By Jean-Luc Stalon*
“In Africa, the effects of the War in Ukraine seriously threatens countries already hard hit by the COVID-19 pandemic”
After suffering a large contractionn in 2020 due to the COVID-19 pandemic, the economies of Sub-Saharan Africa recorded a rebound in 2021. Although relatively modest in comparison with other regions, the GDP growth rate in Sub-Saharan Africa reached 3.5%. This economic recovery was fueled by the rise in commodity prices and the revitalization of world trade following the easing of restrictions related to the pandemic, which improved the prospects of exporting countries.
Growth forecasts for 2022 were at 3.8% for Sub-Saharan Africa, but the war in Ukraine risks breaking the momentum of recovery by increasing the fragility of economies struggling to recover from the effects of the COVID-19 pandemic. Global supply chains disruptions compounded by the damaged logistical infrastructures in Ukraine have generated immediate effects on international trade, including soaring prices of agricultural products, oil, and gas. On the African continent, the consequences are not felt evenly, depending on a country’s status, whether it is a net exporter or importer of these products and other precious metals, whose prices are directly impacted by the crisis.
“Africa bears the brunt of the war in Ukraine”
One cannot accurately forecast the medium and long-term impact of the war in Ukraine. However, the socio-economic impact in the short term is already apparent. From an economic perspective, African countries can expect considerable consequences, particularly in the oil, gas, and agri-food sectors.
Net oil-producing and exporting countries such as Angola, Nigeria, Equatorial Guinea, the Republic of the Congo, and to a lesser extent, Cameroon, can expect an increase in export revenue given the rise in oil prices on the international market. The price of a barrel of oil surged from 97 dollars on February 23, 2022 to 139 dollars on March 7, 2022, before its fall even though the barrel remained above 100 dollars in recent weeks. However, the revenue increase could be illusory for some of the countries where the prices of imported necessities will need to be heavily subsidized by respective governments to maintain stability, offsetting any surplus in oil revenue. In Benin, measures to maintain the price of certain consumer products through exemptions are estimated at 80 billion CFA francs (approximately 12 million euros) within the coming three months.
An inflationary shock and a shortage of cereals and other food products for which Russia and Ukraine are the leading exporters to Africa is harming the agri-food sector. For example, according to the United Nations Food and Agriculture Organization (FAO), Benin depends completely on Russian wheat, while Sudan’s dependence is at 70%; Cameroon 46%; and Egypt nearly 90% on wheat from Russia and Ukraine; Senegal 65%; Kenya 75%; and Libya depends on 43% on wheat from Ukraine.
The increase in global prices for high-consumption products and the disruption of the supply chain have driven local food price increases and shortages. This increase in food prices caused by the war is driving sharp inflation all over Africa. In the Central African Economic and Monetary Community (CEMAC) zone, inflation is expected at around 3.6% in 2022 against 1.6% in 2021, according to the Central Bank. In Cameroon, between September 2021 and March 2022, the selling price of a 50 kg bag of wheat flour went from 19,000 CFA francs to 24,000 CFA francs, and the price per ton of fertilizer went from 334,000 CFA francs to 540,000 CFA francs.
The surge in prices on the world market also has significant implications for populations and companies. Soaring prices of necessities such as food hamper the livelihoods of already vulnerable households, discourage local investments, and negatively impact ‘households’ shopping baskets.’ In Cameroon, according to the National Institute of Statistics (INS), the increase in the price of consumer goods, representing 30% of what goes into the average household basket, explains the inflation trend.
The price of a baguette has gone from 125 CFA francs to 150 CFA francs. As a result, food insecurity is expected to increase, particularly amongst the most vulnerable households who devote the largest part of their income to food. If food prices and consumer products continue to rise, the purchasing power of populations will drop and many vulnerable households will have to re-allocate expenditure from health and education to sustain food consumption. Since many African economies are heavily dependent on the agricultural sector (17% of GDP in 2020 for Cameroon), the increase in the cost of agricultural inputs such as fertilizers will force a decrease in investments, especially for smallholder farmers, and consequently a decline in output and income, detrimentally impacting the living standards of the poorest groups. The impact of the war in Ukraine could ultimately contribute to an increase in unemployment and social disparities, thus increasing the risks of unrest across the continent, unless urgent measures are taken.
“Act urgently to strengthen the resilience of African economies to external shocks”
This crisis offers an opportunity to address the fundamental weaknesses of African economies so that they become more resilient to external shocks and accelerate their development. One of the main challenges for African countries is their current trade configuration. African exports are mostly primary (agriculture, forestry, mining, oil) and are 40% based on raw materials.
To improve Africa’s position in the global economy and reduce its dependence and vulnerability, the economic transformation of the continent will require increasing its contribution to world trade, still struggling to exceed 3%. Simultaneously, African economies will need to reduce dependence on imports for basic necessities through the modernization of agriculture, the local processing of raw materials (Africa represents only 1% of manufacturing production), the implementation of import-substitution policies, and more generally, the structural transformation of economies. Strengthened regional integration through the African Continental Free Trade Area (AfCFTA) will also help African economies build further resilience against external shocks.
Finally, the war in Ukraine may significantly have an impact on the Overseas Development Assistance structure. African countries are encouraged to increase their investment in local development from their own fiscal spaces, focusing on reducing inequalities and vulnerabilities. Africa must get out of the chronic cycle of humanitarian crises caused by external shocks through endogenous, credible, and sustainable solutions for its development.
The United Nations Development Programme (UNDP) offer for Africa, “The African Promise”, is a “one-stop-shop” and a unique instrument that would foster governance improvement, promote the structural transformation of economies, enhance youth and women empowerment, further reap rewards from the demographic dividend, facilitate the transition to more sustainable and affordable energies, and sustain peace and security. Enablers that have been identified to ensure optimal and effective deployment of the UNDP Africa Offer include digital transformation, innovative and sustainable financial mechanisms, and strengthened South-South cooperation. These enablers will serve as catalysts for UNDP working with Member States to build an Africa that is stronger and more resilient to shocks.
* Jean-Luc Stalon is currently the Resident Representative of the United Nations Development Programme ,UNDP in Cameroon. He has extensive experience as a development practitioner, with more than 25 years serving the United Nations in Africa, Asia, and the Pacific.