By Desie Heita
Tito Mboweni, the Governor of the South Africa Reserve Bank, warns of a future compounded by higher inflation and lower economic growth.
“Over the next few months, we are likely to see increasing numbers of countries trying to contend with higher inflation pressures and lower growth. The road ahead is going to be bumpy,” said Mboweni.
Worldwide, inflation has been accelerating over the past year in the midst of slower global economic growth. Mboweni said the 1970s saw similar conditions of slower growth combined with accelerating inflation. This resulted in stagflation, despite recessionary conditions, [and] many economies suffered inflation.
“One current challenge facing many economies is to prevent the development of similar unfavourable conditions,” said Mboweni in his address to the annual symposium of the Cape Pomological Association in Stellenbosch, on Tuesday.
Mboweni also commented on the increase in input costs for the agricultural sector, saying the increase is not going to reverse any time soon.
Yet, while the costs have put pressure on farmers, the commodity boom has brought good news to farmers who are able to produce under such pressure, “albeit with an experience of even higher inflation because of the higher weight of food in their consumption baskets.
As a result, inflation in developing economies is expected to increase to an average 7.4 percent. “Food price inflation is much higher than overall headline inflation in many countries, including South Africa,” said Mboweni.
International oil prices have more than quadrupled since the beginning of 2004, and more than doubled since January 2007 when North Sea Brent Crude averaged a little above US$50 per barrel following a 2006 peak of around US$70 per barrel.
“This is clearly not good news for anyone except those who are making massive profits. Agriculture is directly affected through the increased costs of diesel and fertilisers (input costs).
This relative price increase is not expected to be reversed significantly any time soon, and most analysts expect international oil prices to remain elevated,” said Mboweni. South Africa, and by extension Namibia, have the additional impact of movements in the rand exchange rate which has exacerbated the impact, Mboweni said.
Real GDP growth in Africa is expected to be a relatively robust 6,3 percent. The African continent accounted for 3,7 percent of the export value of the deciduous fruit industry in 2007, while the United Kingdom and Northern Europe accounted jointly for some 75 percent of industry exports.
“Given the proximity of Africa, also in comparison to our major competitors in the fruit export business, there is no reason why exports to Africa cannot increase considerably in coming years. Increasing such exports is one of the near-term challenges facing the industry, as African countries share the concerns of developed countries about sustained food supply,” said Mboweni.