Beyond the Bike

Stories from Stuart and Claire's original & recent journeys….
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Monetary Policy in Africa.... not for the faint hearted

When my old boss told me that observing UK inflation flying above 3% would be an exciting moment in my career as an economist in London, I knew it was time to leave. Most African policymakers, meanwhile, would be delighted to see single digit inflation. I’ve discussed the challenges of formulating monetary policy as well as for the broader economy with two central bankers en route so far…

Brian Khan sits on the South Africa Reserve Bank’s (SARB) Monetary Policy Committee. A former academic at the prestigious University of Cape Town, he kindly agreed to see me at the SARB’s Pretoria HQ before I set off in July last year. Stephen Kabayo, meanwhile, is head of financial markets at the Bank of Uganda (BoU). A long term stalwart at the Bank, his career spanning 3 decades, I spoke to him & his head of research Jimmy Appa in Kampala earlier this month.

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Author with Brian Khan (July 2011). Questions over ID of author at BoU, Feb 2012.Stephen Kabako at BoU – I had spoken at his son’s school the day before; Jimmy Appa in the Monetary Policy Committee Room

South Africa & Uganda are of course very different economies. The respective USD per capita income of $3,700 & $366 (USD 2000 prices) make this obvious. South Africa is a member of the G20. Uganda meanwhile, despite healthy growth over the last 5 years (see map below), remains one of the poorest countries in the world. Agriculture makes up around one quarter of the value added in Uganda, compared to a mere 3% in South Africa.


A single continent but varying economic performance…


Nonetheless, it was interesting to discover that the two countries share some common challenges when it comes to setting monetary policy. Challenges too that policymakers in the UK and elsewhere in the developed world also have to face up to.

Monetary Policy can be defined as the setting of interest rates, money supply & exchange rate to promote macroeconomic stability, in particular regarding inflation. Setting interest rates (the rate at which commercial banks can borrow from the central bank) are the primary tool used by most central banks to promote economic stability. The SARB & BoU are no exception.

Latest Inflation & interest rates compared:

Variable (%)


South Africa


Inflation (CPI)




Inflation Target

2% (+/- 1%)



Central Bank interest rate*




Source:, BoE, SARB, BoU * UK base rate, SARB repo rate, BoU CBR.

Both central banks use an inflation target to try and control inflation. You can see from the table above that Uganda in particular is struggling to control inflation. But it is not unique – a conundrum given the weakness of demand in the global economy. ‘Supply Side problems’, Jimmy told me when I asked him about this. Drought in East Africa during 2011 pushed up food prices, the most important part of the inflation basket in Uganda, constituting over 25%. Brian meanwhile, mentioned that administered prices (those directly set by the government) were particular high in South Africa. Both the above are out of the control of central banks.

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Food prices are more important to African Consumers; Not a great REAL interest rate in Uganda- don’t believe everything your banker tells you!


Exchange rate volatility is also something both the SARB & BoU have to watch. Brian described how the sharp fall in the Rand (South Africa’s currency) in 2001 pushed import prices up and made hitting the inflation target challenging. In Uganda, meanwhile, Jimmy outlined how the recent discovery of oil could help boost the exchange rate (increasing demand for exports), dampening inflation. The downside to this is of course that other exports may become less competitive – part of the resource curse facing countries discovering new sub-soil assets for the first time.


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How many South Sudanese Pounds did I get for my Ugandan Shillings?

Externally, I asked both Banks how closely they followed the current Crisis in Europe. Brian explained that their decision in July to change the tone in their post MPC statement reflected a deepening of the crisis in Europe. ‘A third of our manufacturing exports go to Europe’, he told me. ‘It is something we follow very closely!’. Regional trade is more important in Uganda, however, hence the stronger growth last year. ‘But we’re seeing the impact in tourism & remittance payments’, Jimmy lamented.

I also asked them what the key challenges are for their economies. For most of Africa, the greatest economic challenge is probably mobilising the potential workforce. Official unemployment in South Africa is 25%. Unofficially, Brian reckoned it be near to 40%.  Jimmy also said that the official labour market statistics were unreliable in Uganda. He reckoned unemployment was as high as 80% in certain areas. Poor governance, external factors (war, drought & global shocks), ineffective aid, rapid population growth & international trade systems were others factors touched upon in our conversation.

‘How important is education in solving these problems?’, is a question that I’ve asked most people I’ve met on my journey so far. In broad term, education is vital, they agreed. Brian meanwhile lamented the decline of technical education, citing the sharp decline in vocational training in SA. ‘There may be a greater supply of school leavers, but their skills don’t match the demand from industry’. A typically economic analysis. Jimmy meanwhile was encouraged by some of the government policy, as advertised below, but noted that ‘there was still a mountain to climb’.



Universal Primary Education in Uganda is a step in the right direction… but don’t believe everything you read in the adverts here!

My final question concerned Africa’s economic potential. Here, all sets of eyes brightened. Brian was particularly optimistic about the opportunity for the continent to take advantage of the structural rise in food & commodity prices. ‘Africa

Could become the breadbasket of the world’ he mused. Given its history of food insecurity, this would certainly be a welcome development for a continent more familiar with famine that feast. 

Good luck to Brian, Stephen & Jimmy in their quest for economic stability in their respective countries.

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Stage 10: Kampala to juba – Six nations on a Sweet...

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