Union countries imposed sanctions on Russia.
This has seen fuel and food prices rising dramatically in a short space of time, with headline inflation remaining unchanged at an elevated 5.7 percent in February.
According to the Household Affordability Index, the average cost of the foods prioritised and bought first in the household food basket increased by R169.70 or 7.8 percent from R2 174.53 in March 2021 to R2 344.23 in March 2022.
Investec chief economist Annabel Bishop said the domestic and global economies were caught in a double bind with very limited choices as inflationary pressures demanded monetary policy responses.
“Indeed, global monetary policies are reversing support for economic growth, and are expected to cause slower GDP growth in 2023 and the second half of 2022 domestically and globally, while high inflation also eats into purchasing power and afflicts the performance of economies,” she said.
siphelele.dludla@inl.co.za
BUSINESS REPORT ONLINE