The African continent, yet to recover from the adverse effects of COVID-19 and other socio-economic and global economic crises, faces another crisis, the Russia-Ukraine crisis. This Ukraine crisis escalated on 24 February 2022 and has tremendously impacted the global socio-economic terrain. The situation has and will continue to affect the African continent’s financial system and food and energy security.
These issues stem from the supply chain disruptions brought forth by the crisis. Land, air, and sea-based trade routes were blocked. Land trade routes between Asia and Europe mainly affected China, which had substituted sea and air trade routes with land-based courses during the coronavirus pandemic. Air ties between Russia and Europe have been severed, affecting global freight, which stood at approximately 35% before the coronavirus pandemic.
Financial sanctions were imposed on the Central Bank of Russia (CBR) by the United States (US) and European Union in the same month Russia declared war on Ukraine. The CBR could not access nearly $320 billion in foreign exchange reserves held by the US. This means blocking the conversion of US dollars and Euro assets into rubles, the Russian currency. Additionally, the US and EU cut Russian banks from SWIFT, the global payment system, except for Russian banks in energy trade.
This indicates the strategic position Russia holds in the global energy market supplying over 14% of energy in the world. The global impact of sanctions is limited but western companies highly exposed to Russia are affected. African companies and related actors face challenges in finding financial channels to trade with Russia. This disrupts supply chains of essential commodities needed by the continent leading to soaring prices in the commodities market.
Commodities prices like oil, gas, base metals, agricultural produce, and fertilizers soured because of the disruption of trade routes in the black sea and physical infrastructure. Ukraine and Russia account for over a quarter of the global wheat trade. Wheat production in Africa is low, and most countries depend on imports to meet demand. According to Mo Ibrahim Foundation, all African countries are net wheat importers except Djibouti.
It is surprising to note that Ukraine, with its size, supplies 31% of maize imports to Africa, which is the equivalent of the wheat production of the whole of Africa. Russia’s wheat production is three times greater than Africa’s. The president of the Africa Development Bank (AfDB), Dr. Akinwumi Adesina, noted that what Africa does with agriculture will determine the future of food for the whole world as the African continent has 65% of the remaining arable agricultural land to feed the world’s 9 billion people by 2050.
Sanctions and trade barriers resulting from the Russia-Ukraine crisis led to a rise in energy prices. Africa has the lowest access to energy, where 600 million people still lack access. The African continent is less dependent on Russian energy than Europe, with only 2.9% of the continent’s energy imports coming from Russia as of 2019. Africa can capitalize on its abundance of gas reserves which is 33 times larger than that of the EU, making them a viable option for the EU to reduce dependency on Russia.
However, ramping up production and building the lacking infrastructure will be a challenge. There is a need for financing for this to become a possibility, but the pledge at COP26 impedes overseas financing of gas projects. As such, the continent will have to provide the funding independently.
The scramble by many African countries to find alternative sources of energy to replace the energy from Russia drags the climate agenda. There is a diversion of attention and resources from climate obligations. African rural communities suffer more from the effects of climate change as they depend heavily on natural resources for their livelihoods. Urban areas are experiencing load shedding frequently due to low water levels for electricity generation.
Responses and possible solutions
Despite the challenges of the crisis, the African continent should view the global crisis as an opportunity to reduce dependence on external actors for energy and food security. The continent’s multilateral institutions like the African Union (AU), Africa Export-Import Bank (Afreximbank), and AfDB are pivotal in ensuring resilience to external shocks and the self-sustenance of Africa.
Notably, Africa Export-Import Bank (Afreximbank) launched the US$4 billion Ukraine Crisis Adjustment Trade Financing Program for Africa, a program for credit facilities to manage the Ukraine crisis on African economies and businesses. The facility covers trade in commodities, tourism, oil and metals, and other imports and exports.
Afreximbank also intervened during the COVID-19 pandemic with a US$3 billion facility named the Pandemic Trade Impact Mitigation Facility to help African countries deal with the economic and health impacts of the COVID-19 pandemic.
Moreover, Africa Development Bank (AfDB) has a US$1.5 billion Africa Emergency Food Production Facility to mitigate the food shortages triggered by the crisis. The facility is the largest global effort to help Africa produce its food.
Overall the sanctions imposed on Russia have affected the world financial system and, to a larger extent, western companies. The African continent is experiencing an increase in commodities and energy prices. However, these developments present opportunities for the continent to develop its economies and become less reliant on external actors through its multilateral institutions.