Rising food and fuel inflation has raised the risks of social unrest spreading to hard-hit countries in the sub-Saharan region, especially in net importing countries where the impact has been severe, leading experts have warned.
“Food prices are volatile and heading upwards,” said Mthuli Ncube, chief economist at the African Development Bank. “This is a major risk to vulnerable groups, and it can quickly become a problem for net importers of food who don’t produce enough locally.”
Inflation has hit double-digits in many countries across the region, driven disproportionately by food and fuel prices, prompting policymakers to tighten, or introduce subsidies in a bid to cushion the impact.
“The biggest challenge in the near-term is how policymakers deal with the threat of rising inflation, and whether or not they can stop food and fuel increases from becoming more generalized,” said Razia Khan, chief Africa analyst at Standard Chartered.
Some analysts believe regional policymakers have been too slow to react and may now be forced into excessive policy tightening which could result in a growth slowdown either during the second half of this year, or in 2012.
“There is a risk that some policymakers in the region may be a bit behind the curve, and that they may engineer a hard landing,” said Stuart Culverhouse, chief economist at Exotix.
Others see the threat posed by rising food and fuel prices as less on monetary policy than on social stability, pointing to the fact that high food prices were a driver behind unrest in North Africa, and have already led to food price protests in sub-Saharan African countries including Burkina Faso and Uganda.
“I am very confident that central banks and ministries of finance will take the necessary measures to raise interest rates and contain inflation, but the issue is how quickly you can get supply to dilute shortages and force prices down,” Ncube said.
“It will be very difficult for policymakers to prevent political or social upheaval due to sharp increases in prices.”
Shanta Devarajan, chief Africa economist at the World Bank, said low urbanization rates and the predominance of millet and rice in sub-Saharan African diets should mitigate the impact of rising global food prices on the region.
Millet and rice prices have remained much more stable than wheat or corn over the past 18 months. “African countries are in general better placed to withstand current food price increases,” he said.
Some countries like Rwanda have succeeded in keeping inflation in check while refraining from granting fuel subsidies, in line with the recommendations of the IMF.
“We have felt the impact like everybody else, but for the time being inflation is still at 5%. We have not had double digit inflation like some of our neighbours,” said Kampeta Sayinzoga, a Rwandan Treasury official.
“There are risks, we are not entirely protected. But policies are in place to face the situation.”
From next month, Rwanda will cut import tax on fuel (rather than granting fuel subsidies). “This can help us to stabilize prices until the end of the oil crisis, hopefully,” she said.