Is East Africa immune from Impacts of Russia-Ukraine conflict?

Many East African CEOs had contemplated the Russian-Ukraine war as an event occurring in Europe with little impact on their business. They were wrong. It is now three months into the conflict and global economies are beginning to feel the impact of the war in Ukraine. From financial markets volatility, forex illiquidity, stock market decline, to the impact of sanctions on Russia’s government, banks, and businesses by the US, EU and other countries, it is becoming apparent that this conflict will have far reaching implications across the globe.

As Russia’s aggression in Ukraine continues, key multinational companies especially from EU and US have pulled out of Russia as a way of expressing their solidarity with Ukraine. These include oil multinationals such BP, which announced that it was offloading its 19.75% shareholding in Rosneft at the onset of the conflict. Shortly after, Shell PLC followed suit announcing that they will cut their ties with Gazprom and related entities, resulting in a $ 5bn write-off of their assets. Other companies such as McDonalds and KPMG have also stopped trading in Russia. While such moves are no doubt at a substantial cost noting the investments made previously, companies have moved to protect their brand by deciding that future business with Russia and Russian entities is not to be continued.

Consequently, this will lead to a loss of global revenues as well as supply chain challenges especially to exporters from Russia.With the conflict escalating by the day, there is a considerable risk that the physical war in Ukraine will have substantial impacts in East Africa. We have already seen the tightening of the supply chain with exports from Russia being discouraged by CEOs and Governments across the globe. The zero COVID policy by China which has led to lockdowns in key production zones, will also continue to exacerbate East Africa’s supply chains woes, leading to product shortages and  higher product prices. Perhaps the more direct impacts associated with Russia-Ukraine conflict will be on increased food prices, higher fuel costs, lower tourism revenues, and a decline in investments associated with Russia, or their businesses.

East Africa’s investors need to assess whether the region’s markets are immune to these geopolitical disruptions and whether they have contingency measures in place to help them absorb the shocks emanating from the conflict. That Russia and Ukraine account for about a quarter of global wheat exports and supply large quantities of grain to Africa including wheat, maize, and sunflower oil is a well-known fact. Since the conflict began, the Economist Intelligence Unit (EIU), has reported an increase in agricultural input and operating costs, subsequently raising concerns on access to adequate food supplies and the rising cost of food imports in Africa. This is not just an inflationary effect, but it means that the grain required for human and livestock consumption will not be readily available. This is unlikely to be a short-term phenomenon.

Click the link below to read more.