Bouncing back: Despite ongoing challenges, growth and purchasing power are trending upwards after a pandemic-related slowdown

West Africa is experiencing a higher rate of inflation due to lingering pandemic-related challenges, as well as Russia’s invasion of Ukraine in February 2022. Constraints on commodity supply chains have dramatically increased the price of several goods, such as food and energy. Meanwhile, sanctions on Russian exports, especially oil and gas, are likely to push global prices higher, making it more difficult for consumers to access several products due to price and scarcity.

Inflation Situation

According to Fitch Solutions, the national inflation rate is expected to reach around 5% in 2022 before stabilising in 2023. This goes beyond the original estimated inflation average of 2.6%. In early 2022 the inflation rate rose to 5.6% – a 10.5-year high – before falling to 4.5% in March. However, the ongoing war in Ukraine is expected to impact inflation rates worldwide, as supply chains are disrupted and product prices reach record levels.

Consumer prices rose by 4.2% in 2021, a figure that is expected to be surpassed in 2022. The consumer price index has been steadily rising since September 2021, from 119 that month to almost 123 in February 2022, compared to a 2010 base rate of 100.

As the top destination for investors in West Africa, the country’s economy grew at an average rate of 8% per year between 2012 and 2020. Economic growth slowed during the pandemic, to 2% in 2020, but GDP is expected to expand by 6% in 2022.

Purchasing Power

The country has experienced rapid urbanisation in recent years. While the level of disposable income remains much higher than in several other lower middle-income countries, the middle class is expanding quickly amid industrialisation. The number of people living in urban areas increased from just over 3.9m in 2010 to 5.2m in 2020, equal to almost 20% of the total population. The retail sector is developing alongside the expansion of urban areas, with hundreds of supermarkets located across the country and several shopping malls now in major cities. There are mixed predictions about purchasing trends for 2022. Fitch Solutions suggests that elevated food and fuel inflation will reduce consumer activity. Others believe that the CFA franc’s peg to the euro will help limit inflation and support consumer spending, as it has helped the country avoid some of the currency fluctuations experienced in other parts of West Africa.

However, rising product costs are already causing retailers to alter their products to ensure profit margins are maintained. For example, in March 2022 the Organisation of Bakery Employers stated it was considering reducing the weight of a baguette due to the rising cost of wheat. Meanwhile, below-average vegetation conditions could exacerbate food insecurity. The European Commission reported that an estimated 38.3m people are expected to fall into poverty by the summer of 2022 in West Africa if no action is taken.

The government introduced a price ceiling on refined palm oil, sugar, milk, rice, tomato paste, beef and pasta in March 2022 to help consumers. Additionally, the authorities announced an €83.8m subsidy on petroleum products, including diesel, and permit requirements for exporting certain staple foods to ensure their local availability and affordability.

An increase in Covid-19 infections at the beginning of 2022 had little effect on economic activity. While purchasing power will inevitably be affected by an increase in inflation, the impact of the pandemic in the first half of 2022 appeared to be minimal, with many consumers returning to their regular activities.

An April 2022 IMF report suggests that the government evaluate recent measures to ensure they “do not generate market distortions, remain temporary and well-targeted towards the most vulnerable, and are kept in line with medium-term fiscal sustainability targets”. As the economy rebounds from Covid-19, purchasing power is likely to continue increasing in the long term, even if the 2022 disruption to global supply chains slows this growth in the short term.