Russian Invasion of Ukraine creates collateral damage in Africa

As the Russian invasion of Ukraine exceeds the one-month mark, repercussions of the war are being felt not only within Ukraine but across the world; and the African continent is no exception. After having been hit hard by the COVID-19 pandemic, Africa risks another tough spell as a result of the ongoing crisis.

Africa’s Position on the War in Ukraine

On March 2nd 2022, the United Nations General Assembly voted on a resolution calling upon Russia to “immediately, completely and unconditionally withdraw all of its military forces” from Ukraine. While the Resolution was voted by an overwhelming majority of 141 countries on 2 March 2022, nearly half of the countries that abstained from voting were located in Africa (United Nations, 2022). In all, 28 African countries voted in favour of the Resolution, 17 abstained from voting, 8 did not participate in the voting process and 1 (Eritrea) voted against the Resolution. Having experienced sanctions for the past decades, Eritrea asserted its position against unilateral sanctions against states emphasising the debilitating impacts that sanctions have on a country’s economy and its people. Uganda, which abstained from voting, referred to its upcoming role as the chair of the Non-Aligned Movement (NAM) and therefore claims to be abiding by the principles of neutrality and independence postulated by the NAM. The Non-Aligned Movement, a forum regrouping 120 countries was formed at the height of the Cold War in order to pursue a non-aligned foreign policy so as to not get entangled in the conflicts of major powers. Likewise, Namibia has stated that it abstained from voting given that the country’s constitution stipulates a strict policy of non-alignment (Mhaka, 2022).

However, the neutrality of many African states has nonetheless been called into question given the rising influence of Russia in many parts of Africa, especially those that are known to have close ties with Moscow. While China and India gained centre stage as the two emerging powers increasing their footprints on the African continent, Russia has also been steadily increasing its spheres of influence. Elite capture, patronage, military cooperation, investment, and extraction are some of the tools deployed by Russia in recent years to increase its stronghold in Africa. In fact, according to Joseph Siegle, the Director of Research at the Africa Center for Strategic Studies, Russia “has expanded its influence in Africa in recent years, more, arguably, than any other external actor” (Siegle, 2021). Questions loom on whether Russia is attempting to re-ignite its longstanding ties with Africa where the Soviet Union supported struggles for independence across many African states, providing military, financial and political support. While these geopolitical considerations renew dialogue amongst the West in regard to their engagements in Africa (see the article from November 2021 with Lord Waverley on the UK’s strategic options with Africa), the continent is faced with dealing with yet another turbulent exogenous shock with huge implications for the continent’s economy and food safety, shortly after hope for recovery from the COVID-19 pandemic came into view.

Impacts on the African economy

Rises in the price of oil and fuel

Despite an increasing transition to more sustainable and renewable sources of energy, the world remains predominantly reliant upon oil, coal, and gas as sources of energy. At the height of the pandemic, the global consumption of petroleum products averaged at about 91.98 million barrels per day, and it is estimated that this figure will exceed 100 million barrels per day in 2022, although this estimate dates prior to the Russian invasion of Ukraine and the impacts of global consumption are yet to be assessed in this regard (EIA, 2022). While a plethora of factors have been driving up the prices of petrol recently, such as the resumption of economic activities and tight supply, the geopolitical tensions between Russia and Ukraine have caused oil prices to soar, reaching a peak of over $139 per barrel in early March (Helman, 2022). However, since then prices have been declining steadily and most recently oil prices have fallen to around $105 for Brent (4 April 2022) following the imposition of a citywide lockdown in Shanghai, China starting on 28 March 2022 (Kelly, 2022). Nonetheless, oil prices remain approximately 80% higher in comparison to last year (Liang, 2022). Rising oil prices have largely been associated with corresponding jumps in inflation. According to Maciej Kolaczkowski, from the World Economic Forum’s Energy, Materials, Infrastructure Platform, elevated oil prices by themselves do not contribute to inflation but given that oil impact nearly all aspects of economic activities, the subsequent rise in the cost of practically all goods and services lead to inflationary pressure (Kolaczkowski, 2022). Many African countries are already trying to address high inflation rates following the COVID-19 pandemic with countries such as Sudan, Zimbabwe, and Ethiopia having recorded some of the highest inflation rates in the region at the end of 2021, estimated at 387.56 percent, 50 percent and 37.6 percent correspondingly (Business Insider, 2021). These are likely to be further exacerbated considering the impact of the Russian-Ukrainian conflict. We already documented the strain of supply chain shortages on inflation globally in February’s CEO insight. In the Democratic Republic of Congo, fuel prices have increased by more than 100 percent in certain areas, and the repercussions of such increases will be severe on the livelihoods and well-being of these communities especially given that close to three-quarters of the population live below the international poverty line (CARE, 22). As a result of the COVID-19 pandemic, it was observed that an additional 97 million people worldwide had been pushed into poverty in 2020 (World Bank, 2021). While it was expected that this trend would decline and we could expect a return to pre-pandemic levels, going forward, the war in Ukraine risks undoing any progress that could have been achieved.

