African countries are poised to experience heightened inflation levels and sustained interest rate tightening throughout 2024 due to disruptions in global trade caused by attacks on shipping lines in the Red Sea by Houthi Rebels. This prognosis is outlined in a comprehensive report compiled by Afrexim bank, examining the repercussions of the Red Sea attacks on African trade and macro-economic stability.

The report underscores the mixed impact of the global trade disruption across the continent, with Egypt facing a notable reduction in traffic around the Suez Canal, while South Africa grapples with increased traffic and port pressure due to vessel rerouting through the Cape of Good Hope. Furthermore, the surge in freight costs is expected to permeate consumer goods prices across Africa, exacerbating already elevated inflation levels and potentially prompting further interest rate hikes by Central Banks, which could impede economic growth.

The disruption in the worldwide supply chain, coupled with soaring prices for food and energy, may incentivize local manufacturers to divest from the region if production costs surpass those of competitors in other continents, leading to a projected contraction in Africa’s trade volume by mid-year.

It’s crucial to note that the Red Sea serves as a vital global trade route, accounting for approximately 15% of global shipping traffic, connecting Europe, the Middle East, and parts of Africa. Since November 2023, Houthi Rebels have targeted commercial ships in response to Israel’s actions against Palestinian civilians, resulting in significant disruptions in international trade and the suspension of transit operations by major shipping companies like Maersk, Hapag-Lloyd, and MSC.

African countries have already been grappling with elevated inflation levels exacerbated by the ripple effects of the Covid-19 pandemic and Russia’s war in Ukraine. According to the African Development Bank (AfDB), around 18 countries on the continent closed 2023 with double-digit inflation, further straining consumer spending among vulnerable populations. In response, African central banks have embarked on a monetary policy tightening spree in 2024, with countries like Nigeria, Egypt, Kenya, and Zambia increasing their Monetary Policy Rates (MPR) as a measure to curb inflation.

In conclusion, the Red Sea attacks have triggered a cascade of economic challenges for African nations, necessitating proactive measures to mitigate the impact on inflation and economic stability in the region.