Eight 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.
With Russia a major producer of commodities such as oil, gas, aluminium, palladium, nickel, wheat and corn, sanctions and market concerns about the war’s disruption on supply chains have caused commodity prices to soar.
Surging commodity prices will create winners and losers across Africa and the world.
On the continent, the countries most vulnerable to the conflict are those which import a large share of the wheat they consume, like Egypt. Meanwhile, African oil importers like Kenya will also feel the heat of surging oil prices as Russia, one of the world’s largest exporters of crude, is hit by sanctions, disruptions to energy exports and a potential embargo.
Commodity exporters, like Nigeria and Angola, are likely to be the biggest winners of the war as the supply constraint-induced commodity price boom that began in 2021 will be prolonged, says Renaissance Capital, a Moscow-headquartered bank.
Commodity price chaos
Yvonne Mhango, head of Africa research at Renaissance Capital, says that the continent could be affected in three ways.
“The first and most pronounced effect will be via the surge in global commodity prices, particularly for oil and wheat,” she says.
Sanctions and supply chain disruptions will drive up commodities prices, and in turn inflation, causing spiralling crude oil and cereals prices for governments and consumers.
Since Russia declared war on Ukraine, the price of Brent crude has spiked to $110/bl, signalling an over 80% price jump in 12 months.
Heightened energy prices will be felt most severely in skyrocketing transport and utilities costs, including electricity, gas and other fuels like kerosene and paraffin, the bank says.
With Russia and Ukraine accounting for around 30% of the global wheat exports, and Ukraine accounting for 15% of corn exports, disruption to supply due to sanctions and the war will push up the prices of wheat and corn, and of cereals in general, says Mhango.
“Most of the wheat consumed in Africa is imported. We expect Africa’s biggest wheat consumers to be the most affected, particularly if they import most of what they consume.”
Egypt is particularly vulnerable to further commodity price pressures due to its high dependency on imports from both countries, according to Capital Economics’ senior emerging markets economist, Jason Tuvey.
“This could lead to a small widening of Egypt’s current account deficit, but – with subsidies set to be cut back – the biggest impact is likely to come via higher inflation. That will hit household spending and also raises the risk of fresh social unrest.”
Ghana, Nigeria and Kenya also consume a lot of wheat, much of which is imported, Mhango says.
The countries that consume mostly corn, which are mainly in southern Africa, tend to grow most of their corn, so the effect on inflation of higher prices is likely to be smaller.
Oil exporters such as Nigeria and Angola are set to benefit from the commodity price chaos as their current accounts rake in the gains of the oil price increase, which is big enough to counter underperforming production, Renaissance Capital says.
Current account balances
African oil importers will also feel the pinch of the surging oil price in their current accounts.
Fuel tends to be the biggest import so a price increase has a material effect on the import bill, and by implication the trade balance and current accounts, says Mhango.
“Petroleum imports accounted for 17-20% of imports in Nigeria, Kenya, Egypt and Ghana in 2019. This ratio tends to increase as the oil price rises. We expect current account deficits to come under pressure and widen in oil importing countries.
“We think the oil importers that are most vulnerable are those with overvalued currencies such as the Kenyan shilling,” she added.
Trade and investment
With Russia just a small African trading partner, the impact on trade will be marginal, Mhango says. Yet a few countries, such as Uganda, will be more exposed.
Russia only accounts for 2-3% of Africa’s trade with the world, according to UNCTAD data, which is mostly made up of exports. Russia also accounts for 2% of the world’s exports to Africa, and only 0.5% of imports from the continent.
But there are outliers on the continent.
In 2020, 8.1% of Malawi’s total trade was with Russia, followed by Uganda with 7.2%, Senegal 4.4%, Niger 4.1% and Republic of Congo 4%, according to Renaissance Capital.
Metal ores, including bauxite, are likely Russia’s biggest import from Africa, while fertilisers and medicines are among Russia’s exports to Africa.
A small impact will also be felt on investment as Russia is not a leading global investor in Africa.
Russia’s foreign direct investment (FDI) accounts for less than 1% of Africa’s total FDI, according to fDi Intelligence, most of which flows into the natural resources sector, particularly the metals, coal and oil and gas sectors.
“The African countries with Russian mining interests are Angola, where the diamond company Alrosa operates, and Guinea, where Rusal, an aluminium company, owns and operates bauxite mines and an alumina refinery,” says Renaissance Capital.
“Russian companies also operate in Zimbabwe (platinum), Sudan (gold) and Nigeria (Rusal). We expect sanctions on Russia to dampen FDI inflows into Africa over the medium term. Countries with mining operations owned by Russian corporates will likely be most affected.”
Fears also abound that the war will cause a flare-up in African debt.
“One of the key things we’ve seen is a backlog of tighter external financing conditions really causing concerns about debt positions across Africa to flare up in countries that are already experiencing concerns,” says Jason Tuvey at Capital Economics.
In Ghana there is not an immediate risk of default, as the country hasn’t got much debt to repay over the next few years, he adds.
