Goods price hikes to continue on weaker NAD

Namibia and the rest of Africa’s economies will remain at the mercy of the US dollar’s performance over the coming months, with imports of food, fuel and even electricity continuing to be expensive.

An analysis by the International Monetary Fund (IMF) this week shows that most sub-Saharan African (SSA) currencies have weakened against the US dollar, fanning inflationary pressures across the continent as import prices surge.

According to the IMF, the average depreciation for the region since January 2022 is about 8%, with extent varying by country, however, Ghana’s cedi and Sierra Leone’s leone depreciated by more than 45%.

This means countries like Namibia that import core supplies like fuel, electricity and food quoted in US dollars, will see prices skyrocket.
More than two-thirds of imports are priced in US dollars for most countries in the region.

The IMF said the depreciations across the SSA region were mostly driven by external factors.

Lower risk appetite in global markets and interest rate hikes in the United States pushed investors away from the region towards safer and higher paying US treasury bonds.

Foreign exchange earnings took a hit in many countries, as demand for the region’s exports dropped because of the economic slowdown in major economies.

At the same time, high oil and food prices, partly due to Russia’s war in Ukraine, pushed up import costs in 2022.

When currencies weaken against the US dollar, local prices rise, as much of what people buy, including essential items like food, are imported.

Worse is that the rate at which the US dollar appreciates against African currencies is felt severely.

“A one percentage point increase in the rate of depreciation against the US dollar leads, on average, to an increase in inflation of 0,22 percentage points within the first year in the region. There is also evidence that inflationary pressures do not come down quickly when local currencies strengthen against the US dollar,” said the IMF.

It appears that there is no immediate escape from this, and the IMF suggests that common structural reforms that can help to boost growth, should be attended to.

“Given that the external shocks are expected to persist, countries where exchange rates are not pegged (fixed) to a currency have little choice but to let the exchange rate adjust and tighten monetary policy to fight inflation,” said the IMF.

The fund further added that countries with pegged exchange rates, such as Namibia will need to adjust monetary policy in line with the country of the peg.

Analysts at Simonis Storm late last week said many imports will continue being elevated in price, as the Namibia dollar and South African rand will only appreciate on the back of US dollar weakness once the Federal Reserve reaches its terminal rate and ends their rate hiking cycle.

On the flip side, the weakening local currency would have been good for exports, however, most exports are experiencing reduced international prices.

Last week, The Namibian reported that the World Bank Group has predicted that key commodity prices will drop by at least 21% this year, including major Namibian exports like tin, zinc and copper.

Only gold is expected to see an uptick in international price, predictions from the global lender shows.

Namibia’s inflation has been rampant over the first quarter of 2023, and with the Bank of Namibia’s leadership citing that it was mainly up because of fuel and food inflation, and if it so happens that oil prices remain on the downward path, interest rates might just come down.

Wheat prices and cooking oil prices are also expected to drop, the World Bank has predicted, with wheat and maize prices having already declined 8% in the first quarter of this year.

Sunflower oil prices were down 12% during the first quarter of 2023, said the World Bank, and are expected to decline by 14% in 2023 and 2% in 2024.

On metals, prices are projected to fall by 8% in 2023, and a further 3% in 2024.

Considering the weaker Namibia dollar, these decrease may not trickle down to the consumers anytime soon.
Twitter: @Lasarus_A

Stay informed with The Namibian – your source for credible journalism. Get in-depth reporting and opinions for only N$85 a month. Invest in journalism, invest in democracy – subscribe now!
  1. As long as the N $ is pegged to the SA RAND Namibians will suffer on higher living costs and inflation Namibian natural wealth can surwive well on its own there is no need to remain on the sinking boat BOTSWANA is doing well on its currency @ 13 30 to the US $ the devaluated N $ is nothing but wealth erosion and the creation of poverty !!!


Please enter your comment!
Please enter your name here

Recent Stories

Latest News

Most Read