The current economic situation of many Africans, be they unemployed, employed, or small business operators is, to say the least, perplexing and confusing. Inflation continues to worsen the cost of living of the populace on the continent eroding the purchasing power of many with no succour in sight. Even though inflation is a concept that affects all of us, most importantly high inflation is hostile to even the economy. With persistent inflation, businesses and households will continue to perform poorly and we will continue to pay more for the same goods and services. The consequence and impact of inflation (price instability) in recent times cannot be over-emphasized. We have witnessed job losses, an increase in malnutrition, declines in social status, food insecurity, high levels of different forms of begging from family, neighbors, and friends, and so on. Likewise, most Africans in small businesses are struggling to survive daily because of low sales, accelerating inflation, and worsening living conditions. It may even result in a higher mortality rate in the short term because when health care is unaffordable and inaccessible it will widen the inequality that already exists in the health sector. More lower-income earners are likely to replace healthier food options with what is available, which could be detrimental to health. Let it be said that the cost of living affects more than just our bank accounts, it hurts and affects mental health too as it increases worry and anxiety.
Though cost-of-living and inflation crises are typically global, the impact is more on the African continent. For instance, inflation in Ghana reached 42.50% in July 2023, the highest level in two decades. Ghana has experienced over 100% increase in food prices and transportation costs. The energy costs have risen dramatically. While inflation is running at 44.81% for Sierra Leone as of June 2023, the highest in recent times, driven by food and fuel inflation and the depreciation of the leone. Inflation has risen to 36 years high in Congo and many African countries are under growing pressure of high inflation and an unbearable cost of living. In Nigeria, data from the National Bureau of Statistics (NBS) reported that the headline inflation rate for May 2023 was 22.41% and 22.79 % for June 2023. The same inflation rate was 15.68% in 2016 and 9.01% in 2015. Currently, the inflation rate in Nigeria is the highest in the last 17 years and these inflation rates are cause for concern. Inflation in most African countries has been largely driven by the effects of The war in Ukraine, food, fuel, and energy costs. In Nigeria, forex unification, government policies, public debt, and recently reviewed fuel cost are the main cause. Importantly, when prices of energy, food, commodities, goods, and services go up, purchasing power usually goes down. The persistent rise in the inflation rate may continue to erode the value of African currency against the dollar and continue to cause general price instability and this is a concern.
Based on the aforementioned, to achieve adequate price stability in many African countries, the governments need to adopt significant structural policy reforms, and tight monetary and fiscal policies to maintain stronger growth rates in terms of improved Gross Domestic Product (GDP) and to stabilize the tide of inflationary pressures on our economy. For instance, the stipulated palliative of 500 Billion to poor households by the federal government of Nigeria is laudable. However, it is expedient to consider support for the structured small-scale businesses that are priorities for economic growth, job creation, and social cohesion. Recent empirical studies show that SMEs contribute to over 60% of GDP and over 70% of total employment in low-income countries, while they contribute over 95% of total employment and about 70% of GDP in middle-income countries. So it is my opinion that to stimulate the Nigerian economy substantial part of the 500 billion palliatives can be considered as loans at 0% interest to structured, traceable, and collateralized SMEs with repayment within 5 years. As such it will improve working capital, and stimulate businesses through technology adoption, asset acquisitions, and business growth. The SME sector can play a major role in economic growth at this point through poverty reduction, and job creation. The sector is labor-intensive and can provide a reasonable reduction in the level of unemployment rate in the country but the government needs to provide an adequate enabling environment and palliative. It is further advocated that political leaders should minimize avoidable public spending, strengthen the judicial system, stiffen the anti-corruption drive, address insufficient infrastructure, and also build strong and effective institutions.
Furthermore, institutions and individuals have the opportunity to beat inflation by accelerating the preservation of capital and strengthening purchasing power with income addition. This can be done by acquiring investments particularly assets such as real estate because they usually keep up with inflation. Remember one million (N1,000,000)Naira or one million (1,000,000) Cedis today will not acquire the same value of goods and services in 10 years time mainly due to inflation. Therefore, investing is key to hedge against a sharp inflation impact because it erodes the value of savings if funds are just left in the bank accounts.
Conclusively, it is imperative to consider investing in other currencies, diversify your investment portfolio internationally if you can, and consider inflation-protected securities with potential for higher growth like equities, Gold Shares ETF, or mutual funds. These can earn more interest returns per year than the inflation rate therefore the options are reasonable. It is also possible to start a business, cultivate passive income generation, and/or even reduce unnecessary expenditures to increase the propensity to save. You might need to reach out using the details below for the necessary advice or for any further information you may require. Good Luck!
The opinions expressed in this article are those of the author- Dr. Timi Olubiyi and do not necessarily reflect the opinions of others.
Image Credit: R. du Plessis on Unsplash
