Africa, like much of Latin America, has faced its fair share of problems when it comes to stubbornly high inflation and currency volatility. Rapidly rising inflation and the subsequent depreciation of currency cause uncertainty, which in turn affects productivity and brings risk to the business. This article summarizes survey findings of the responses of affected employers in Africa, and gives recommendations to employers across emerging markets who are contending with similar macroeconomic conditions.
Milton Friedman, a Nobel Prize-winning economist, famously wrote, “Inflation is always and everywhere a monetary phenomenon.” Based on this premise, the knee-jerk reactions of many employers in the face of inflation— What increase should we provide to our employees? How is the market reacting? What are our peers doing?—will only compound the problem. As inflation is often triggered by currency volatility, which is hard to predict and contain, our surveys indicate that a more measured response is more appropriate.
The participants consisted of multinationals and preferred local national employers in several African countries, with a focus on countries experiencing currency volatility and high inflation. We assessed a range of reactions to these conditions, including keeping salary increases the same, providing extra salary, giving cash allowances, giving lump sum compensation and doing nothing (freezing salaries).