The UN Economic Commission for Africa (UNECA) has called on African governments to pay attention to the diversification of their economies to prevent the effect of unprecedented situations such as COVID-19.
Mr. Bartholomew Armah, Chief, Renewal of Planning Section, Macroeconomic Policy Division, UNECA made the call during a virtual presentation in Addis Ababa on the “Trends and Analysis of Food Items in the Consumer’ Basket” report.
The just-released report was compiled by the African Centre for Statistics and Macroeconomic and Governance Division of UNECA.
Armah said the governments needed to diversify their economies to prevent the negative effects of situations such as the current pandemic on inflation rates in countries.
He said that the inflation rates in African countries varied and also impacted negatively on the exchange rates.
“Why are our exchange rates volatile and impacted by COVID so much?
“The answer is our economies are not as diversified. So whatever happens to one or two commodities we are selling means our exchange rate falls.”
He stressed that importation affected the exchange rate and inflation of African economies.
“The link between the exchange rate and inflation are two folds; it is direct so whatever countries are buying or importing from outside, the price will go up.
“There is also an indirect effect. Even if you talk about local foodstuffs, if countries are importing the fertilizer, the cost of fertilizer will go up; which means as an input into the production of cassava, the cassava prices are also going up because of the fertilizer.
“So, we need to diversify our economies so that we are protected from these shocks to our exchange rate and this is simply because those rates have an impact on the prices and what affects prices affects the people’s livelihoods.
“In an unprecedented situation like COVID-19, countries are piling up problems on top other problems such as inflation problem on top of an unemployment and livelihood problem.
“If as a country you have not paid attention to diversification in the past, this is a time and a good reason to pay better attention to that,” he said.
Armah said that nearly half of the countries had recorded high inflation rates in 2020 compared to the second quarter of 2019, according to the report.
He said the report showed that where inflation had been lower, many countries witnessed only a little decrease compared to 2019.
He said the report revealed that food price was the major driving force of inflation in most African countries shown through the Consumer Price Index (CPI).
According to the report, nine countries have seen an increase of more than 10 percent in food prices.
“It is important to note that food prices are in the food that is imported and those that are produced domestically and the factors the drive the prices will vary as since imported food will be more likely impacted by inflation and exchange rate factors,” Armah said,
The report further stated that food items accounted for 30 percent of the consumption baskets in most countries.
“So what happens with the food aspect component of the CPI, speaks a lot about what will happen to the CPI in general,” the UNECA representative said.
Furthermore, the report stated that food and non-alcoholic beverages counted for a large part of the consumer basket in a large number of countries.
It noted the representation was more than 50 percent in 13 countries and more than 30 percent in 27 countries.
Armah, however, explained that food was a commodity people could not do without.
“What happens with the food prices has implications for poverty and in an era of COVID where people are already out of jobs this could mean that indicators of poverty could be affected by what is going on in the CPI.”