Nigeria and other African countries are expected to experience continuous food inflation in the coming months owing to the disruption in global trade as a result of attacks on shipping lines by Houthi Rebels in the Red Sea.

This is contained in a report compiled by Afreximbank on the implications of the Red Sea attacks on African trade and macroeconomic stability.

According to the report, the impact of the global trade disruption in Africa would be mixed with Egypt facing a significant reduction in traffic around its Suez Canal, while South Africa faced increased traffic and pressure in its ports due to the re-routing of vessels through the Cape of Good Hope.

Furthermore, the higher freight cost would not only spill into the prices of consumer goods across the continent but exacerbate the already elevated inflation levels across the continent. The report warned that such heightened inflationary levels could lead to further interest rate hikes by Central Banks across the continent which could stifle economic growth for the year.

It stated: “We note that the higher freight costs caused by disruptions in the Red Sea are not only set to filter into consumer prices globally but also poised to heighten inflationary pressures on the African continent. The higher freight costs resulting from the rerouting of Africa-bound vessels through the longer Cape of Good Hope may lead to higher inflation due to elevated import prices.

“With most African economies already devastated by inflationary pressures linked to currency depreciation crises, the disruptions on the Red Sea may further heighten inflationary concerns and raise the odds in favour of rate hikes. It could also delay rate cuts by Central Banks across the continent. ”

On the trade front, the disruption in the worldwide supply chain, coupled with rising prices for food and energy, might compel local manufacturers to divest from the region if production costs exceed those of their rivals in other continents. It is projected that Africa’s trade volume will contract by mid-year. The report further warns that the cost of wheat and flour, predominantly staple food items are set to go up even more.

The Red Sea is a major global trade route, accounting for about 15 per cent of global shipping traffic linking Europe, the Middle East and parts of Africa. Early data from the first quarter of this year show that trade volumes through the Suez Canal have plunged by over 50 per cent while trade volumes in the Cape of Good Hope skyrocketed by 74 per cent year-on-year. This re-routing will filter into consumer pricing and heighten inflationary pressures in Nigeria and the rest of Africa.

Since November 2023, Houthi Rebels have been attacking commercial ships, causing significant disruptions in international trade and forcing major shipping companies to cease transit operations.

To stem the inflation tide, African central banks have embarked on a monetary policy tightening spree with Nigeria, Egypt, Kenya and Zambia increasing MPR.