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Negative effects of the Russia-Ukraine conflict are still being felt across Africa’s economies

The negative effects of the Russia-Ukraine conflict are still being felt across Africa’s economies. Higher oil and food prices are being added to by the lingering effects of the Covid-19 pandemic.

Since the beginning of the year, significant price increases and supply-side challenges have been the norm. Wheat and other cereal prices have risen sharply, and businesses have already increased their prices for goods and services in anticipation of higher inflation.

Because of the pandemic’s massive disruptions over the last two years, business input costs have increased by 10% to 15%.

Further input costs should be expected this year, as the global economy has not re-opened fully. China is still restricting movement because of the pandemic and the war is affecting trade in Europe.

Increased mining output, investments in renewable energy and waning base effects are likely to continue to drive growth in Namibia.

This helps us maintain our view that these factors will continue to drive growth. High-frequency data already points towards improved mining performance.

The composite mining index grew by 10% year-on-year(y/y) compared to a contraction of 11% over the same period last year.

The diamond mining index grew by 26% y/y compared to a contraction of 16% over the same period in 2020. The uranium mining index grew by 10% y/y (5% in 2020) and the gold mining index by 17% y/y (15% in 2020).

Private sector credit extension (PSCE) is gradually recovering from its 2021 lows but continues to point to weak household and business confidence as credit uptake remains low despite the low-interest-rate environment.

We expect the rising interest rate environment to put further pressure on the ability of households and corporates to take up credit.

Inflation continues to increase, with the February 2022 inflation figure at 4,5% y/y compared to 2,7% over the same period last year.

This increase in inflation has been predominantly driven by higher transport costs as a result of significant fuel price hikes.

We expect inflation to accelerate over the course of the year as the Russia-Ukraine conflict keeps both global oil and food prices higher. The oil price will filter through to domestic fuel prices given that Namibia is a net importer of oil.

We also expect the higher fuel prices to filter through to goods and food inflation, as 70% of imports in Namibia are transported by road.

Rising inflation poses a downside risk to growth as it will erode consumer purchasing power and increase input costs for businesses.

We believe retailers have limited room to absorb rising costs and will pass them to the consumer through higher final prices.

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