Ukraine achieved independence in the aftermath of the unravelling of the Soviet Union in 1990–91. The Ukrainian Legislature affirmed its sovereignty on July 16, 1990, and then declared independence on August 24, 1991.
31 years later in the midst of some geopolitical higi-hagga, Russia’s leader Vladimir Putin decided that Ukraine’s independence was probably not something he could live with and launched a “special military operation” that has brought the destruction of some towns and cities, the deaths of thousands of Ukrainians, and the displacement of well over 10 million Ukrainians.
There are concerns about what this portends for Europe and the Western Order as a whole and while this weighs on the minds of Europeans, the impact of the war has triggered a domino effect of events that have affected people in continents as far away as Africa.
The war in Ukraine has led to the disruption of food and fuel production and supply chains in Russia and Ukraine and has led to significant rises in fuel and food costs in Africa as African countries that depend heavily on these supply chains are facing painful economic pressure as these price hikes increase the burden on an already poor populace.
In 2015, diesel cost between N145 and N160 for a litre in Nigeria but the current price is upward of N700. In Zimbabwe, petrol price has gone from $1.44 to $1.70 and South African fuel prices have also gone up by 40 percent with the government responding by cutting down on the sales tax to keep prices manageable for the citizens.
Nigeria is particularly badly affected because its manufacturing base depends on diesel for a whopping 70 percent of its power generation due to the failure of the power sector to provide a constant power supply. When you also factor in that diesel and gasoline power the transportation and logistics industries, it becomes easier to see the nature of the secondary impact of the Ukrainian war on production costs and sales prices in Africa.
Nigeria shouldn’t be in this situation but the mind-boggling failure of governance that left one of the world’s highest producers of crude oil strangely being one of the world’s higher importers of refined petroleum products due to an almost total failure to refine its own oil output, leaving it unduly vulnerable to disturbances in the international fuel supply chain.
Read also: How Russia-Ukraine war may stress Nigerians, others beyond 2022
Ideally, Nigeria could have been in a position to offer a fuel supply chain less vulnerable to shocks to the African energy market, but none of the four government-owned refineries in the country is working so instead, not only is Nigeria dealing with higher fuel prices for deregulated fuel products such as diesel and kerosene but it is also faced with rising petrol subsidy costs that have gone from N350 billion in 2019 to N1.75 trillion in 2021 and are positioned to soar even higher as the President himself has acknowledged publicly in a letter to the National Assembly that asked lawmakers for approvals to get more loans to fund the subsidy.
The International Monetary Fund (IMF) in its recent Regional Economic Outlook has released a statement on the situation explaining that it expects a shrink in growth from 2021’s 4.5 percent growth to 3.8 percent for 2022. Inflation projections for Africa in 2022 and 2023 are 12.2 percent and 9.6 percent, respectively, which would be the highest regional levels reached since 2008.
Food prices, which take roughly 40 percent of African consumer spending, are climbing still and raising poverty levels. Imports account for 85 percent of the region’s wheat supplies along with fuel and fertiliser and the hikes in their prices are impacting local food production, increasing the prevalence of food insecurity and poverty.
The IMF report also states that higher oil prices will raise the African import bill by $19 billion, further worsening already unpleasant trade imbalances. Fragile oil-importing states are expected to suffer the hardest, with fiscal balances predicted to fall by 0.8 percent of the gross domestic product in comparison compared to the October 2021 forecast.
Africa’s eight petroleum exporters are supposed to enjoy the fallout of higher crude prices but as we have pointed out earlier, Nigeria is the strange country that is a fragile oil importer and also an oil exporter that is going to make a severe net loss because it pays dollar-denominated subsidies on fuel imports so any gains from increased margins on oil are erased by the increased subsidy payments.
The consequences on development spending, tax revenue growth, and fiscal balancing are not going to be pleasant.
The Nigerian presidential elections will hold in early 2023 and the three front-runners feature two openly pro-business candidates (with caveats on one of them) in the opposition and a ruling party candidate who can at best be described as pro-crony.
Hopefully, Nigerians take voting decisions that would leave them more likely to benefit from the waves of ripple effects of decisions taken in places like Russia instead of getting knocked down by the domino effects.
Nwanze is a partner at SBM Intelligence
