Russia/Ukraine: an acute shortage of winners in Africa
Posted on 3rd April, 2022 in Corporate News
Photo credit: A wheat field in Russia. Credit: Ekaterina Sotova.
Not one country has been spared the latest hike in food and fuel costs driven by the Russian invasion of Ukraine in February. It is normal practice to cite the IMF’s quarterly World Economic Outlook to illustrate changes in global prospects but today we will reference the World Trade Organization (WTO) due to its remit (a focus on trade). The organization has enhanced its profile under Ngozi Okonjo-Iweala, its director-general and the former Nigerian finance minister.
We learn from the WTO that 35 African countries import food from Russia and/or Ukraine, and that 22 import fertiliser. Commentary tends to concentrate on the global importance of wheat and barley output in the two countries and to overlook exports of sunflower products, which are critical to animal feed. Okonjo-Iweala told the international media in mid-April that 80 per cent of Ukrainian wheat is harvested in July (the winter crop) and called for humanitarian corridors to permit its harvesting and the planting of the next crop in September.
Without such corridors and assuming that the conflict still has many weeks/months to run, we should all be fearful for the trajectory of food prices and the fragility of supply chains. In April the WTO lowered its forecast for growth in goods trade volumes in 2022 from 4.7 per cent to 3.0 cent, and warned of a possible slump to just 0.5 per cent in the event of an embargo on Russian energy products.
The FAO’s global food price index hit an all-time high in February. This reminds us that pressure on food and fuel prices predates the conflict, which has compounded the negative impact of the Covid-19 pandemic including the lockdowns imposed this year in China’s largest cities. In January inflation in Egypt was already gathering momentum, and the current-account deficit in Kenya hit a three-year high.
As a result of the conflict, the Egypt macro story has weakened for several reasons beyond food price inflation: many foreign portfolio investors have exited following monetary policy normalization in the US and elsewhere while Russia and Ukraine had become important tourism markets. Egypt is the world’s leading importer of wheat and the government’s bread subsidies reach about two thirds of the population. The fiscal and balance-of-payments pressures, not forgetting the advice of the IMF, could potentially bring unpopular moves to rein in subsidy costs and prompt social unrest. That said, President Abdel el-Sisi can depend on the backing of Saudi and the Gulf monarchies in his hour of need.
Subsidies on gasoline (petrol) in Nigeria were to have been scrapped this year. Elections are due in Q1 2023, and the combination of rising inflation and dull GDP growth persuaded the Buhari administration to extend the support for a further 18 months. Nigeria, however, cannot count on external partners on the scale of Egypt and the cost of the subsidies will merely undermine its own macro story.
Stark changes to the global economy should create winners as well as the numerous losers. We look to the main energy exporters therefore for positive stories yet find a mixed picture. Crude oil production in Angola remains well below the OPEC+ quota because of operational challenges but a few new projects are coming on stream this year in addition to the expansion of others. Nigeria is running more than 300,000 barrels per day behind its own quota due largely to underinvestment and sabotage in the Niger Delta. Its officials maintain without great conviction that the shortfall will be made good this quarter.
Algeria is producing at quota and could support continental Europe in its efforts to wean itself off Russian gas. However, its spare capacity is very limited although Sonatrach, the state-owned hydrocarbons company, and Eni, its Italian counterpart, have agreed to an increase in gas exports over the next two years. Algeria has been able to boost budget revenue to the point that the governments has scrapped unpopular tax hikes (and subsidy reform), and has launched a system of unemployment benefit. Of the three mentioned African energy exporters, it has been the winner on a modest scale.
3rd May 2022