Zimbabwe named among the ten nations that will experience double digits inflation levels this year on mounting exchange rate pressures, the Economist Intelligence Unit (EIU) says.
In July 2021, the southern African nation’s inflation slowed to double digits for the first time in more than two years. Conservative reserve money targeting and the introduction of the foreign exchange auction system brought some stability in the foreign exchange market and consequently inflation.
But, the widening margin between the official and parallel exchange rate threatens to reverse the gains made on the inflation front. On the black market the local currency is trading at around ZWL$200x per US dollar while the official rate is ZWL$108.
“Among other things, currency depreciation against the US dollar will add to inflationary pressures across Africa and exacerbate external debt-servicing issues among the region’s heavily indebted states, both of which are potential sources of financial distress and social unrest,” EIU said.
“Almost 30 African states will experience average annual consumer price inflation at or above 5% in 2022, while ten—including Angola, Ethiopia, Nigeria, Zambia and Zimbabwe—will have a rate of inflation uncomfortably in double digits.”
Zimbabwe seeks to achieve an average inflation target of 15% to 20% in 2022.
EIU noted that most African countries will see their currencies lose value against the US dollar in 2022, with 41 of 54 African states forecast to experience nominal depreciation between end-2021 and end-2022.
“Heightened currency volatility is expected given the various and counterbalancing factors that will engulf the region, including the lasting effects of the pandemic and modest economic recoveries, stretched national finances and bullish commodity markets, the international investor search for yield and an uptick in annual inflation to name but a few,” it said.
The bias appears towards currency weakness, with increased volatility and susceptibility to large swings in value, which will complicate some trade and investment deals on the continent, according to EIU.
Africa has so far been spared the worst of the Covid-19 in terms of cases and deaths but its economy has not been so lucky, especially countries dependent on a single resource or sector.
The countries most affected by commodity price swings are the energy majors of Algeria, Angola, Egypt, Libya and Nigeria, as well as the large-scale mining states of Botswana, the DRC, Ghana, Mauritania, Morocco, Namibia, Niger, Sierra Leone, South Africa, Zambia and Zimbabwe.
The most recent pandemic-induced slump in commodity prices was relatively short-lived and commodity markets were back on an upswing in 2021.
“The commodities bull run is expected to continue (albeit at a slower pace) in 2022, which bodes well for corporate revenue and share prices among African energy, metals, materials and food producers,” EIU said.
“Strong demand and high prices will provide a timely, albeit temporary, financial windfall and some financial breathing space for Africa’s natural resource exporters.”
Agricultural commodity prices increased sharply in 2021 and a further, modest rise in agricultural prices is expected in 2022 amid production constraints and strong global demand – HARARE