Increasing Freight Costs

Moreover, freight costs can also be expected to rise, as major trade routes and ports, especially along the Black Sea are no longer operational. According to UNCTAD (2022), the Russian invasion of Ukraine is likely to increase freight costs even further, including land, maritime and air freight. Russia and Ukraine are two important actors along the Eurasian Land-Bridge, connecting Europe and Asia. With the ongoing crisis, land routes into these two countries have become largely unviable and will further strain maritime and air cargo transport capacities. Moreover, the Russian airspace is closed to 36 countries, implying that numerous air cargo carriers will have to reroute certain journeys, resulting in longer and more expensive trips (Reuters, 2022). Based on simulations conducted by UNCTAD (2021), it can be observed that rising freight costs have a disproportional impact on small island developing states (SIDS) and least-developed countries (LDCs) in particular, given their reliance upon international trade. It was projected that a rise in freight costs could lead to a 7.5 percent and 2.2 percent increase in consumer prices for SIDS and LDCs, respectively. This does not bode well for African countries and particularly African SIDS. Some of the commodities that are very vulnerable to rises in freight costs, according to UNCTAD (2021) include computers, electronics, and rubber and plastic products as well as essentials such as basic pharmaceutical products. Compounding increases may also be expected in the cost of such products as essential components, such as metals and minerals, which are primarily sourced from Russia, are also experiencing surges in their costs as Russia is further targeted with sanctions.

Impending Food Crisis

The Russian invasion of Ukraine will also paralyse the export of numerous commodities, including basic food items, for an indefinite period leading to scarcity and highly volatile prices all over the world. According to the Food and Agriculture Organisation of the United Nations (FAO), the supply gap resulting from the war may cause global food prices to soar up to 22 percent above baseline levels (FAO, 2022). The Russian Federation and Ukraine are both key exporters of cereals (HS10), constituting at least 15.7 percent of the cereal exports market in 2020. The conflict is likely to shrink the supply of wheat on the market and prices as well as that of substitute cereals are likely to drive up (WFP, 2022). Edible oils, fertilisers and many other essential inputs into agriculture or food security are viewed as being highly vulnerable to shortages. The African continent, including numerous LDCs and Low-Income Food Deficit countries, is especially reliant upon the import of cereals to meet its caloric needs and largely depends upon both Russia and Ukraine (See Figure 1). In 2020, the African imports of cereals amounted to nearly USD 24.8 billion and of these 15 percent and 9 percent were imported from Russia and Ukraine correspondingly. Egypt, for instance, procured more than USD 4.6 billion of cereals from Ukraine in 2020, accounting for at least a quarter of its total imports which it uses to meet local demand and which it re-exports to neighbouring countries. Likewise, Ethiopia also relies largely upon the importation of wheat which makes up 14 percent of its caloric intake (Brookings, 2022). Ethiopia’s food security is already under severe pressure amid high levels of inflation, rising consumer prices, civil war and destructions to plantations and harvest as a result of swarming desert locusts which in 2020 alone impacted over 200,000 hectares of cropland (ICCO, 2020). A prolonged war in Ukraine will only exacerbate the problems in accessing affordable food in the country.

Figure 1. Selected commodity dependence globally

Source: Adapted from FAO (2022) based on 2020 figures

Moreover, besides wheat and cereals, other essentials such as cooking oil are also witnessing a rise in price in different parts of the world, including Africa. Ukraine and Russia are both key producers of vegetable oil, especially sunflower oil, accounting for more than half of global production (see Figure 2). The prices of cooking oil were already on the rise earlier this year and recently, Indonesia, another major comestible oil producer, has imposed limits on exports, requiring producers to sell at least 30% of production on the local market. Thus, in certain countries across the world, governments and supermarkets alike have begun rationing the sale of comestible oil. In light of rising prices and potential shortfalls, the Mauritian government has already rationed the purchase of cooking oil to 2 litres per person from March 2022 (Defi Media, 2022). As the conflict wages on and Ukrainian ports remain closed and sanctions on Russia are maintained, the export of many essential food products remains uncertain, jeopardising food security in Africa and beyond.

