With an economy that was already battling with declining revenue, the Russia-Ukraine war and its attendant impact have only worsened a bad situation; BENJAMIN UMUTEME writes.
When the Russia-Ukraine war started, not many expected that it would reverberate across the entire world. But the impact of the five-month war is taking its toll on both developed and emerging economies.
As it stands, it has led to global inflation leading to rise in food prices, supply disruptions and rise in the global price of crude oil.
African countries are acutely affected by the growing crisis, which has sent prices of grains, cooking oils, fuel, and fertiliser soaring.
Russia and Ukraine account for nearly a third of global wheat supplies, while Russia is also a key global fertiliser exporter and Ukraine is a major exporter of corn and sunflower oil.
In his view, a former chairman of the Nigerians in Diaspora Organisation Americas (NIDOA), USA, Mrs. Patience Key, said the Russia-Ukraine war would not only threaten the global economy, it would also affect Nigeria, being an oil-producing country.
She said the development without a doubt would pose high implications for the Nigerian economy as the largest oil-producing country in Africa.
“By extension, Africa will also feel the impact as its largest economy is affected. This has a ripple effect on the economies of Nigeria and Africa,” she said.
Despite the distance of Nigeria from the war zone, its citizens are not immune from the effects of the war, owing to the influence of Russia in the world economy and Nigeria’s dependence on international trade and importation.
With crude prices on the rise, and supply disruptions occasioned by sanctions on Russian oil, Nigeria has had to pay more for imported fuel due to a naira which continues to fall against the Dollars.
Biting realities
It is a fact that Russia is regarded as Nigeria’s sixth largest trade partner in terms of imports. Apart from oil and gas, agricultural products, Nigeria imports potash, a primary ingredient for fertiliser, from Russia.
From Ukraine, Nigeria imports iron ore for the production of steel and primary manufacturing hardware. Both Russia and Ukraine are the largest exporters of durum wheat to Nigeria. Durum wheat is used in the production of flour for bread and noodles.
Apart from this, Russia exports seafood such as mackerel, herring and other fish types to Nigeria, while Ukraine exports dairy and agricultural products to Nigeria.
According to the United Nations COMTRADE, Nigeria’s imports from Ukraine was $156 million in 2020, while the country’s major exports to Nigeria were iron and steel. They accounted for $125 million while sugars/sugar confectionery and pharmaceuticals products were $8.1 million and $7.6 million, respectively.
Also, in 2020, Russia exported $1.02 billion to Nigeria. The main products exported from Russia to Nigeria were wheat ($556m), non-fillet frozen fish ($131 million), and potassic fertilisers ($83.4 million).
Multi-dimensional implications
The chief executive officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, noted that the multidimensional implications of the war for the Nigerian economy cannot be overlooked.
Yusuf pointed out that the war has led to an escalation of energy prices including diesel, aviation fuel, kerosene and gas, mounting petrol import and subsidy bill and aggravation of petrol smuggling and unending queues.
He also highlighted macroeconomic outcomes, which include the heightened fiscal deficit, growing debt levels, spike in debt service payments, money supply growth, exchange rate depreciation and more intense inflationary pressures.
“The escalation of these costs obviously has serious inflationary implications across sectors. The geopolitical tension of the recent weeks had bolstered energy prices even before the current onslaught by Russia.
“The situation may get worse if the conflict escalates. This would affect the cost of production, profit margins, purchasing power and may further worsen the poverty situation,” he said.
Surge in fuel price
Crude oil prices have risen to record highs in recent weeks, and even significantly higher following the attack on Ukraine by Russia with Brent already trading above $100 per barrel and Bonny Light at $110 a barrel.
Nigeria as an importer of refined petroleum products is bearing the brunt of the surge in the crude oil market, as the price of diesel which is not a subsidized product in the country has skyrocketed to about N600 per litre, with some stations already selling above N650. The surge in the landing cost of refined products and the increased demand for diesel in the local market, forced by the recent epileptic power supply across the country, has driven the upsurge witnessed in the price of diesel.
