Russia’s Invasion: Mixed Implications for Nigeria, Others
Nigeria, some other Africa countries are on the positive side of unintended consequences of Russia’s invasion into Ukraine as the market sees an uptick in prices of commodities. Read: Global Impact of Russian Invasion –Moody’s
However, other countries in the region that rely heavily on revenue from tourism could see adverse impacts on their respective current account as well as economic growth. And automobile imports would see drastic price adjustments.
While the global economy started healing strongly in 2022 after twist and turns with COVID-19 and its related variant in 2021, Russia’s invasion into Ukraine introduced new risks into the global economy, according to Moody’s.
In the crude oil market, prices have elevated to the 2013/14 level and there is no sign that the uptrend will reverse in the immediate term giving disruption in supply channels amidst the energy crisis in the United States and European Countries.
In a commentary, Moody’s said Russia-Ukraine Conflict has injected new risks into the global economic outlook. It said economic sanctions and financial market volatility have potential for broad global implications.
However, the rating agency added that the implications of Russia’s invasion into Ukraine on growth will vary by region depending on the transmission channel. For Africa, Moody’s said it expects the main channel of transmission of the Russia-Ukraine conflict to be through commodity prices.
It stated that higher oil and gas prices will help improve current accounts and economic growth in oil-exporting countries such as Nigeria (B2 stable), Angola (B3 stable) and Ghana (Caa1 stable).
The rating firm said there will be more adverse effects on Kenya (B2 negative), where oil accounts for about 20% of its total imports.
For Egypt (B2 stable), a decline in tourism activity from Russia would hurt its tourism revenue, which accounts for roughly 10% of its gross domestic product- GDP. It added that about 1 million Russian tourists visit Egypt each year.
“Through the financial channel, we also expect the shifting economic dynamics to tilt central banks in Egypt, Ghana and Zambia (Ca stable) toward tighter monetary policy and higher interest rates”.
It stated that commodity price pressures will likely lead to currency depreciation and heightened inflation, through imported inflation, in some emerging market countries, which will tighten financial conditions and weaken growth. The rise in oil and food prices will limit household spending on other goods.
Moody’s said the magnitude of the effects on individual countries will depend on whether they are net commodity importers or exporters. The biggest negative effect will be on importers such as China, Turkey, Korea, Japan, India and Indonesia.
Emerging market monetary policy will remain in tightening mode even if growth softens, due to the inflationary risks from commodity price shocks. Global price trends may mitigate the negative effects for commodity exporters such as Brazil, Argentina, and India, particularly if they persist.
Prices for agricultural commodities such as wheat, sunflower oil and corn have risen as a result of supply risks. Together, Russia and Ukraine provide roughly 14% of the world’s wheat supply and 25% of global wheat exports.
Wheat and other grain prices have risen sharply since the invasion began, but the impact on food supply is mitigated to some extent because these events are unfolding during the winter and not during harvest season.
Rising corn prices could also lead to higher costs for animal feed and trigger further price increases for meat. Russia is also a leading producer of soybeans, which are increasing in price.
The price of oil-based fertilizers is also likely to rise, according to Moody’s. The resulting increase in food prices will further erode consumer purchasing power, especially for lower-income households.
Food price inflation, alongside other rising costs, could also worsen social tensions in some countries. Russia is a large producer of industrial metals including aluminium, platinum, copper and palladium.
These metals will likely be in short supply during the military conflict, which will drive up prices. Some of these metals are important components in the production of autos and auto parts.
Auto production has already been curtailed by semiconductor shortages, and additional shortages will add another layer of supply stress. While other countries that produce these metals will benefit from higher prices, consumers will face higher costs as the price increases are passed on to them.
Additionally, Russia and Ukraine dominate in the global production of neon gas, a component in semiconductor manufacturing, which could further exacerbate chip shortages and supply problems in the auto industry.
In addition to increasing costs for consumers and businesses, high commodity prices and rising uncertainty can also deter corporate investment in general, weighing on growth.
While higher fossil-fuel energy prices, combined with an increased focus on energy security, could prompt additional investment in renewable energy sectors, the economic benefits of such investment would take some time to be reaped. #Russia’s Invasion: Mixed Implications for Nigeria, Others
