How global economies are feeling the heat from Russia-Ukraine war
What you need to know:
- Countries are facing pressure on the capital account dealing with rising energy prices. Oil prices long in decline from 2014 to-date are trading at 2 and ½ times what they were predicted to be in this time period.
Ghanaian president Nana Akufo-Addo had a difficult interview on BBC this week where his interviewer pressed him on the dire straits his country finds itself in. The interviewer went further saying the Ghanaian cedi was the second worst performing currency in 2022 after the Russian ruble. Ghana foreign exchange risk is notable.
In 2006 Ghana devalued its currency and issued the new cedi. Zambia, when the currency coffers ran dry did the same in 2013. Uganda was in the same situation in May 1987 when its treasury ran dry and clawed back the existing local unit carefully packaged as an economic stimulus and nationwide 30 percent tax.
Countries are facing pressure on the capital account dealing with rising energy prices. Oil prices long in decline from 2014 to-date are trading at 2 and ½ times what they were predicted to be in this time period.
Dominant market players and deregulation has unloaded on consumers in the industrial north eye popping prices at the pump, in industry and for domestic use. It appears the net effect of a third winter wave in March complicated matters.
Russia is enjoying all of this. It is dictating payment terms for natural gas supplies forcing European countries to look as far as Tanzania with its vast liquefied gas reserves. Natural gas cargoes are very bulky but Europe’s reliance on Russian gas that dominates supplies in Europe has exactly turned out to be the security threat it was meant to be. Russia is asking for rubles to shore up its currency collapsed by economic sanctions and complaining consumers will have to comply. Russia and Ukraine are also spiking the grain, cooking oil market, fertiliser market.
The French presidential election is closing on domestic outrage at rising prices. In Tigray, Ethiopia the price of flour used to make injeri the bread staple is forcing the population into foraging for wild berries to supplement food. Even Uganda known as the region’s food basket is reporting higher food prices, higher fuel prices and lower production (as it appears the rains have failed again) in 2022 has forced boarding schools to close two weeks early after being depleted of food stocks.
Kenyan politician Musalia Mudavadi – former vice president and Finance minister this week raised eyebrows complaining about fuel shortages in Kenya. This time saying, Uganda did not have fuel shortages. He probably forgot that fuel consumption in Uganda is down anyway on account of high prices. In February, Kenya announced a subsidy to stabilise fuel prices, but payment for this subsidy is on credit, settled on 30 day terms. American president Joe Biden has released a million barrels of oil on the US market to shore up American consumers. The British government has offered distressed consumers £200 energy credit on domestic gas whose price caps raised an annual £1,100 bill by as much as £600 on April 1.
Fiscal measures to recoup Covid-19 outlays are also in the mix. The British Chancellor’s 2022 spring budget raised national insurance contributions. In Uganda, the budget estimates for 2022/2023 have gone up to Shs47 trillion up from Shs44 trillion ostensibly to fund the Parish Development Model and wage enhancements but also catch up on rising debt repayments.
The IMF is back front and centre. Its zero financing predicated on further reforms. The Shs 47 trillion is twice URA’s annual domestic tax collections hovering in the Shs25 trillion range. The softening of the economy will be felt as more banks report softening returns as they reconfigure their post Covid debt portfolios. Dfcu the number three bank reported just $3 million profits 5 percent of industry leader Stanbic.
In these circumstances, government sharpen its message, identify an enemy or a lofty goal. In East Africa, the arrival of DRC in the East African Community will eat up a lot of bad news , formally opening DRC’s mineral riches to the Community. Russia the bogeyman will continue supplying military hardware and dumping cheap crude, a situation that is already causing alarm on the Indian sub-continent. Both Pakistan and India have positioned themselves for cheap crude from the Russians alarming the Americans.
Mr Ssemogerere is an Attorney-At-Law and an Advocate.