Twelve days into Russia’s full-scale invasion of Ukraine, the fallout of the war and unprecedented sanctions on Moscow are shaking global supply chains and financial markets.
Because Russia is a major producer of commodities such as oil, gas, aluminum, palladium, nickel, wheat, and corn, sanctions and market concerns about supply chain disruption from the war have caused commodity prices to skyrocket.
Commodity price increases will create winners and losers throughout Africa and the world.
The countries most vulnerable to the conflict on the continent are those that import a large portion of the wheat they consume, such as Egypt. Meanwhile, African oil importers such as Kenya will feel the heat of rising oil prices as Russia, one of the world’s largest crude exporters, is hit by sanctions, disruptions in energy exports, and the threat of an embargo.
Although some African countries may benefit from a shift in global markets away from Russia due to the crisis, the short-term potential impacts on economic livelihoods are worrying while the implications for pan-African solidarity and adherence to multilateralism are increasingly uncertain.
Benefits for natural resources exporters
A few countries are sensing long-term growth opportunities from the crisis. Specifically, Africa’s natural gas could reduce Europe’s dependence on Russian energy. For example, Tanzania’s president, Samia Suluhu Hassan, stated in an interview on the sidelines of the European Union (EU)-African Union (AU) summit in mid-February that the tensions in Ukraine are generating growing interest in the country’s gas reserves, which are the sixth-largest in Africa. Her nationalist predecessor, the late President John Magufuli, suspended talks with natural gas investors in 2019 to review the country’s production sharing agreement regime. Hassan, however, favours a more business-friendly approach and has revamped negotiations with energy companies in the hopes of attracting $30 billion in foreign investment to revive the construction of offshore liquified natural gas projects in 2023.
Several other countries could similarly benefit from Europe’s energy diversification, including Senegal, where 40 trillion cubic feet of natural gas were discovered between 2014 and 2017 and where production is expected to start later this year. Nigeria, already a supplier of liquified natural gas (LNG) to several European countries, is also embarking with Niger and Algeria on the Trans-Saharan Gas Pipeline to increase exports of natural gas to European markets. On February 16, the three countries signed an agreement to develop the pipeline, estimated to cost $13 billion. Europe is likely to be a key financer, bolstered by the EU’s controversial decision in early February to label investments in natural gas as “green” energy.
Besides natural gas, further sanctions on Russia might benefit other natural resource exporters in the region. For instance, South Africa is, after Russia, the world’s second-biggest producer of palladium—a critical input into automobiles and electronics—and therefore could experience growing demand as a result of international sanctions placed on Russia. Similarly, as a major exporter of gold, the South African rand has been strengthening as a result of rising global prices for precious metals.
Household vulnerability from fuel, fertilizer and food impacts
African countries imported agricultural products worth $4 billion from Russia and $2.9 billion from Ukraine in 2020 at a time of soaring prices in global markets. From Russia, about 90 percent was wheat. “Since 2014 Russia has considerably diversified its economic partnerships with African countries,” Tatiana Smirnova, a postdoctoral researcher at the Centre Franco Paix in Conflict Resolution and Peace Missions at the University of Quebec, told Foreign Policy.
Egypt imports nearly 85 per cent of its wheat from Russia and Ukraine, and it is Russia’s top African trade partner. Russia has invested around $190 million in developing special economic zones in Egypt’s Port Said. The country issued a new global tender for wheat on Saturday and said reserves could last nine months. In Tunisia, already struggling economically, the agriculture ministry said it was looking elsewhere for wheat supplies.
Still, there are some African countries that will gain. Oil prices have surged past $100 a barrel, the highest level since 2014. A Russian oil embargo would benefit the economies of Nigeria and Angola. Ethiopia with its large wheat fields could have stood to gain from supply shortages but its own production has been disrupted by civil war.
“If you were to look five years back, they were on the trajectory of being an impressive player in Africa’s grain markets,” Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa, said.
Regional solidarity will be tested
Perhaps not wanting to be drawn into a proxy war, few African countries have issued an official response to Russia’s aggression. Kenya, Gabon, Ghana, and Nigeria have spoken out against the escalating conflict. Kenya’s ambassador to the United Nations made a rousing speech at the United Nations Security Council comparing the Ukraine conflict to the colonial legacy in Africa.
While South African President Cyril Ramaphosa, historically a key Russian ally in the BRICS group, appealed for a “mediation process” to bring the hostilities to an end, South Africa has also asked that Russia withdraw its troops from Ukraine.
Russia has been expanding its military support in Libya, Sudan, the Central African Republic, and Mozambique with advances in Mali in fighting rebels and jihadist insurgents. The second Russia-Africa summit was scheduled for October to November this year in Addis Ababa. As Russia’s invasion of Ukraine began, the deputy leader of Sudan’s junta, Mohamed Hamdan “Hemeti” Dagolo, led a delegation to Moscow to strengthen closer ties between the two countries. (Russia has gold mining concessions in Sudan.)
One of the important sanctions against Moscow was on high technology imports to Russia, noted Smirnova. “This will have an impact on relations with Africa. I think that Russia will continue to search for markets specifically in countries that could provide minerals for electronic components like cobalt,”
It is likely Russia’s isolation from the rest of the world could push it closer to countries such as Mali, which has been ostracized from much of Africa; the Central African Republic; and the Democratic Republic of the Congo, the world’s largest producer of cobalt, a mineral essential for electronic products and vehicles.
Source: foreignpolicy and BROOKINGS