“They might become a growing concern over the second half of the decade.”
Diplomacy and geopolitics
The crisis will also have diplomatic ramifications. In a vote at the UN General Assembly condemning Russia’s invasion, 28 African countries (51%) voted in favour, 17 abstained (31%), one voted against and 8 African countries were not in the room.
The continent remains scarred by Cold War divisions, and will continue to be an arena where superpowers play out their rivalries – as seen with the recent resurgence of Moscow in Africa, says Carlos Lopes, a professor at the University of Cape Town’s Mandela School of Public Governance, University of Cape Town, and former secretary general of the UN Economic Commission for Africa (UNECA).
“The Ukraine crisis reinforces the trend and will imply pressures for African countries to choose sides. This will be closely watched by China as well. It is in the interest of Africans to avoid such pressures, invoking their priority of mobilising as much support as they can from all partners.”
There may be a rise in Russian involvement in Africa as Moscow seeks to demonstrate its global power and exploit arms deals opportunities, Lopes adds.
“Africa is increasingly being used by new players as a terrain for proxy wars. Russia has entered the field and is likely to seek to expand its influence. The UN and other multilateral institutions will experience major disruptions which will weaken Africa’s fragile gains in the multilateral front.”
One of Russia’s main foreign policy goals for 2022 was to prioritise relations with the continent, says Aanu Adeoye, Mo Ibrahim Foundation Academy Fellow at Chatham House’s Russia-Eurasia Programme.
“In foreign policy circles in Moscow they were calling this the ‘Year of Africa’ as they were looking to deepen trade ties with Africa. But now there are so many sanctions, obviously they are going to have to prioritise their investments.”
Reports surfaced on March 2 that the Russia-Ukraine war may disrupt the completion of a major steel project in Nigeria, the $8bn Ajaokuta steel plant, that has been subject to delays for 40 years.
While it is still early days, the domino effect of global sanctions on Russia and the fallout of the war will no doubt trickle down to the continent, says Adeoye.
“We will see that if these sanctions continue to tighten on Russia’s economy, obviously it will affect some of the projects they are carrying out in Africa.”
A question mark also hangs over whether the Russia-Africa Summit, scheduled from the 23rd-24th Oct. in St. Petersburg, will still go ahead.
South Africa keeps Russia ties alive
South Africa is one of several countries that are keen to retain ties with Russian that date back to the Soviet Union’s support for African liberation movements.
Still, the war appears to have divided the ruling ANC, with foreign minister Naledi Pandor slapped down by President Cyril Ramaphosa for criticising Russia and deviating from the country’s deliberate neutrality.
“Now they are using language like: ‘The legitimate security concerns of both sides should be taken into account,’ which lets us know where their sympathies lie,” says Adeoye.
South Africa is a member of the BRICS club (Brazil, Russia, India, China and South Africa) which sees itself as an alternative to western hegemony.
“It doesn’t necessarily mean South Africa sees Russia as an ally, but it sees it as a partner it can work with. So that is why they decided to abstain,” says Adeoye.
Yet the support of African countries is not set in stone. While commentators seized on the fact that 17 African countries abstained from condemning Russia’s latest invasion of Ukraine, 26 countries abstained from condemnation when Russia annexed Crimea eight years ago.
“Everyone is focusing on the 17 African countries that abstained without noticing that quite a number of African countries have actually voted in favour of the resolution as opposed to eight years ago, which shows that invading another country is a red line for a lot of countries, and Africa is no exception,” says Adeoye.
Russian military role
The crisis could also have implications for military links. Relations between Mali and the West broke down in September amid rumours that Mali’s military government was negotiating a security contract with the Wagner Group, a private Russian military outfit alleged to have close links with the government of Russia.
Reports also arose that Burkina Faso’s president had been ousted weeks after refusing to sanction the use of Russian mercenaries on the country’s soil.
Signs that private military contractors from the Wagner Group could also be involved in Ukraine to support Russian forces have raised questions over what the Russia-Ukraine war means for the group’s activities in Africa. By the very nature of the clandestine outfit it is difficult to predict what their next or even current moves are, says Adeoye.
The European Union has sanctioned the Wagner Group, accusing it of clandestine operations on behalf of the Kremlin.
Finally, the crisis is drawing attention to the plight of African refugees in the combat zone. Non-Ukrainian refugees attempting to flee the country, especially from Africa and the Middle East, are finding themselves trapped between racism and war.
A number of non-Ukrainians, including Africans, Afghans, and Yemenis have been subjected to segregation and discrimination, particularly at the Polish-Ukrainian border, according to reports.
“The humanitarian impact centered on the way African refugees are being mistreated at the Ukraine borders, and the stigmatised media coverage with references to Africa that have generated outrage in Africa,” says Professor Lopes.
“The continent can also expect a reduction of development aid, particularly the parts linked to humanitarian, migration and peace and security, that will be transferred to Ukraine and neighbouring countries.”