fbpx

The Economic Challenges of sub-Saharan Region

On October 20th , the International Monetary Fund said that sub-Saharan Africa has suffered a slow recovery from the COVID-19 epidemic, rising food and energy prices and high public debt. One of the most pressing issues the region is faced with is the need to address a decade of high inflation, which has taken a toll on incomes and food security. Median inflation in the region has risen to nearly 9% in August this year, despite wide differences between countries. Inflation in Africa is almost double its pre-COVID-19 level. I don’t know if you have heard of a piece of news about bringing 1 trillion in currency to the street to buy 3 eggs. It definitely sounds ridiculous, but it has happened ever in this world—Zimbabwe. In the early 2000s, there was a joke in Zimbabwe: A Zimbabwean went to the supermarket to buy something and put a big bag of money in a trolley. When he was about to enter the supermarket, a robber rushed over to rob. As a result, the robber Dump the money in the trolley and take the trolley.

Zimbabwe has suffered severe, prolonged inflation since 2000, and the rapid economic recession has put most of the people there into difficult living conditions. This is just one example of a deteriorating economy in Africa. Statistics from the Trading Economics website since August this year has shown that nine African countries currently have inflation rates above 20%, two of which are above 100% (Zimbabwe and South Sudan). This compares to about 2.8% in China and 8.2% in the US.

Why is a considerable number of African countries, especially those located in the sub-Saharan Desert (except South Africa) generally plagued by inflation? From an economic point of view, the causes of inflation are diverse. There is a dangerous type of inflation known as “galloping inflation”, and it is usually caused by a shaken confidence in the national currency. Whether it is the confusion of market prices caused by people’s expectations of inflation, or the misallocation of resources caused by the lack of entrepreneurial confidence, there will be a “positive feedback effect” for inflation that is still in the development stage. Since some African countries are facing endogenous policy risks and exogenous natural disaster factors, coupled with the outbreak of the new crown virus in 2020 and the recent regional conflicts,it can be easy for their citizens to lose confidence in economic development. In addition, social unrest caused by frequent changes of government, as well as many historical and geographical factors make the economic development of African countries particularly difficult, and they still need the support of the international community to ease domestic inflation.

By Tao Cheng

Related Posts

Leave a comment

You must be logged in to post a comment.