Africa Feels Trade Pressure Over Russian-Ukraine War

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Africa is likely to get badly affected by the current situation between Russia and Ukraine. The already affected economy due to Coronavirus is likely to be hit badly with high prices, weak investments and increasing prices of commodities.

Africa has high dependency on Russia and Ukraine for wheat, oil and maze and with the shipments on hold, there is extreme shortage and therefore increase in prices. The most affected products will be food stuff like oil and wheat, as these are expected to have the highest effect of inflation. Price of crude oil are ever time high with surge of five times since the start of war, touching the 2008 prices if almost $120. Prices of wheat have increased 50% in last one month, touching the highest point in last 14 years.

Europe produces 14% of global wheat, out of this 10% is produced by Russia and 4% is produced by Ukraine. With the sanction on Russia and already tight supplies, the situation is further aggravated. Currently the ports are closed and all transport halted.

In the African nations, transport and food contribute significantly in the consumer price index and the surge in price of food products has affected it heavily.

The most affected nations are Egypt, Nigeria, Kenya and Ghana. Russia met 86% of wheat demand of Egypt in 2020. Other African nations like Kenya and Ghana are seriously affected as well.

Other factors that have added pressure to the economy to Africa is the 6 to 10 percent inflation in Ghana for the fifth straight month. Considering the current situation, Yvonne Mhango, Renaissance Capital’s head of research for the continent, said, “Countries with currencies that are facing depreciation pressure, such as the Ghanaian cedi, are likely to see the strongest pick-up in food inflation.”  

Mhango, also shared that the way-out is to delay the removal the fuel subsidy, which will help to contain the impact of soaring gasoline prices. This is further expected to balance the spending on education, healthcare and infrastructure and potentially widen the budget deficit.

In addition to this, countries which import oil are also expected to face pressure on their current account balances. Those most susceptible are those with overvalued currencies such as the Kenyan shilling.

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