Ostensibly, businesses have to be wary of geopolitical developments and prepare response strategies to ensure that, in the event of a political crisis, mechanisms are in place that will mitigate the impact of the crisis on their activities.
Consumer sentiment in Africa weakened by 7 points in February falling from 9 to 2. This drop can be fully attributed to the index of future expectations which tumbled by 10 points as the index of current economic conditions advanced by 5 points.
There was a mixed performance in the household indices for the month. The personal finance and household income indices maintained the downward trend experienced in January with the indices receding by 10 and 2 points respectively. On the other hand, the purchasing power, discretionary spending and job prospect indices rose by 2, 1 and 10 point(s) respectively. Meanwhile, in a rare occurrence, the city economic conditions index and country economic conditions index moved in opposite directions with the former increasing by 5 points and the latter deteriorating by a whopping 49 points.
With the exception of Tanzania and Cameroon whose consumer confidence rebounded by 3 and 2 points respectively, all the other countries tracked by our index extended their slump from last month with Nigeria’s consumer confidence plunging furthest by 18 points.
KASI’s global CCI carried on with the disappointing performance witnessed in January as the index slipped by 7 points in February decreasing from 9 to 2. As the index of current economic conditions strengthened by 5 points, the decline in the global index can be entirely credited to the index of future expectations which crumbled by 10 points lowering to 12 from 22.
The ongoing Russia-Ukraine war has painted a pessimistic outlook for households and their future expectations. While the invasion of Ukraine kicked off in late February and was yet to affect the prevailing economic conditions, there was a sentiment among households that the war would have an impact on the future economic conditions within the continent. This is a sentiment that has certainly become a reality as the war has produced negative consequences for consumers in Africa.
Notwithstanding the destruction that the war has caused on the lives of those in the two countries especially those in Ukraine, it has also affected the global economy as it has led to the soaring of energy and commodity prices. Looking at oil for example, US crude oil prices as per the West Texas Intermediate (WTI) benchmark hit the highest levels since 2008 while in Europe, the price of natural gas hit an all-time in early March with traders remaining on edge as possibilities of supply chain disruptions and additional sanctions on Russia continue to linger.
Furthermore, according to Refinitiv data, the S&P GSCI index, a broad barometer for the price of global raw materials, is on track for the sharpest rise on record dating back to 1970 as the index jumped by 16% in the first week of March. Wheat, of which several African countries depend on Russia and Ukraine for their supply as illustrated on the chart below, has seen its price rise by 60% since February.
All these developments will translate into a higher cost of living for African households and the longer the war persists, the worse it is likely to be for the continent.
Households anticipate a downturn in the country economic conditions despite of an improvement in job prospects
The household indices posted a mixed performance in February. Rather unusually, the indices on the general economic conditions for the city and country shifted in different directions with the city economic conditions index climbing by 5 points and the country economic conditions index collapsing by a staggering 49 points falling from 18 to -31 hence attaining the lowest level ever recorded for the index. This divergence suggests that households do not expect the poor economic conditions in the country to affect the economic condition in city which is fairly surprising given the interconnectedness of the two and the drastic drop in the country economic conditions index this month. Certainly, this observation warrants for some additional scrutiny. Following the descent in January, the job prospects index bounced back by 10 points rising to -50 from -60 while the purchasing power and discretionary spending indices recovered slightly by 2 and 1 point(s) respectively. Contrastingly, the personal finance and household income indices protracted their weakness from January by slipping another 10 and 2 points respectively this month.
Consumer sentiment in Tanzania rebounds while Nigeria endures another slump in its consumer confidence index
Examining the countries tracked by our index, the homogenous performance observed in January where all countries experienced a dip in consumer sentiment did not persist into February. Tanzania and Cameroon enjoyed a modest rebound as their consumer confidence indices moved up by 3 and 2 points respectively while consumer confidence in Ghana, Ivory Coast, Kenya, Nigeria and South Africa disintegrated further with Nigeria undergoing the largest downturn of the month as its index crumbled by 18 points.
