For HR practitioners, that dreaded time is fast approaching – when the 2019 salary increase forecasts and then a little later, the actual salary increases have to be proposed for African countries.
Formulating salary increases in Africa can be a difficult and daunting undertaking for organisations. A salient reason is that most international salary surveys do not include many countries in Africa. Moreover, the surveys that do include African countries, often provide information of limited utility which is outdated by the time it is published.
There are several inputs which have to be considered when determining a salary increase:
One of the most important inputs into the salary increase decision is future inflation. While it must be acknowledged that there is no generic or standard methodology where one can state that the salary increase would be a real increase of 1.0% (the future inflation rate plus 1.0%), one must accept that high inflation does concomitantly mean higher salary increases.
To identify countries which currently have a high inflation rate, and which may therefore mean relatively high future salary increases, we have selected various African countries and collated their latest inflation rates. While this is not the inflation rate we anticipate for 2019, it should act as an early warning signal and identify possible problem countries.
The red bars on the right-hand side of the graph below highlight four countries that currently have high inflation rates which may entail high salary increases in 2019; these include Nigeria, Ethiopia, Congo and Angola. The problems being experienced in Angola were analysed in our recent article titled “Human Resources - What is Happening in Angola” which can be accessed right here.
In 2016, Nigeria’s economy slipped into recession for the first time in more than two decades. Even though a recovery has been experienced, alarm bells are beginning to ring. GDP hit a two-year high of 2.1% in the final quarter of 2017 but then slowed to 2.0% in Q1 2018 and 1.5% in Q2 2018. The primary cause can be attributed to weaker performances in the agriculture, services, trade, construction and non-oil sectors – the slowdown is thus broad based.
The inflation rate of 11.14% in July 2018 was the lowest since February 2016 but we have concerns regarding future inflation. Such concerns emanate from an analysis of the monthly inflation data which indicates that the quantum of reductions in inflation is slowing and this will be further exacerbated by base effects. The base effect relates to inflation in the corresponding period of the previous year; if the inflation rate was too low in the corresponding period of the previous year, even a smaller rise in the price index will arithmetically give a high rate of inflation now.
Despite this, we do forecast that inflation will continue to reduce, albeit at a slower rate but it will remain above the Central Bank’s target range of 6.0% to 9.0%.
Our average inflation forecasts for Nigeria are as follows:
- Average inflation rate 2018 – 12.1%
- Average inflation rate 2019 – 10.3%
Ethiopia continues to be one of Africa’s juggernaut growth countries. We anticipate that GDP growth in 2018 will be 8.3% and slow down to 8.0% in 2019 – primarily because of reduced public-sector spending.
Inflation has accelerated sharply since the beginning of 2017 due to rapidly increasing food prices and the depreciation of the currency (the Birr). The monetary authorities have increased the official interest rates and we anticipate that tighter monetary policy and easing food prices will result in a lower inflation trajectory in 2019.
Our average inflation forecasts are enumerated below:
- Average inflation rate 2018 – 13.8%
- Average inflation rate 2019 – 10.8%
Congo’s economy has been adversely affected by political upheaval resultant from the delayed elections – these are now pencilled in for December 2018. Further, the economy is suffering from the low oil price (60% of the projected budget revenue), high debt levels and poor governance.
The graph below highlights that inflation was recorded at 70.75% in August 2017 and although it has reduced over the last year, it is almost impossible to derive a cogent forecast without additional data.
We will continue to analyse incoming inflation data before formulating an inflation forecast for 2019.
Given the high inflation rates in Angola, Nigeria, Congo and Ethiopia, one should be forewarned that salary increases in these four countries will be high in 2019.
Our inflation and proposed salary increases for 2019 for these countries will be updated in December 2018 when we complete our Africa Salary Increase 2019 analysis which covers 41 African countries.
To ensure that you stay well-informed, please email us at email@example.com and we will send you regular updates.