The second in a series of webinars sponsored by Access Bank that focus on trade in Africa looked at the impact of the Ukraine-Russia conflict on Africa, and on South in particular. The webinar was presented by Donald Mackay, founder and director of XA International Trade Advisors, and Dr Judy Smith-Höhn, Director of the Tutwa Consulting Group.
While the Russia-Ukraine conflict is still fairly recent, there are already some trends we can identify in terms of how the rest of the world is affected. But how does this conflict affect trade in Africa – and South Africa specifically?
A small trading partner
Russia and Ukraine together account for less than 1% of South Africa’s global trade, with just R1.2 billion in imports and R1.8 billion in exports in 2021. While some would argue that the conflict has a negligible direct impact on South Africa, of far greater concern are the indirect impacts which are immediate, long term and significant.
The cost of food
Ukraine and Russia are agricultural export powerhouses, representing 53% of global trade in sunflower oil and seeds and 27% in wheat. Given that 25 African countries import more than a third of their wheat from them, the conflict has already had a direct impact on food prices on the continent: food prices are 34% higher now than this time last year. As the cost of cereals and oilseeds increases, this also affects the cost of animal protein – 70% of the cost of chicken, for example, is feed. We can already see this impact with a 17% increase in the price of chicken in South Africa since 2021.
But this isn’t the end of it – what happens when next season’s crops are not planted in the Ukraine? For South Africa, if wheat becomes expensive enough, we may be forced to find alternative suppliers and spread out the supply chain risk.
Russia and Belarus export around one fifth of the world’s fertilisers, whose cost has more than doubled over the last year on the continent. If food producers, especially small farmers, cannot access the fertilisers and other agricultural inputs they need, there’s an increasing likelihood that current market disturbances may be felt through 2023. The situation may worsen if countries close food markets, setting off a domino effect of trade restrictions and export bans.
Food insecurity can lead to social unrest
Because food accounts for a large portion of household spending, a rise in food prices poses a risk of social unrest. In many African countries that are already volatile with their security situation, this risk is even more real. South Africa is also vulnerable to this, given the recent riot and flooding crises it has faced.
Impending social unrest due to food shortages may create some impetus for Africa to become more self-sufficient as a continent by increasing intra-African trade. However, the more pessimistic view is that this would require significant intervention from leadership across the board which has not been seen up until now.
The conflict has already led to disruptions in global logistics and supply chains, as well as delays across global maritime transport systems. Trade restrictions, airspace closures and security concerns have further impacted freight costs, which impacts the whole of Africa.
Less money invested into Africa
From the West, capital will move to defence spending, and aid will be diverted to Ukraine and Eastern Europe (Germany, for example, has approved an extra €100 billion in their defence spending this year). This extra money will need to come from somewhere, and it’s likely that at least a portion of it will come from funds currently going to Africa.
Energy price increases
Russia is the world’s top natural gas exporter and second largest oil exporter and crude oil prices have increased dramatically since the conflict began. Because oil is a universal intermediary good, this influences the costs of commodities, services and transports. This situation has highlighted the utter dependence the world has on a single supplier of energy, and it should logically drive up investment in alternative sources of energy as countries seek to strengthen energy resilience by sourcing locally. However, the jury is still out on whether this will happen, especially in Africa.
New trading environment
The war is likely to result in a reorganisation of global alliances. It’s plausible that the world could divide into two major trading blocs: the “democrats” of Western Europe, the US, Japan, South Korea, Australia, New Zealand and the Ukraine all trading with each other, and with increasing trade barriers to the “autocrats” of Russia, Belarus, China, a portion of Moldova and India.
If this were to happen, which camp does Africa fit into? So far, it’s put forward a neutral face and not overtly supported the West, most likely due to a fear of upsetting China, its reliance on Russia for arms and security and lasting resentments towards US military interventions in Africa. This neutral positioning does, however, have a possible impact on future bilateral relations and development aid coming from the West.
The impact of China
As the conflict continues, Africa is likely to take its cues more from how China behaves than by what Russia is doing. In other words, China will have more influence on Africa than the West will have. The impact of South Africa’s vote on the Russian invasion may also have long term implications, such as causing us to lose our preferential trading access to the US. We may not be thinking strategically by aligning ourselves with Russia, as it’s a trade partner that accounts for just 1% of our trade as opposed to 20% with the EU, for example.
Unprecedented times ahead
The Ukraine-Russia conflict means we’re facing unprecedented times, with increased uncertainty worldwide. In a likely scenario of increased economic tension between Western Europe, the US and the Eastern bloc, value chains will become less and less global, which will have a significant impact on Africa’s growth going forward. Whatever happens, it’s imperative that the continent stays connected and solidifies its own value chain, so that it can weather the economic storms that are coming.