News | Economic / Social Policy - War / Peace - Eastern Europe - East Africa - EN - Die Waffen nieder Shockwaves from Ukraine in East Africa

The war in Eastern Europe has wreaked havoc on the region’s already fragile economy

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Author

Edgar Odari,

Stalls in the market hall of Kigali, Rwanda.  Photo: IMAGO / photothek

The Russian invasion of Ukraine has had major economic and social reverberations around the world. Yet, while the global implications are widely discussed and understood, its regional impacts — especially outside of Europe — are often overlooked.

Edgar Odari is the executive director of Econews Africa.

Now in its ninth month, the war has stretched supply chains for key commodities, destabilized prices, and inevitably led to price distortions. The East African region is no different in this regard. Indeed, it continues to suffer from the unintended consequences of the war, most notably the social and economic destabilization it has engendered.

Supply Shortages and Oil Shocks

The East African region heavily relies on both Russia and Ukraine for key supplies. Russia and Ukraine both ranked among the top three global exporters of wheat, maize, rapeseed, sunflower seeds, and sunflower oil, while Russia also stood as the world’s top exporter of nitrogen fertilizers, the second-largest supplier of potassium fertilizers, and the third-largest exporter of phosphorous fertilizers.

In the cereal sector, Russia and Ukraine are major suppliers of barley, wheat, and maize. Combined, the two countries accounted for 19, 14, and 4 percent of global output of these crops between 2016–2017 and 2020–2021. With view to sunflower seed, just over half of the world’s total output originated from these two countries during the same period. Furthermore, Russia is the world’s third-highest exporter of crude oil after the US and Saudi Arabia.

East Africa now finds itself at the mercy of market forces, as countries in the region seek to address shortfalls in supplies caused by the war. Wheat is a particularly important cereal in the region, accounting for 25 percent of the average total cereal consumption. About 84 percent of wheat demand in the region is met by imports, of which a considerable amount originates from Russia and Ukraine.

This fact is supported by data from the United Nations Conference on Trade and Development, which shows that Russia and Ukraine account for approximately 40 percent of Kenya’s wheat imports, while for Uganda and Burundi, the share of wheat imports is between 50 to 55 percent. For Rwanda and Tanzania, the share of wheat imports from the warring countries is over 60 percent.

The scramble to ensure stability in supply has forced these countries to spend their foreign currency reserves to ensure that prices do not skyrocket, depleting much-needed foreign reserves and putting a strain on the value of their respective currencies in the process.

With respect to fertilizers, prices increased by about 30 percent due to the reduction in supplies from Russia and Ukraine. The impact of this has been a shortage of fertilizers in East Africa and price rises by around the same margin. This in turn led to shortage of maize, a key staple in the region, as well as speculation over available reserves leading to food shortages, especially in Kenya and Tanzania, where the price of maize meal increased by over 15 percent.

The International Trade Centre estimates that in 2020, over 1 billion US dollars’ worth of fertilizer was imported into the Eastern Africa region. Out of this, Russia and Ukraine accounted for 16 percent of imports in Kenya and 15 percent in Uganda. Tanzania, which supplies Rwanda (73 percent) and Burundi (60 percent), imported approximately 24 percent of its fertilizer directly from Russia and Ukraine.

Perhaps the biggest shock for the region has been the increase in the price of oil, which has risen steadily since the war began. This has led to a rise in current account deficits, with countries like Tanzania running a deficit of 1.31 billion dollars at the start of the war, compared to 352 million one year ago.

This situation is replicated across the region, with prices for petroleum products rising across the board, also because many countries removed state subsidies that insulated consumers from actual market prices. The rise in crude oil prices was also partly due to high taxation and speculation by operators who took advantage of the impending price rise to limit supply and thereby accrue profits from the inevitable price hikes.

Counting the Human Cost

While all this analysis is important, it’s important to remember that behind all these figures are living, breathing human beings whose lives are impacted by the crisis. Inflation in the region has hit a 58-month high, with rates of 8.5 percent, 4.9 percent, and 9 percent in Kenya, Tanzania, and Uganda. The cost of living has gone beyond the comfort levels of many people. The cost of food staples such as maize has gone up considerably, meaning that families in East Africa must fork out more to get a day’s meal.

The difficulties are not limited to food. The rise in the cost of fuel has meant that transport costs have gone up in the region, especially for public transport, which the majority of East Africans rely on. The cost of electricity, often derived from thermal sources in the region, has also gone up. Consumers find themselves paying higher and higher prices as a result.

Notwithstanding the food insecurity and inflationary pressures resulting from the war, governments in the region are also having to deal with falling revenues caused by reduced trade and tariff revenues, local currency depreciation, and increased borrowing costs as credit ratings are downgraded. The central banks of Kenya and Uganda have reported a local currency depreciation of between 3 and 3.5 percent against the US dollar so far in 2022.

The economic impacts of the war are inextricably linked to serious social impacts. The region has witnessed widening inequality and deepening poverty, as the poorest people in the region are the hardest hit.

A Diplomatic Tightrope

Despite the war’s detrimental economic and social impacts, Russia’s growing presence in the region has compelled East African governments to tread carefully when taking political positions with respect to the war.

This became apparent during the United Nations General Assembly meeting held on 2 March that sought to adopt a resolution condemning Russian aggression against Ukraine. Members of the East Africa Community (EAC) took different positions, with Burundi, South Sudan, Tanzania, and Uganda abstaining from the vote, while Kenya and Rwanda endorsed the resolution. The lack of a common position among EAC member states is indicative of existing ideological differences between partner states as well as the varying degree of Russia’s influence in the region.

Going forward, East Africa faces acute food shortages that will inevitably lead to food insecurity in the short term, as fertilizer prices have yet to stabilize. This situation will be further exacerbated through increased unemployment, given that the agricultural sector is the main employer in the region.

All of this will be compounded by the high cost of oil and the fact that existing subsidies are gradually being dismantled. As a result, people in the region face a difficult time ahead. We can only hope that the war will end soon enough for its dramatic effects to slowly dissipate and give the people of East Africa a chance at returning to something resembling normality.