Development Discourse with Amos Safo: Rising food and fuel prices crippling poor economies

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In March 2022, the United Nations released a report indicating that in the coming months 107 countries in the world will face one or all three risks arising from COVID-19 and the Russia-Ukraine war. The risks are rising food prices, rising fuel prices and tougher financial conditions.

Together, the 107 countries represent 1.7 billion people, comprising one-fifth of the total world population. According to the report, 69 countries out of the 107 could face all the three risks -high food prices, high fuel prices and tougher financial crisis.

Disturbingly, 25 out of the 69 are in Africa. Notable among the countries that could be worst-hit are Egypt, Tunisia, South Africa, Kenya, Ghana and Ethiopia. In Ghana and Kenya, debt levels are soaring and interest rates from previous and current borrowings are choking their economies. In both Ghana and Kenya, debts have risen to more than 70 percent of GDP and are still rising.

Consequently, Kenya has contracted a US$244million loan from the IMF to prop up its weakening economy. In Ghana, government has allayed the fears of its people that it will not return to the IMF for a bailout, with its harsh conditionalities, as the past government did.

Debt crisis

The World Bank has forecast that in the next 12 months a dozen or more developing countries may fail to service their debts. Besides, some economic and financial analysts predict that the impending financial crisis could be the largest debt crisis in a generation.

Currently, some national budgets are at breaking point. While some governments have been compelled to cut spending, others are increasing borrowing to stay afloat.  Due to the sharp increases in price of food – and in fact the shortage of commodities like wheat and oil, many analysts are beginning to forecast a possible famine in less economically-resilient countries, especially in Africa. As the United Nations Secretary-General Antonio Guterres declared recently: “We are living a perfect storm caused by the tangled web of food, energy and financial crises”. The most significant question is, what can we do to stop the food and fuel prices from rising?

World hunger

In the aftermath of the COVID-19 pandemic, world hunger has increased substantially. Estimates from the State of Food Security and Nutrition around the World (SOFI) reveal that as many as 161 million people fell into hunger between 2019 and 2020, bringing the total to 811 million people facing food insufficiency.

In other words, about one in 10 people in the world went to bed without enough nutrition during the COVID-19 pandemic’s first year. This trend is continuing in some countries and families across Africa, while some rich countries and families have enough food even for their dogs.

This is not the first time the world has faced the threat of massive hunger and starvation following a spike in food prices. In 2007-2008 and in 2010-2011 food prices suddenly increased following a three-decade break when food prices were stable and low.

The food price shock came at a time when food security in some poor countries was already under stress. According to experts, the current surge in food prices (42%), reflected in the Food and Agriculture Organisation´s Food Price Index, is the highest recorded since 1961 – even higher than the surge during the infamous 1973 Oil Crisis.

According to the United Nations, the population of Africa has been particularly vulnerable: about 21% (282 million) of the population on the continent suffered from hunger in 2020. Between 2019 and 2020, in the aftermath of the pandemic, 46 million people became hungry in Africa.  The above figures suggest that no other region in the world presents a higher share of its population suffering from food insecurity.

Also, only African households spend a large share of their income on food. According to a recent article in the Financial Times (citing estimates from the IMF), while food represents 17% of expenditure in advanced economies, for sub-Saharan Africa the figure is 40%. So, why is Africa always the face of hunger and starvation despite its natural endowments? The recurring hunger and starvation in Africa constitutes a blot on the conscience of African leaders.

Causes of hunger

In their seminal work of 1989, Jean Drèze and Amartya Sen wrote that ‘Hunger is a many-headed monster’. Drèze and Sen were describing the multiple deprivations (biological, social and economic) associated with hunger and malnutrition.

They implied that the multiplying effects of illness, unemployment and absence of social protection can push people into long-term poverty and destitution. The causes are equally multifaceted: the current pressures on food systems in Africa derive from multi-year droughts in the Horn and East Africa; a locust swarm; the internal conflict in Ethiopia; flood, drought, conflict and the economic effects of COVID-19 in West Africa. While some politicians try to downplay the effects of Russia-Ukraine’s war on the poor in Africa, several reports are highlighting its correlative impact on the worsening situation in poor countries.

Policy interventions

So far, it is refreshing that food trade has not been severely halted as it was during the 2007-2008 food price spike. However, a complex problem with multiple causes and consequences needs a string of policies and interventions – many of which have proven effective in the past.