In Tanzania, whereas the index of future expectations sunk by 3 points, the 15-point surge in the index of current economic conditions was substantial enough to raise overall consumer sentiment in the country. Although economic activity in Tanzania is still below pre-pandemic levels, the country continues to enjoy economic recovery with leading indicators including those on cement production, electricity generation, private-sector credit, goods and services exports, nonfuel goods imports, telecommunications, mobility, and tourist arrivals having improved according to World Bank’s Biannual Tanzania Economic Update Report released this year.
Moreover, data from the National Bureau of Statistics shows that the annual headline inflation rate for February has decreased to 3.7 % from 4 % that was recorded in January 2022 which has been positive for Tanzanian households. The purchasing power, household income and discretionary spending indices all elevated by 6, 10 and 16 points respectively and in addition, the job prospects index also heightened by 14 points. In spite of this, households still expressed a troubled personal financial situation as the index slid by 7 points. Similar to the global pattern, both the country and city economic conditions indices for Tanzania moved in divergent directions with the former declining by 33 points and the latter advancing by 11 points.
Focusing on the laggards, Nigeria was the worst-performer of the month. Its consumer confidence index stumbled by 18 points descending from 30 to 12. This follows from the waning of both the index of current economic conditions and index of future expectations which dwindled by 3 and 25 points respectively. The Nigerian economy has been experiencing headwinds. While the increase in fuel prices is expected to benefit the country as Africa’s largest oil producer, underperforming refineries have resulted in fuel shortages within the country that continues to render the country reliant on fuel imports to support domestic demand. Real GDP growth for 2022 is also expected to be less aggressive and will depend on the growth of the non-oil sector.
All these developments have created pessimism among Nigerian households particularly on future economic conditions. The general economic conditions index for the country plummeted by a stunning 104 points sinking from 57 to -47 which, akin to the global index, is the lowest-level ever attained. However, in contrast to the global index, Nigeria’s index on city economic conditions receded by 12 points. Households also reported some weakness in their financial situation with the personal finance and household income indices tumbling by 3 and 6 points respectively. While Nigeria’s purchasing power index rose by 2 points, there was reduced spending on discretionary products as the index shed 8 points in February. Nevertheless, job prospects in the country improved albeit slightly as the index ticked up by 3 points.
The emergence of the Russia-Ukraine conflict illuminates the need for political risk related strategies to mitigate the impact of such conflicts on operations
Results for this month clearly point to the fact that African households have a negative sentiment on the future especially on the country economic conditions. The impact of the Russia-Ukraine conflict on energy and commodity prices has been detrimental to both consumers and producers. As we have seen, African countries rely on both Russia and Ukraine for the supply of key food items such as wheat. Beyond wheat, Ukraine is also a major producer and exporter critical commodities including barley, corn, potatoes and rye among others. Therefore, prolongation of the conflict will be pernicious to the continent because of the resulting supply chain disruptions that will surely affect the price of these commodities. Unfortunately for producers dependent on these commodities, there is no escape. While one would hope that other countries will ramp up the production of these commodities to make-up for the losses in both Russia and Ukraine, it is not a straightforward process.
Consequently, if producers face a higher cost of production due to limited supply of inputs, they will definitely transfer a proportion of the cost to retailers who will in turn pass on the cost to consumers. All in all, the short-term outlook is bleak for producers and consumers that rely on inputs emanating from Russia and Ukraine in their supply chains. Ostensibly, businesses have to be wary of geopolitical developments and prepare response strategies to ensure that, in the event of a political crisis, mechanisms are in place that will mitigate the impact of the crisis on their activities.
“A major lesson from the Russia-Ukraine conflict is the need to expedite the switch away from non-renewable to renewable energy. Economic agents must deliberately work together to develop effective strategies aimed at enhancing the adoption of sustainable climate-friendly solutions that will not only be beneficial to the environment, but will also safeguard the economy from shocks arising from conflicts and other crises like Covid-19."
Davies Nyachieng'a, Economist at Kasi Insight
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#Ukraine #Russia #Europe #War #Economy #CCI #Consumers #Kenya #Ivorycoast #Cameroon #Tanzania #Ghana #Southafrica #Nigeria
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