LAGOS, Nigeria (VOICE OF NAIJA)-Nigeria and other African countries may face a prolonged period of food inflation following disruptions in global trade caused by attacks on shipping lines in the Red Sea by Houthi Rebels.
A report compiled by Afreximbank highlights the implications of these attacks on African trade and macroeconomic stability.
It predicts a mixed impact across the continent, with Egypt expected to face reduced traffic around the Suez Canal, while South Africa grapples with increased pressure in its ports due to vessel rerouting through the Cape of Good Hope.
Furthermore, the increased freight costs are expected to not only impact consumer goods prices across the continent but also worsen the already high inflation levels.
The report cautioned that this heightened inflation could prompt additional interest rate hikes by Central Banks, potentially hindering economic growth for the year.
It stated: “We note that the higher freight costs caused by disruptions in the Red Sea are not only set to filter into consumer prices globally but also poised to heighten inflationary pressures on the African continent.
READ ALSO: Gaza: Yemen’s Houthis Launch Attack On Red Sea Cargo Vessel
“The higher freight costs resulting from the rerouting of Africa-bound vessels through the longer Cape of Good Hope may lead to higher inflation due to elevated import prices.
“With most African economies already devastated by inflationary pressures linked to currency depreciation crises, the disruptions on the Red Sea may further heighten inflationary concerns and raise the odds in favour of rate hikes. It could also delay rate cuts by Central Banks across the continent. “
Regarding trade, the disturbance in the global supply chain, alongside escalating food and energy prices, may prompt local manufacturers to withdraw from the region if production expenses surpass those of competitors in other continents. Projections indicate a contraction in Africa’s trade volume by mid-year.
The report also cautions that the prices of staple food items like wheat and flour are expected to rise further.
The Red Sea is a vital route for global trade, handling about 15 percent of all shipping traffic between Europe, the Middle East, and some parts of Africa. Early data from this year’s first quarter shows a big drop in trade through the Suez Canal, down over 50 percent. Meanwhile, trade through the Cape of Good Hope surged by 74 percent compared to last year.
READ ALSO: Begin Food Importation To Reduce Hyper-Inflation – TUC Advises FG
These changes in shipping routes will affect prices for consumers and make inflation worse in Nigeria and other African countries.
Since November 2023, Houthi Rebels have attacked commercial ships, causing major disruptions in international trade and leading major shipping companies to halt transit operations.
To address rising inflation, African central banks, including those of Nigeria, Egypt, Kenya, and Zambia, have started tightening their monetary policies by increasing the Monetary Policy Rate (MPR).
Guardian