The sub-Saharan Africa economic outlook faces a new and severe economic threat due to surging food and fuel prices that has been prompted by Russia’s invasion of Ukraine, the International Monetary Fund (IMF) has said yesterday.
“The effects of the war will be deeply consequential, eroding standards of living and aggravating macroeconomic imbalances,” and “could not have come at a worse time — as growth was starting to recover and policymakers were beginning to address the social and economic legacy of Covid-19 pandemic and other development challenges”, the IMF said yesterday in a report on the region released yesterday.
Half of the region’s low-income countries are already in or at high risk of distress.
As indication of how this was affecting South Africa, professional services firm PwC said yesterday local production costs were already rising even before the disruptions caused by the Russian invasion and flooding in KwaZulu-Natal, and local production costs were rising quickly.
“The producer price index (PPI) for final manufactured goods increased by 10.5 percent year-on-year in February 2022 (double the rate measured a year earlier) and averaged 10.3 percent y-o-y over the past four months. This was among the highest readings since the introduction of the current PPI a decade ago and also nearly double the ten-year average of 5.5 percent per annum,” PwC said in a report on the local economic outlook.
“The S&P Global report noted that private sector companies largely passed on March’s increased production costs to their consumers. Unsurprisingly, local firms also observed that clients were reducing their demand due to concerns over rising living costs,” PwC said.
IMF Africa Development director Abeba Selassia said in a press conference commodity producing countries might benefit from higher commodity prices, but the timely transfer of this windfall to communities already suffering from higher fuel and food prices, was likely to be a challenge.
He said the IMF now expected growth in the region to slow to 3.8 percent this year from last year’s better-than-expected 4.5 percent. While the IMF projected annual growth to average 4 percent over the medium term, “it will be too slow to make up for ground lost to the pandemic”, Selassia said.
Inflation in the region was expected to remain elevated in 2022 and 2023 at 12.2 percent and 9.6 percent respectively, the first time since 2008 that the rate would reach such high levels, the IMF said.
PwC said its upside scenario for South Africa – accounting for at least some government reforms – expected real gross domestic product growth of 2 percent per year. over the medium to long term, which would see the unemployment rate close the decade at 36.9 percent.
“Even under our upside scenario, joblessness will continue rising,” PwC said. Unemployment was at 35.3 percent at the end of last year.
PwC said big-ticket actionable items to stimulate growth at the least possible cost to the fiscus were to improve the electricity situation, ensure South Africa had the correct skills base to address the needs of the labour market and to increase private sector investment.
PwC said these changes could lift South Africa’s potential long-term economic growth from the current 1.5 percent per year to above 4 percent per year over the next decade.
“However, we are not very optimistic the full suite of necessary reforms will materialise — even if the compact includes the necessary changes, implementation is always an Achilles heel.”
The IMF has said prices for food, which accounts for about 40 percent of consumer spending in sub-Saharan Africa, are rising rapidly. About 85 percent of the region’s wheat supplies are imported.
Higher oil prices will boost the import bill for the region’s oil importers by about $19 billion, worsening trade imbalances and raising transport and other consumer costs.
edward.west@ibnl.co.za
BUSINESS REPORT ONLINE