With the combination of pandemics, inflation and now conflict; there are causes to worry about looming stagflation, not only in Africa but in global economies as well. Stagflation refers to an economy that is experiencing a simultaneous increase in inflation and stagnation of economic output. The term was first recognized in the 1970s when many developing economies experienced rapid inflation and high unemployment that was caused by an oil shock. The world looks set for this phenomenon again as oil and gas reach record prices due to the increase in brent and WTI futures, many nations are reeling from the hike in the landing cost of refined petroleum products which African countries mainly depend on. Russia’s invasion of Ukraine has only worsened this more, as sanctions from other developed countries are sending shockwaves throughout the world. To kick off the new week, Business Edge explores how stagflation threatens Africa’s recovery. Tolulope Adeleru-Balogun is joined by Gbolahan Olojede, Executive Director at DMA Advisory and Management Services Limited.
Africa’s fight against poverty was set back by the coronavirus induced lockdowns and its resultant suspension – and in some cases the end of business activities. This is the background against which the stagflation being envisaged is coming up. So how much worse are things getting for African countries? Considerably worse, Gbolahan Olojede says. “It took away the gains. Nigeria for example recorded the fastest growth in a quarter. But now, what is going on is threatening to totally wipe away all the recovery African countries made after COVID.”
While this situation is not peculiar to Africa, the fact that African countries are import-dependent on food and energy supply makes the effect more severely felt. “When you look at the import numbers for food, it is embarrassing. The same thing goes for fuel. Nigeria is a typical example where crude oil is exported and refined fuel is imported,” he says. This, he adds, exposes the economies to vagaries of the international marketplace such as the Russia-Ukraine crisis.
Unfortunately, mineral-rich countries like Nigeria and Angola should benefit from the rising cost of crude oil and other commodities. However, with a lack of capacity evident in these countries and many more like them, what occurs is a vulnerability in their economies. All of these contribute to the stagflation that now threatens to derail Africa’s recovery.
Watch the full episode of Business Edge above.
