The Ukraine conflict, like the COVID-19 pandemic in 2020 and the Japan earthquake in 2011, highlights the risks associated with the global supply chain’s interconnected nature.
The reliance on foreign input producers causes production to be disrupted when source countries face a negative shock, such as a natural disaster, a pandemic, or a war that results in economic sanctions. The Russian invasion of Ukraine in February 2022 has emerged as an exogenous shock to global supply chains, which foreshadows worrying impacts on Africa.
A slew of financial, trade, and private-sector sanctions and restrictions have hampered Russian trade, causing logistical disruptions, input shortages, and commodity price increases.
Export bans to Russia are disrupting Russia’s manufacturing capabilities, particularly in electronics, automobiles, iron and steel, and aviation. Disruptions in logistics affect almost all trade flows, causing delays and inflating already high global freight prices. Rising logistics costs in the region exacerbate the problem.
The shock has also been transmitted globally given its effects on the prices of internationally traded commodities and price increases in inputs, such as energy, caused by protectionist policies in other countries. Higher prices have a particularly negative impact on the profitability of energy-intensive activities.
The Russian export ban and a retaliatory ban on foreign imports, as well as Russia’s refusal to allow foreign cargoes to transit its waterways and airspace during the conflict, disrupt the global supply chain. Following the effects of sanctions and the threat of supply chain disruptions, all major commodity markets displayed signs of inflationary shock, exacerbating the price pressure seen in 2021 and early 2022.
Globally, supply constraints and price increases are being felt, particularly for wheat, corn, and vegetable oils (which has caused several countries to limit their own exports of such goods), fertilizers, metals, and energy commodities.
Russia and Ukraine are major commodity producers, and disruptions have caused global prices, particularly for oil and natural gas, to skyrocket. Food prices have risen, with wheat, which accounts for 30% of global exports from Ukraine and Russia, reaching a new high.
It is critical to note that Russia’s invasion of Ukraine is disrupting global supplies of essential commodities, driving up prices, slowing trade, and lowering incomes. Russia and Ukraine account for roughly a quarter of global wheat exports and 14% of maize shipments combined.
Ukraine produces half of the world’s sunflower oil, while Russia is a major energy supplier. As the Black Sea region is also a major exporter of fertilizers, the resulting scarcity and price increases have a negative impact on crop yields in many regions, particularly Africa.
To meet domestic market demand, the majority of African countries rely heavily on food imports from Russia and Ukraine, particularly wheat. The most vulnerable African countries are those that rely heavily on food and energy imports. Benin and Somalia, for example, get all of their wheat from Ukraine and Russia. Egypt, Sudan, Kongo, Senegal, and Tanzania were 82%, 75%, 69%, 66%, and 64% dependent on Russian and Ukrainian wheat imports in 2019 and 2020, respectively.
The Republic of Congo, 67%, and Niger, 60% are the most reliant on imports from the region in Sub-Saharan Africa. Algeria is heavily reliant on Russia for 94% of its coal, making it vulnerable to the ongoing conflict. But beyond the food security dimensions of the War, it is equally imperative to consider its non-food related dimensions as well.
Following the War, crude oil prices have risen to more than $100 per barrel, while gasoline prices have reached new highs. Furthermore, the war adds inflationary pressures to commodity prices that were already high due to COVID-19 disruptions, regional weather events, currency depreciation, and worsening fiscal constraints. The characteristics of trade, production, and consumption in the countries affected determine the effects of various shocks on trade flows.
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Increasing crop and energy costs, on top of already high commodity prices, place additional strain on developing-country households, particularly the poorest. As a result, developing countries pay a higher price for energy imports, resulting in an increase in the local pump price of fuel, and an increase in merchandise imports overall, despite income levels remaining unchanged.
Furthermore, rising natural gas prices make utility-scale electricity generation much more expensive in markets such as Ghana, Cote d’Ivoire, and Nigeria. As a result, the consequences of the Ukraine war place a disproportionate burden on lower-income households in developing countries, which spend a large portion of their budget on food and energy.
The lowest-income households spend on average 54% of their consumption expenditures on food, 7% on energy, and 4% on transportation.
As a result, African governments, development partners, and donors should respond to the consequences of the Russian-Ukrainian conflict by deploying short- and long-term solutions beyond food and nutrition security, but that also seek to reduce risks, while strengthening states’ resilience mechanisms.
Furthermore, African countries should fully utilize the African Continental Free Trade Area to increase intra-African agri-food trade and reduce their reliance on international markets during exogenous shocks such as the ongoing Russia-Ukraine War, as the stakes could not be any higher for the African continent.
