War in Ukraine: Economic impact on Africa one year later

By Yara Rizk, Yara Rizk

Posted on Friday, 24 February 2023 10:37
A bakery in Lagos, February 3, 2023. © Sunday Alamba/AP/SIPA

With inflation slowing growth, and disruption of supply chains, Africa has barely recovered from the effects of the pandemic. For the time being, the continent is bending, but not breaking.

After abstaining from the UN vote condemning the Russian annexation of Ukrainian territories last October, South Africa, a major regional power on the continent and a member of BRICS, recently agreed to take part in joint naval exercises with China and Russia.

This decision was not too surprising, since a year after the start of the war on 24 February 2022, African countries, which represent more than a quarter of the United Nations votes in the UN General Assembly, are struggling to position themselves openly in favour of one side over another.

The underlying economic risk would be too high when the continent is already paying the price for the conflict.

For Kristalina Georgieva, Managing Director of the IMF, the fighting in Ukraine and the unprecedented sanctions imposed on Russia, “have far-reaching consequences, and come at a delicate time for Africa”.

The Covid-19 crisis undermined decades of African macroeconomic, socioeconomic, and administrative gains: for the first time in three decades, Africa’s Human Development Index (HDI) has dropped to 0.53 in 2022 from 0.56 in 2019**, according to the United Nations Development Programme (UNDP).

According to the latest figures from the African Development Bank (AfDB), around 50 million Africans live in extreme poverty – an additional 15 million people than in 2022.

Growth slowdown

Prior to the pandemic, African countries were among those experiencing the fastest economic growth rates in the world. The war in Ukraine, which began as continental economies slowly began to recover, has hampered economic development and recovery.

According to the 19 January AfDB report, the continent’s estimated average real GDP growth has slowed from 4.8% in 2021 to 3.8% in 2022 but is expected to stabilise around 4% between 2023 and 2024.

Although Africa has shown resilience in the face of the global pandemic and war, the harmful effects of these exogenous shocks are still clearly visible.

Less income, more expenses

Trade and tax revenues for African governments have shrunk as they have been forced to spend more on social safety nets and various subsidies linked to the rising cost of living. “Countries are being asked to spend more with less money,” explained UN Under Secretary General Ahunna Eziakonwa at the American Institute for Peace on 14 June.

“The budgetary and monetary responses of African countries have considerably increased their public debt ratio,” she pointed out, as in the GDP cases of South Africa (69%), Ghana (85%), Morocco (90 %), Benin (49%), or Tunisia (78%).

However, still, according to Eziakonwa, Africa, heavily indebted, “borrows at a much higher cost than the rest of the world.” This situation can be explained in particular by increasingly difficult access to international financial markets, an increase in risk aversion among investors and increasingly downgraded credit ratings. According to UNDP, “biased credit ratings could cost six African countries $13bn in additional interest payments.”

Food inflation

Although the level of trade between the continent and Russia-Ukraine is negligible, some African countries rely heavily on it for critical imports like oilseeds, fertilisers, or steel.

As an indication, in 2020 alone, African countries imported the equivalent of $4bn in agricultural products from Russia and $2.9bn from Ukraine. According to UNCTAD data, Russia and Ukraine supply 32% and 12% of the continent’s wheat needs respectively.

Regarding wheat, Nigeria, the world’s fourth largest importer, buys 25% from Ukraine and Russia, while Benin and Somalia are 100% dependent on it. Countries like Sudan, Uganda, and Tanzania buy nearly half of their imports from the warring countries.

However, the inflationary effects are not limited to products from these countries at war, because all the global structures of trade and production are affected. Not to mention the fertiliser crisis which has led to a reduction in food production, even in developing economies.

According to the AfDB report, “average consumer price inflation increased by 0.9 points to 13.8% in 2022 from 12.9% in 2021, the highest level for more than a decade.”

The impact is such that, according to the World Bank, the rise in commodity prices will be felt by consumers at least until 2024. This inflationary shock will last both on the food front and the energy front, with unprecedented peaks not reached since the oil crisis of 1973.

On average, across the continent and according to data compiled from the latest Famine Early Warning System Network and FAO report, the price of maize has increased by 80%, with price increases by 50% for flour, 40% for rice, 37% for oil, 30% for poultry, 20% for oranges, and 10% for tomatoes.

Energy prices

The spectacular evolution of energy prices, directly and indirectly, attributable to the ongoing conflict in Ukraine, has raised fears of the worst in 2022. If in 2023, the situation seems to have stabilised with the capping of the price of crude oil by the G7 at $60 per barrel, nothing is fixed since this price is likely to be modified according to market developments.

However, according to the declarations of the Secretary of the Treasury of the United States, Janet Yellen, after returning from an African tour, “the continent saves $6bn a year thanks to the limitation of the price of Russian hydrocarbons,” especially since a new cap on Russian refined petroleum products, such as diesel and heating oil, came into force on 5 February.

This is a breath of fresh air for African economies which, despite their resources in crude hydrocarbons – especially for sub-Saharan Africa, which produces more oil than it consumes – continue to import final and processed products.

**The closer the HDI is to 1, the higher it is. In 2022, the HDI of OECD countries was 0.895, against 0.528 for the least developed countries (LDCs).

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