Both Ukraine and Russia are also important producers of other essential food items such as barley and maize. Based on the simulations of the FAO (2022), the war will exacerbate malnutrition across the world, with 13 million people expected to be undernourished in 2022/2023 with Asia-Pacific and Africa being the two most impacted regions. In the medium term, food production across the world will also be impacted given that Russia, an important exporter of fertilisers, has imposed bans on exports. Major agricultural producers around the world will be deeply impacted by the ban and so will African food production, especially in areas affected by soil fertility depletion and nutrient imbalances. The FAO also highlights concerns over how sanctions imposed upon Russia may disrupt the country’s agricultural yield as well given that it is dependent upon the import of seeds and pesticides, all of which are going to have a considerable impact on global food supplies.

However, the sanctions imposed on Russia do offer the possibility of some upsides for Africa. As Europe actively considers new prospects to meet its energy consumption, select African countries may posit themselves as potential long-term partners. Tanzania, which discovered an estimated reserve of 57.7 trillion cubic feet of gas in 2017, was engaged in renewing talks last year with investors in order to attract $30 billion in foreign investments in order to accelerate the production of liquefied natural gas (Makoye, 2021). Even if the project receives funding by 2022, it is expected that the supply of gas from Tanzania will only be likely be exploited from 2026 onwards. In the shorter term, Algeria, one of the world’s largest gas producers, could to some extent mitigate any supply gaps as European countries divert imports away from Russia. However, infrastructural and logistics concerns aside, Algeria’s well-established and close ties with Russia could hinder its exports to Europe (Trauthig & Ghoulidi, 2022). In the short term, certain sectors within South Africa also find themselves in a position to benefit from the aftermath of sanctions imposed upon Russia.

Palladium, a key component in electronics and the automotive industry, witnessed a surge in price after sanctions were imposed on Russia, rising by 80% to reach a record high of more than $3,400 an ounce in early March (Hobson, 2022). South Africa, which is the second-biggest producer of palladium in the world, after Russia, can thus likely benefit from the rise in prices as concerns over scarcity of supply rises amongst manufacturers.

However, in the short term, the rising prices observed across key commodities are going to have major implications for the livelihoods of individuals and communities in Africa and economic growth is going to stagnate, if not worsen in face of the pandemic, especially given that many countries have exhausted support packages and remedial policy options in the context of the COVID-19 pandemic. UNCTAD has revised global economic growth projections for this year, reducing it from 3.6 percent to 2.6 percent following the outbreak of the war in Ukraine. Likewise, projections for Africa have been reduced by 1.1 percent so that economic growth might amount to 1.8 percent as opposed to the earlier estimate of 2.9 percent (UNCTAD, 2022). The World Trade Organisation reported that global trade growth will halve, as a result of the crisis (Josephs, 2022). The longer the war is prolonged, the harsher the setbacks that the African continent will likely encounter. With more than 40 low-income countries worldwide either at high risk of debt distress or already in distress, Indermit Gill, the World Bank’s vice-president for equitable growth, finance and institutions warns that debt crises might erupt sooner than previously anticipated (Wheatley, 2022).

The severe impact arising from the crisis in Ukraine will have major implications for the livelihoods and businesses in Africa. Economic recovery will be delayed and consumer demand will also shift considerably, requiring businesses to reconsider their strategies. The AfCFTA, and continued continental economic integration to build resilience and regional value chains needs to desperately accelerate in the face of the countless exogenous shocks that have hit the continent since 2020.

Paul Baker is the founder and CEO of IEC. He is a consultant for various governments in developed and developing countries, an adviser on global corporate strategies to multinationals, and a Visiting Professor at the College of Europe. Paul is an expert in the Working Group of the World Economic Forum’s (WEF) Digital Flows Initiatives, an Expert in the WEF/WTO’s TradeTech Working Group on AI, IOT, Blockchain and Digital Identities for trade, and is on the Board of the United Nations Economic and Social Commission for Asia Pacific’s Trade Intelligence tools. He is also a member of the UK’s All Party Parliamentary Committee on Trade.

 

References

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