Ukraine war: A wake-up call for Africa to increase inter-continental trade

Chema Triki
By Chema Triki

Head of Industrialisation at the Tony Blair Institute for Global Change

Rania Ramli
By Rania Ramli

Researcher, Tony Blair Institute for Global Change.

Posted on Wednesday, 18 May 2022 15:29

A worker collects wheat at the Benha grain silos, in Al Qalyubia Governorate, Egypt, May 15, 2022. REUTERS/Shokry Hussien
A worker collects wheat at the Benha grain silos, in Al Qalyubia Governorate, Egypt, May 15, 2022. REUTERS/Shokry Hussien

Over the past couple of months, Russia’s invasion of Ukraine has severely disrupted the supply of essential crops to Africa and led to significant price increases for agricultural goods and energy, with prices skyrocketing across the globe.

Most of Russia’s imports to Africa are agricultural goods, with 90% of these agricultural goods being made up of wheat and 6% from sunflower oil in 2020. Similarly, 48% of Ukraine’s agricultural exports to Africa were made up of wheat and 31% of maize.

The crisis has led to a significant food price inflation in many African countries, where food accounts for a significant proportion of consumer spending, making up 40% in sub-Saharan Africa. Between February and March 2022, inflation for the cereals index reached more than 17% and the vegetable oil index was up by 23% in Africa. Wheat prices have also seen an increase of 27% since Russia’s invasion.

This will increase the number of people living in poverty and impact food security in already fragile countries. Some areas are even facing food shortages and the risk of starvation.

Global cohesion

Like Covid-19, this crisis highlights the lack of local production capacity and inter-continental collaboration. There are valuable short-term solutions being proposed for African countries which are mostly about substituting the main cereals and crops imported from Russia and Ukraine with other locally produced commodities and diversifying trade partners and tapping into existing African capabilities.

For instance, Cassava, a root vegetable that exists in many African countries and can grow in poor soils and with low rainfall, can provide a gluten-free flour that can replace wheat flour and could be used in various products with good results. Sunflower oil, one of the main products imported from Russia and Ukraine, can be substituted with palm oil.

African countries could also tap into existing African capacity, such as supplying fertilisers from Morocco as the country’s OCP (Office Cherifien des Phosphates), one of the world’s leading fertiliser exporters, representing more than 6% of global exports of fertilisers in 2020.

However, it is essential to work on the mid to long term solutions now as well.

These are increasing local production capacity by improving agriculture productivity and investing in industrialisation, while at the same time building continental economic cooperation and harnessing the potential of the African Continental Free Trade Area (AfCFTA). This would result in cheaper imports, higher economic resilience and strategic self-reliance and could be the basis of economic transformation in the continent.

Shock-resistance

The African Continental Free Trade Area (AfCFTA) has huge untapped potential across Africa that, if exploited efficiently, could promote growth and development in the region and protect countries from the effects of shocks in other parts of the world. It offers a significant market opportunity and potential for regional value chain development.

The implementation of the AfCFTA is not straightforward, due partly to problems with transport, logistical costs and the payment systems, but a number of recent initiatives are working to solve these issues. These include the African Development Bank’s (AfDB) significant investments in trade corridors and infrastructure, such as the $3.2bn East African railway project linking Tanzania to mining areas in Burundi and the Democratic Republic of Congo, and a $15bn highway corridor running from Lagos, Nigeria’s commercial hub, to Abidjan in Ivory Coast.

This crisis should be a wake-up call to foster the implementation of the AfCFTA and the development of regional value chains.

In addition, the Afreximbank and the AfDB have recently launched the Pan-African Payments and Settlement System (PAPSS) which aims to provide an alternative to current high-cost and lengthy correspondent banking relationships and to facilitate trade and other economic activities among African countries.

‘A wake-up call’

We are entering an era in which regional and global instabilities are becoming more frequent. Like the Covid-19 crisis was an opportunity to push for a local vaccine manufacturing agenda in the continent, the Ukraine crisis should be considered a wake-up call to invest in agriculture transformation and, more broadly, industrialisation.

There is an urgency, if not an emergency, that most African countries are facing to improve the resilience and competitiveness of their economies. The continent will not be immune from a new crisis that would impact other essential imported goods such as clothing, pharmaceuticals, machines, and vehicles.

This crisis should be a wake-up call to foster the implementation of the AfCFTA and the development of regional value chains. Otherwise, the continent will be condemned to economic fragility and perpetuate a story of economic dependence.

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