The initial policy response requires the recognition of some principles, famously identified by Amartya Sen. In his numerous advocacies, Sen argues that hunger and famine do not only occur when there is less food, but when certain groups of society cannot access food even if it is available.  His insight is so powerful because it recognises that issues of hunger, starvation and malnutrition go well beyond food systems and depend on social arrangements (including the markets for food and labour, for instance), the economy and the functioning of the state and governments.

Some experts have suggested that to avoid a significant disaster, national governments and the international community must focus on employment and income protection for those groups whose food claims have been negatively affected.

This can be done through temporary jobs programmes, unemployment insurance or cash transfers. Ghana already has the Livelihood Empowerment Against Poverty (LEAP) programme, which provides cash and health insurance to extremely poor households across.

This is targetted to alleviate short-term poverty and encourage long-term human capital development. In addition, there is a need to protect the health and education of children in households under food stress to avoid long-term consequences for their development.

Moreover, stabilising food prices through support of the local food systems could also be an option. This can be done by putting measures in place to avoid price controls that would worsen the situation. In the longer-term, it is prudent for public investment in agriculture to make local food systems more resistant to climate change and external shocks. This requires decisive action from governments and international organisations.

Public conscientisation

For us in Ghana, while the debt crisis and the fuel prices may be out of our control, we can do something about the food prices through policy interventions and public conscientisation. Perhaps due to launching the Planting for Food and Jobs programme in 2018, the Ghanaian economy was able to cope with the negative impact of COVID-19.

According to the 2022 Budget Statement, from 1.3 percent in 2016 the Agriculture Sector recorded an average growth of 4.9 percent in the first half of 2021 compared with 8.1 percent for the same period in 2020. Subsequently, the sector grew by 4.3 percent and 5.6 percent in the first and second quarters respectively, compared with 10.2 percent and 5.6 percent in the corresponding quarters of 2020.

The statement said the agriculture sector was expected to grow at 5.3 percent in 2021 and 2022. Over the medium-term, the sector’s growth is expected to stabilise at 5.5 percent from 2023 to 2025.  The sector’s growth is expected to be mainly driven by supportive interventions in the Crops and Fishing sub-sectors, boosted by the ‘Planting for Food & Jobs’ programme, according to the statement. Instability in agricultural productivity in recent years indicates Ghana is still struggling with a sector that is still the backbone of our economy.

The unpredictability notwithstanding, government’s decision to invest in commercial farming and agro-processing as indicated in the 2022 Budget is prudent. Adding value to our primary products will make our exports more competitive, improve food-import substitution, and accelerate job creation and industrialisation.

Besides, the decision to engage farmers in the poultry, rice, soya and tomato sub-sectors with a view to understanding their constraints should move from the drawing board to implementation. Thus, the plan to provide interest rate subsidy intervention and grant 50 percent subsidy on Financial Institutions’ (FIs) interest charges for loans to qualified agribusinesses is a step in the right direction.

Past experience

In the 1970s, investments in agriculture – including the provision of agric extension services – made Ghana food-sufficient to the extent of exporting food to the Sahelian countries. Ghana suffered its worse food crisis in the 80s when bilateral and multi-lateral donors compelled government to disinvest from agriculture, thus reducing our once buoyant economy to a net importer of basic food like rice, maize, meat and tomato.

In the immediate past, agricultural productivity slumped to 1.3 percent – indicating our lack of seriousness toward food security. However, recent investments and retooling the sector has caused the food sector, as well as the cocoa sector, of agriculture to rebound.

Mass importation

In fact, the most painful narrative of Ghana’s past failure was and still is the mass importation of tinned tomato and other vegetables. At a point in the early 2000s, Ghana was reported as one of the world’s leading importers of tinned tomatoes. It is therefore refreshing that the 2022 Budget Statement made provision to boost tomato production and reduce annual imports by 50 percent by 2025.

Under the Ghana CARES programme, government has undertaken to facilitate the introduction of improved varieties of tomato developed jointly by the West Africa Centre for Crop Improvement (WACCI) and the Council for Scientific and Industrial Research (CSIR).

In fact, COVID-19 and the Russia-Ukraine war, as well as potential future pandemics, should be a timely warning to our policymakers to take local food and animal production seriously. Never again should our duty-bearers allow western donors to convince them to collapse agriculture as happened during the era of so-called Structural Adjustment and Economic Recovery Programmes.

Reference

Budget Statement of Ghana, 2022. Ministry of Finance.

Fuentes-Nieva, R. 2022.  Growing hunger, high food prices in Africa don’t have to become worse tragedy. Africa Renewal. Available. ( www.un.org/coronavirus)

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