When Russia invaded Ukraine on February 24, global economic systems reacted and wiped out nearly $1 trillion in value from the global stock market, accelerating the fall of major indexes.
Africa, already with a weak economy exacerbated by the pandemic, was not ready for a war involving two major commodity producers.
In Kenya, we have seen large queues at petrol stations over the past week due to supply chain disruption and extenuating circumstances of Covid-19.
Russia being the world’s second largest crude producer, supplying about 35% of Europe’s natural gas supply and 50% of Germany, would automatically affect world oil prices.
In 2020, Nigeria was the top oil producer in Africa with 86.9 million metric tons. Unfortunately, this oil is mainly exported to Asia and Europe as crude, and they import it from outside when refined.
This is a sad situation because most African countries do not have the capacity to refine oil before exporting it to give it that added value that would yield greater profits.
The control of oil exploitation in Africa by large multinational corporations makes it difficult to purchase the product directly from them. Moreover, the lack of oil refineries to process the raw material aggravates the situation.
Ethiopia is one of the few African countries to import its petroleum products directly from Africa.
It spends 50% of its total export earnings to meet its fuel demand, saving millions of dollars by importing from neighboring Sudan through Sudan’s Nile Petroleum Company (NPC).
On the bright side, large amounts of oil and gas were discovered in 2006, around Lake Albert in western Uganda. This raised hopes that the East African region would benefit from cheap petroleum products once the project is fully operational.
But East African countries will only fully benefit from cheap oil if a refinery is established in the region.
Estimates show that Uganda has 6.5 billion barrels of oil reserves. Unfortunately, only 1.4 billion are economically recoverable.
Locally, Uganda has the capacity to produce 230,000 barrels per day (bpd) for over 15 years, with the potential to sustain East Africa’s supply of petroleum products.
But the construction of the crude oil pipeline linking future oil fields in Uganda to the Tanzanian port city of Tanga is a clear manifestation that it will not.
Experts say the viability of the project will not justify building a refinery.
Even though harsh sanctions imposed on Russia by Western countries do not specifically target its oil and gas, the supply chain has been disrupted as major buyers struggle to obtain guarantees and find tankers to transport crude oil in Africa.
Also, the high cost of insuring oil shipments from Russia is part of the problem. This created speculation, hoarding and panic buying, contributing to the creation of an erratic supply and demand curve.
Europe receives its crude oil from Russia through a pipeline that is less visible than shipping, raising fears among major energy companies of a public backlash as buying Russian oil will be seen as support for the war in Ukraine .
They also face logistical problems as banks cut credit and struggle to obtain insurance in addition to soaring transport costs. Conversely, China and India took advantage of the cheap price of oil offered by Russia to build up stocks.
Conversely, it is high time that African countries take advantage of this scenario. it’s not that african countries don’t sympathize with ukrainians but just like europe which didn’t impose oil sanctions for strategic economic reasons africa should also insulate itself from volatility future prices because we don’t know how long the war will last.
In Kenya, Treasury Cabinet Secretary Ukur Yatani has warned the public that the fuel subsidy program cannot be sustainable and the government must come up with a different strategy. Yatani said the subsidy program going forward will need an additional 10-15 billion shillings each month to maintain price stability.
African countries should therefore be proactive rather than reactive in preparing for foreseeable crises and one way to do this is to have policies through the African Union to source fuel from within the continent.
Wheat and corn oil are other products that have been affected by the war in Ukraine. We have seen that since January wheat and cooking oil prices have increased due to the Covid situation and are now being made worse by the latest disaster.
The continent’s main sources of wheat are Russia, France and Ukraine. Concerto, an African business intelligence firm, estimates that imports from Russia and Ukraine account for 30% of total African wheat consumption, while Egypt imports about 80% from both countries.
Kenya also imports large quantities of wheat from Russia and Ukraine, which is why we have seen prices increase in the local market.
A report by German publication Der Spiegel, according to Paloma Fernandes of the Central Millers Association in Kenya, warned that prices for wheat products will start to rise from March this year.
Much like how European countries have been careful to insulate their citizens from fuel problems (except for the latest sanctions on Russian coal which will easily be offset by gas), they should also allow Russian ships to bring in wheat and maize in Africa. .
They should declare to the European Union Parliament and the UN that wheat is an essential commodity for social and political security, therefore shipments should be given all the support necessary to export the commodity to Africa.