Socio-economic impact of Russia invasion of Ukraine; Lessons for African states

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On February 24, Russia invaded Ukraine, casting a long shadow across Africa, as it did throughout the rest of the world. Despite their physical separation, Ukraine and Africa have strong ties, with over 8,000 Moroccans and 4,000 Nigerians studying in Ukraine and Ukraine sending more than $4 billion to Africa.

While some African countries may benefit from a shift in global markets away from Russia as a result of the crisis, the immediate economic consequences are troubling, and the implications for pan-African solidarity and commitment to multilateralism are becoming increasingly doubtful.

BENEFITS FOR NATURAL RESOURCES EXPORTERS

Numerous countries view the crisis as an opportunity for long-term growth. Natural gas from Africa, in particular, has the potential to significantly reduce Europe’s dependency on Russian energy. Tanzania’s president, Samia Suluhu Hassan, claimed in a mid-February interview on the sidelines of the European Union (EU)-African Union (AU) summit that growing interest in the country’s gas reserves, which rank sixth in Africa, is generating more interest in the country’s gas reserves. In 2019, her nationalist predecessor, late President John Magufuli, suspended negotiations with natural gas investors in order to review the country’s production sharing agreement system. Hassan, on the other hand, supports a more business-friendly strategy and has reopened negotiations with energy firms in the hope of securing $30 billion in foreign investment to recommence development of offshore liquefied natural gas projects in 2023.

Several other countries, like Senegal, may gain similarly from Europe’s energy diversification, including the country, which discovered 40 trillion cubic feet of natural gas between 2014 and 2017 and is scheduled to begin production later this year. Nigeria, which already supplies liquefied natural gas (LNG) to a number of European countries, is also establishing the Trans-Saharan Gas Pipeline with Niger and Algeria to boost natural gas exports to European markets. On February 16, the three countries signed a deal to construct the pipeline, which is projected to cost $13 billion. Europe is poised to become a major financier, bolstered by the EU’s contentious decision to categorize natural gas investments as “green” energy in early February.

Apart from natural gas, new sanctions against Russia could benefit other natural resource producers in the region. South Africa, for example, is the world’s second largest producer of palladium—a critical component of automobiles and electronics—and hence may benefit from higher demand as a result of Russia’s international sanctions. Similarly, because South Africa is a big exporter of gold, the rand has strengthened as global gold prices have increased.

VULNERABILITY OF HOUSEHOLDS TO THE IMPACTS OF FUEL, FERTILIZER, AND FOOD

Regardless of these possibilities, the invasion of Ukraine could have a short-term negative impact on African homes, agriculture, and food security. Globally rising oil prices – a result of Europe’s crisis — will have a direct influence on transportation costs. Indeed, South Africa’s motor association believes that March would see the highest gasoline prices in the country’s history. In Zambia, which agreed to eliminate fuel subsidies in order to comply with post-pandemic debt negotiations with the International Monetary Fund (IMF), rising costs would make such reforms much less popular than they were already. To the IMF’s consternation, Nigeria already backed away from plans to withdraw fuel subsidies last month in response to labor union and opposition party protests.

The manufacture of fertilizer, which is often a crucial component for a thriving agricultural industry, is similarly affected by rising energy costs. Urea and phosphate, two essential fertilizer ingredients, are expected to rise by 30 percent and 4 percent, respectively, by the end of 2021. The price of fertilizer will rise as a result of these increases plus China and Russia’s ban on exports of fertilizer until at least June 2022. Following the Abuja fertilizer summit in 2006 and the food price crisis of 2008/2009, various countries introduced fertilizer subsidy programs to help farmers cope with Africa’s low natural soil fertility. Nevertheless, the already tenuous fiscal headroom that many African governments are negotiating in the wake of COVID-19 will be eroded by continuing price hikes. Food prices will rise as well as the cost of fertilizer rises.

Wheat imports from Russia and Ukraine are another pressing challenge for many African countries. More over a third of the world’s wheat exports come from these two countries. Russia’s threat to shut down Ukrainian Black Sea ports, preventing the country from exporting the remainder of last season’s wheat harvest, has alarmed investors and market analysts. Since the Russian invasion began, Ukraine’s most rich agricultural land has been concentrated in the country’s east. As a result, some experts have warned that Russia may impose export duties on its wheat if the conflict persists. A 25 percent increase in wheat prices occurred within two months after Russia annexed Crimea. All major wheat exporters have reported price increases in the last month as a result of persistent geopolitical concerns.

According to Ukraine’s 2020-2021 agricultural season wheat exports, Africa (north and south of the Sahara) accounted for 36 percent of Ukraine’s total wheat exports. Food costs in Kenya, which rely heavily on wheat imported from Ukraine and Russia, have risen sharply in recent weeks, causing outcry on social media. East African wheat importers confront unpredictable social and political conditions, which could be worsened further by rising food prices in the region. In the past few years, Russia has overtaken Australia as Sudan’s leading wheat importer, for instance. A protesters-led embargo on supplies from Port Sudan in October 2021 has already resulted in wheat and wheat flour retail prices that are on average 100 to 200 percent higher than the previous year. Wheat prices will heighten public discontent and protests in Khartoum over the October 2021 military coup in a country where politics is intrinsically tied to the price of bread. Wheat now accounts for 14 percent of Ethiopia’s total calorie intake and the country relies on imports to supply 25 percent of its domestic demand as a result of Ethiopia’s shifting diet. As a result of Ethiopia’s civil turmoil, Ukraine is Ethiopia’s second-largest supplier of wheat and wheat flour, after the United States—and a Russian invasion would exacerbate already severe food insecurity levels.

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