Earlier this month, the BCEAO raised its key rates in a bid to curb inflation. However, its recent economic indicators suggest that monetary solutions will not be enough to achieve the targeted goal. Production needs to be revived, food production especially.
In West Africa, inflation is mainly driven by food underproduction, the regional central bank (BCEAO) confirmed in a report published Monday (June 20). Nevertheless, the institution will mainly take monetary solutions, notably increasing its policy rate, to reduce money supply.
According to the report, in the quarter ending in March 2022, inflation reached 6.4% in the WAEMU region. This is more than twice the convergence rate (+/-1% on a reference value of 2%) approved by member countries.
The food component alone rose by 5.2% but some products recorded no quarter-to-quarter change in prices. The price of agricultural commodities increased all thanks to higher prices in global markets. The products whose prices rose the most are cocoa, cashew nut, palm oil, and rubber but, as those segments are controlled by multinationals, the rising prices have no noticeable impact on the revenues of local producers.
During the 2021/2022 season that ended in late March, food crop production declined by 8%. A total of 66.3 tons of cereals, tubers, and other crops were harvested in the region, according to official statistics reported by BCEAO. This is down by 8.1% compared to the 2020/2021 season (that season, production was already down by 6.7% compared to the previous season).
The BCEAO's solution to reduce the amount of money circulating in the region is normal because, in economic theories, lowering key rates is a solution to reduce inflation. Also, underproduction coupled with excessive demand can widen the gap between exports and imports, therefore increasing the region’s trade deficit.
Yet, the urgent action to take should be for the central bank to finance food production as it did to support its member states during the coronavirus pandemic. In the subregion, only 3.6% of bank credits go to the fisheries, livestock, and agriculture sectors. Meanwhile, other sectors (such as the tertiary sector, which includes consumption and services) that receive the largest portion of bank credit have stable prices.
The central bank’s indicators point that the institution should adopt a case-by-case approach to control inflation in the region. During the quarter reviewed, Burkina Faso recorded the highest inflation (10.3%), followed by Mali and Togo (8.2%). In those countries, the situation is complex given that wage increase is not a sustainable solution for them. Wage increase would increase the fiscal deficit and shake businesses (by increasing their wage bills). It will also cause inflation to rise again.
Commercial banks, which seem to have no other choice from a prudential standpoint, continue to inject more money into central governments. For countries like Burkina Faso, Mali, Niger, and Benin (recently), the situation is slowly but surely becoming more complicated. Microeconomic difficulties are exacerbated by security challenges that add to the already existing pressure on governments.
Idriss Linge
• Investors seem to keep focusing on yields, which are high for the moment• New Leadership might see...
• Qatar Airways and Kenya Airways establish strategic agreement, introducing a third daily flight be...
• ECOWAS Bank funds 47.7-km stretch of strategic 700-km road project• Lagos-Calabar highway seen boo...
• EY is preparing to leave Francophone Sub-Saharan Africa by 2026• The exit could unlock $500 m...
• Inflation within the West African Economic and Monetary Union (UEMOA) fell to a two-year low of 0....
• Ghana signs a deal with eLearning Africa to expand digital learning access across the country.• The partnership focuses on deploying modern digital...
Ghana launches the Oncology Nurse Leadership Program (ONLEP) to train specialized oncology nurses from seven African countries. The five-year...
Ivanhoe Mines signs deal covering 100% of Kamoa-Kakula smelter’s copper output. The smelter will process up to 500,000 tonnes annually, starting at...
African gas projects drive significant contracts for Asian shipbuilders, especially for Floating Liquefied Natural Gas (FLNG) units. South Korean...
Kolmanskop offers a haunting blend of lost wealth, colonial history, and the unstoppable force of nature. Located just a few kilometers inland from...
Located about 40 kilometers from Cape Town’s city center, Boulders Beach in Simon’s Town is one of the Cape Peninsula’s most iconic destinations. This...