As the on-going conflict between Russia and Ukraine intensifies, Nigeria may be affected in terms of capital importation and some consumables imported from these countries, according to a report by Coronation Research.
On capital importation, since 2019, Nigeria has received a total of $84.3m in capital imports from Russia, the report noted from the data from the National Bureau of Statistics (NBS).
Nigeria imported N144bn ($346.2m) worth of durum wheat in 2020 and N123.9bn ($297.8m) worth of durum wheat between January – September ’21 from Russia. Nigeria also imports different types of seafood such as mackerel, herrings, and blue whiting from Russia.
The NBS data also show that Nigeria imported milk worth N721.5m ($1.7m) from Ukraine in 2021. Russia and Ukraine are major exporters of agricultural commodities, particularly grains. Based on data from Food and Agriculture Organization (FAO), of the United Nations, both countries accounted for about 30 percent, 80 percent and 14 percent of global wheat, sunflower seeds, and maize exports respectively, in 2020.
Read also: Russia -Ukraine Conflict: FG approves $8.5m to evacuates 5,000 Nigerians
“From a fiscal perspective, higher oil prices bode well for Nigeria. However, the presence of the fuel subsidy regime undermines expected benefits. The ongoing conflict also has a potential negative impact on the country’s imported food inflation rate, potential (but minimal) disruptions to trade activity and capital importation,” analysts at Coronation research stated.
According to the report, the rise in oil and natural gas prices as well as the potential worsening of global supply[1]chain constraints would contribute to inflationary pressure and weaken purchasing power, particularly in the Eurozone area and the United States.
To tame rising inflation in select advanced economies, central banks have been postured to kick-off policy rate hikes this year. At this point, we do not expect a reversal in this stance. However, we continue to monitor global trends closely.
On his part, Muda Yusuf, CEO, Centre for the Promotion of Private Enterprise (CPPE), an economic and business advocacy think tank, said the revenue allocation to the different levels of government may be adversely impacted because the substantial amount of NNPC’s resources will be consumed by the mounting subsidy payment in the unfolding scenario.
“We may be on the verge of zero remittance by the NNPC to the federation account as a result of the rising subsidy commitment. This of course has grave implications for states, especially those that are heavily dependent on FAAC allocations. Their capacity to meet their obligations will be impaired. Their ability to pay salaries, pensioners, fund infrastructure, and pay contractors will be weakened,” he said.
However, on the flip side, he said there is a positive investment effect on companies in the upstream segment of the oil and gas sector. This is good news because there is a positive correlation between crude oil price and returns on investments. It is expected that oil service companies should also be positively impacted.
Yusuf said the scale of petroleum products smuggling will increase because of the impact of the crude oil price hike on relative prices. The price differential between the cost of petrol in Nigeria [which is heavily subsidized] and the cost of petroleum in other countries in the sub region would be further widened, fueling more petrol smuggling.
Therefore, he said the current domestic petrol consumption estimated at 60 million litres per day is likely to further jump as the current developments provide even greater incentives for smuggling. That will put further pressure on the NNPC for petroleum products supplied for domestic consumption. This may perpetuate the current scarcity and fuel queues beyond initial expectations.
