YEAR IN REVIEW: When Russian-Ukraine war rattled global economies 

Russia’s invasion of Ukraine was the biggest news item of 2022. The invasion rattled the world and the subsequent sanctions against Moscow disrupted oil supply in the world. The supply shocks have since resulted in more costly oil products in the different parts of the economy, leading to increased cost of living.

As reported by the International Energy Agency, Russia is the third largest producer of oil in the world. In January 2022, it produced about 11.3 millions of barrels per day, of which 10 millions of barrels per day was crude oil, 960 thousand barrels per day condensates and 340 thousand barrels per day natural gas liquids.

However, at the onset of the war, prices of the commodity went up by USD 8/bbl to USD 105/bbl due to anticipated sanctions against Russia. This caused a domino effect and affected oil prices worldwide.

In East Africa, there was a fuel shortage that led to individuals queueing for long hours and walking long miles in search of fuel. Moreover, the war has worsened the food crisis in Horn of Africa.

Russia and Ukraine account for 80% of wheat imports in North Africa (Algeria, Egypt, Libya, Morocco, and Tunisia), Nigeria in West Africa, Ethiopia and Sudan in East Africa, and South Africa.

For instance, Kenya imports 45% of edible oils and about 30%-50% of processed wheat grains yearly from Russia and Ukraine. Prices of these products have skyrocketed with the price of wheat increasing from Kenyan Shillings 168 to 202 (approximately 1.35 Euros and 1.62 Euros respectively).

Wheat is a staple food in many households and thus the increase in prices has made having three meals a day a luxury. The conflict has further aggravated commercial activities in the Black Sea with vital port operations being halted. This has disrupted the fertilizer supply chain to East Africa, which also exacerbates the looming food crisis since the region has been facing long periods of drought due to climate change.

Furthermore, several currencies in the region including the Uganda, Kenya and Tanzania currencies have significantly weakened as the United States of America hiked interest rates.

Recently, Pwani Oil Company Ltd, one of Kenya’s largest oil manufacturers, shut down in Kenya citing, among others, the US dollar shortage, raw material shortage and suspension of exports from key producers as some of the reasons. The prices of cooking oil have since doubled despite already having previously doubled due to the pandemic. Several other businesses have closed operations in Uganda.

Uganda was equally badly hit, with prices of oil, cooking oil, wheat and other imported products going up. The impact of Russia-Ukraine war has since dampened Uganda’s economic growth prospects amidst the waning coronavirus pandemic and full re-opening of the economy.

Uganda’s annual headline inflation and core inflation rose to 6.3 percent and 5.1 percent in May 2022 from 2.7 percent and 2.3 percent in January 2022, as a result.

Official statistics show that inflation remains hovering in double-digits and trade deficit up at $5.6m (Shs20.4b) as Uganda’s economy throttled by Covid-19 shocks and international supply chokes of Russia’s invasion of Ukraine struggles to kick back to a better life. 

A recent report by Twaweza, an NGO, Uganda Revenue Authority and the Tax Justice Alliance Uganda said businesses that are still operating are either declining or have had their growth stunted.

“The number of enterprises that are declining are bigger than the number of enterprises that are improving and those who failed won’t bounce back to business,” said Francis Kabuye, the head of the policy and advocacy federation of small- and medium-sized enterprises (SMEs).

The agriculture sector which employs 60 percent of the population is been struggling to rebound over the last two years. According to the Ministry of Finance, the sector registered modest growth in crop farming and animal husbandry, forestry, and fishing sector to 4.4 percent.

However, Ms Rachel Sebudde, a senior economist at the World Bank, noted that the sector is highly susceptible to especially climatic shocks and government must immediately put in place interventions.