Low rainfall may squeeze consumption, GDP

Rainfall patterns in Southern Africa are becoming erratic and threaten to put pressure on food and inflation in 2013, a Moscow-based investment bank said in its latest report. Countries like Zimbabwe, Zambia Malawi and Mozambique have enjoyed bumper harvest in the past, but researchers at Renaissance Capital - a leading investment bank with strong interests in emerging markets - fear that lower food production will have significant impact on prices and push benign inflation and possibly fuel social and political unrest. Researchers said Southern African farmers, who for centuries, have relied on summer rains, find planting difficult as late rains dampen production and push up prices.

“Late rains imply the food harvests expected in the first quarter of 2013 (Q1:13) and second quarter 2013 (Q2:13) will underperform compared with those of the previous three years,” said Renaissance Capital in a report released this month. As previously, Botswana has been excluded in the eight-paged document on “Macroeconomic update,” and Renaissance Head of Sub-Saharan Africa, Nothando Ndebele explained again that the mineral led economy was not a focal point for the research. Renaissance expects a slowdown in the growth of agricultural output in 2013, given that rains were merely late. Given food’s large weight in the Consumer Price Index (CPI), Renaissance analysts expect volatility in the region’s overall inflation to a point where central banks may tighten monetary policy with a possible upswing on interest rates. However, the scenario is unlikely to be true in Botswana.

The Monetary Policy Committee has not tempered with the repo rate in the past two years. Agriculture performance is critical to the region’s economic growth. In Botswana, agriculture’s slice of national output has been shrinking over the past four decades to around three percent, arguably the smallest contribution to GDP in the sub continent. Botswana, a net importer of food, has about 70 000 metric tonnes (Mt) of harvest at Botswana Agricultural Marketing Board (BAMB). Records show that the country has strategic reserves of about 30 000 Mt of sorghum, 30 000 Mt of maize and 10 000 Mt of beans. In Zimbabwe and Zambia, agriculture contributes about 13 percent and 17 percent, respectively. However, agriculture is still more important to employment than it is to national output; it employs three-quarters of the workforce in Malawi and Mozambique, half of Zambia’s workforce and one-third of Zimbabwe’s.

Malawi’s 2013/14 harvest is seen increasingly under threat given the likelihood of a drought in the first crucial phase of planting, which started in October. Harvest has declined to 2010 lows from 3.8 million tonnes of maize for the 2010/11 season to 3.5 million tonnes.A UK-based poverty pressure group, Oxfarm suggests that climate change could see maize productivity in Southern Africa falling by 35 percent, while wheat falls by 22 percent in the long term due to the effects of climate change by 2050. But Renaissance does not expect to see significant decline in output yet, saying softening of agricultural produce will have a material impact on the Southern African countries that are heavily dependent on the sector for their economic performance, such as Malawi and Mozambique.

“We think a poor harvest will also be negative for household income,” explains Yvonne Mhlango, editor of the report. She said this implies softer consumption expenditure in 2012. “So, in our view,” said Mhlango, “Mozambique’s 2012 economic growth is likely to be in the 6.5-7.0 percent region, rather than 7.5 percent as projected by the IMF,” she explained. At home, Finance Minister, Kenneth Matambo indicated that pressures in the eurozone have forced Botswana to revise its growth forecast to 5.9 percent in 2013 from an ambitious 6.1 percent in 2012. The report indicates that the eurozone threat has sent jitters in the entire region, with Malawi’s growth likely to fall short of 4.0 percent, against the IMF’s forecast of 4.2 percent. Zimbabwe’s and Zambia’s economies will not be as affected by a poor harvest in 2012 if both their mining sectors show strong growth.

Renaissance observed that southern Africa has enjoyed a couple of years of inflation that has been benign, and in some cases untypically in single-digits, largely due to generally low food prices in 2009 - 2012. In Botswana, while inflation remains low at an average of 8 percent year-on-year, inflation slowed to 6.9 percent in 2010, but quickened to 8.1 percent in 2011, before remaining at 8 percent in 2012. Zambia’s inflation slowed to 7.2 percent year-on-year on year-end 2011 (YoY at YE11), from 8.6 percent YoY a year earlier and 16 percent YoY two years before. Renaissance also fears that food pressure might also trigger social and economic unrest in volatile Southern African region. Mozambique’s population responded to the last significant increase in food prices in September 2010 through protests, which deteriorated into riots.

Last modified on Wednesday, 31 July 2013 16:13

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