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The alarm bells of Stagflation are resounding

The world is facing an economic crunch. Sadly, it coincides with the persistent increase in food and energy prices. And the culprit, the Russian-Ukraine war that’s been ongoing for over six months shows no sign of ending soon. Growth is declining sharply and there’s a 98.1% chance that the world will slip into a recession in 2023. The IMF projects global growth to fall to 3.2% from 6% in 2021. Also, worldwide inflation will peak at 8.8% from 4.7% in last year. Simply, we are in a new era of stagflation (high inflation and slow growth) and everyone is feeling the pinch.

The last time this happened was in the 1970s and it took years for the global economy to recover. Monetary policy tightening was the answer then, and it looks to be the only answer now. Many central banks (US Fed, BoE, ECB, and even the CBN) have increased rates by over 200bps this year. In all, we have enjoyed the boom period of less than 2% inflation and fast growth, now, we are in a bust period that will be here for a while. Except, of course, the war ends with the snap of a finger. Even then, the damage is already done and it will take years to correct, especially in developing nations.

Hunger is becoming a monster in Africa

Africa is facing the worst food crisis in four decades. From insecurity in Nigeria to the drought in Somalia, hunger is ravaging Africa. According to the FAO, 346 million people in the continent (27% of the entire population) are facing extreme hunger. Food crisis is not new to African countries. However, a stronger dollar (due to higher interest rates), weather shocks (resulting from climate change), and limited global supply (resulting from the Russia-Ukraine war) have compounded the issue. The tight global food supply and the appreciation of the greenback have made food imports more expensive for many African countries, especially as their foreign reserves bleed out. For instance in Nigeria, external reserves are down by 12% ($37bn) from a year ago, causing the naira to depreciate to a new low of N855/$ as the CBN has less to defend the currency.  Sadly,  the food problem is not going anywhere soon.

In this edition of the FDC Bi-monthly publication, the FDC Think-Tank analyzes these issues and their implications, including opportunities for the Fintech industry in Africa and Tax incentives in Nigeria’s oil and gas sector.

Do enjoy your read!