The increase in diesel prices has become a major bane for businesses operating in the country as the cost of operation will also record an uptick since most organizations make use of generators for their businesses.
Similarly, Nigeria is currently battling with fuel scarcity after adulterated petrol was found and withdrawn in the market. And this has worsened as vessels transporting petroleum products into the country could find it hard to bring in petroleum products.
Increased flight costs
The cost of air travelling has also increased significantly in recent weeks following the bullish trend in the global market that pushed the prices of jet-fuel higher. Flight operators in the country have been forced to reduce their flight frequency.
In February airlines jacked up airfares by a minimum of 100%, with a one-way economy ticket selling at over N50, 000.
The surge in the cost of flight means that Nigerians who can afford it will have to pay hugely for their travelling obligations abroad and domestically. This also affects those who work in industrial areas like Lagos State, Port Harcourt, etc and who live in other states, as they would have to reduce their flight frequency thereby affecting their bonding time with their parents.
Food inflation
As is the case with the crude oil market, Russia is a major exporter of food products, one of which includes durum wheat, a food item particularly imported by Nigeria and has recorded unprecedented price increase since the invasion started.
The price of wheat rose to its highest level in the past week following the Russia-Ukraine war. Meanwhile, Nigeria is a major importer of wheat products, being the third most widely consumed grain in the country.
A glance at the data from the NBS shows that Nigeria imported durum wheat worth over N128.1 billion in the nine-month period of 2021, while it recorded a N144.1 billion import in the full year of 2020.
Nigeria is already battling with high inflationary pressure and food supply chain disruptions; the surge in commodity prices further puts a strain on the local market, since Nigeria largely depends on importation to meet local demands.
The price of rice has risen to over N34, 000 per 50kg bag, sachet water already selling for N20. Nigeria currently spends over 50% of its expenditure on feeding, and with food prices rising at unprecedented levels; it only means disruption for Nigeria’s purchasing power.
Imported goods
Nigeria adopts a managed floating exchange rate system, which is typically determined by the apex bank’s intervention in the market. However, a significant amount of FX is being traded at the black market, which is not monitored or captured by official records. This exposes Nigeria to the downside risk of a further weakening naira as Nigerians will source forex anywhere to meet their business obligations.
The lack of FPIs, FDIs, the decline in the Diaspora remittances from Nigerians living in Russia, Ukraine, and other neighbouring territories, continues to pile more pressure on Nigeria’s FX liquidity, exposing the country to the possibility of further devaluations.
Govt’s failure
Arguably, Nigeria cannot be isolated from the shock nations across the world are facing now which stem from the Russia-Ukraine war. Understandably also, before the outbreak of the war, Nigeria had not been having it so good; therefore, nobody should hinge the many years of the nation’s economic woes on the five months war. After all, successive governments failed from every angle to effect the development so needed.
“Nonetheless, we cannot rule out the impact on Nigeria. But particularly more so as an oil producing nation and one of the biggest wheat flour importers from Ukraine as well as iron plate, rod and sheet from Russia.
“On the other hand, our problem is self-inflicted as a result of failure of leadership that lacks vision and is not ready to create wealth and take advantage of local technology to support our development.
Going forward
Nigeria must acknowledge that it is time to begin to say goodbyes to over-reliance on petrol dollar income, a political economist, Adefolarin, told this reporter.
According to the development researcher, the country must re-think its development paradigm.
“And it requires a discipline, dedicated and deliberate policy shift economically. In this regard, governments at all levels must reconsider their role in the economic space through practical engagement and promotion of the non-oil sector.
“Secondly, promoting technology in economic development and growth which must be demonstrated through the engagement of National Agency for Science and Engineering Infrastructure (NASENI) as it deploys all their scientific and engineering products to support the economy,” he said.
