Ukraine conflict hardening Kenya’s recovery options

Years ago, we could observe and listen to accounts of wars and other mayhem happening on the other side of the world and feel we were at least insulated by the geographic distance. Not anymore.

The global village is truly with us. Indeed the expression has taken on an extended meaning. It is not just about communication and knowing instantly what is taking place elsewhere in the world.

It is about what is happening elsewhere actually impacting our everyday lives in a major way, often sooner rather than later.

I recently narrated how Kenyans had been through a lot of trials and tribulations over the past two years, what with Covid-19, failed rains et al, and now we are into an elongated election run-up.

Indeed many of us feel worn down by these assaults. Well, there is much more on the horizon and our lives are about to get more difficult and certainly more expensive to run. 

The brazen Russian invasion and siege of Ukraine and its population is another. Like Covid-19, the direct effects are bad enough but the fallout on our social, economic and also political fabric is going to be gargantuan.

Like many countries, Kenya is going to be severely and adversely affected in a number of different ways for the simple reason that Russia and Ukraine are major economic powerhouses and exporters in their own rights in several different sectors.

Kenya is dependent on a number of products from these countries and is in turn an exporter to these countries. 

Russia is a major consumer of our tea, coffee and horticultural exports.

Kenya imports wheat, maize and fertilisers worth around $400 million from Russia alone. It imports around $80 million worth of wheat, maize and assorted seed oils from Ukraine.

International trade

Considering that Kenya is a net major food importer, the price and supply chain volatility will inevitably result in a surge in domestic prices unless the government steps in with subsidies.

Whilst generous promises are often given for the latter by our political class, the actual financial ability for a cash-strapped and already overborrowed government to meaningfully intervene for any length of time is severely limited.

Russia and Ukraine are leading wheat surplus producers and account for 23 per cent of international trade, so any disruption of supply will result in upward pressure on prices.

Ukraine has imposed quotas and Russia has suspended exports.

On average, Kenya imports $406 million worth of wheat, maize and fertilisers from Russia.

It imports around $50 million of wheat, maize and sunflower seed oil from Ukraine. Africa alone consumes over a third of Ukraine’s wheat exports.

World prices of wheat are rising and have more than doubled.

In terms of price we are currently living on borrowed time as the real impact will only really happen when domestic stocks need to be replenished.

An interlinked and longer-term fallout is the rising cost of fertiliser on domestic food production. Kenya’s maize basket of Trans Nzoia and North Rift traditionally plants around now. This year the planting season has been has been severely disrupted by the rocketing price of fertilisers.

This in turn leads to less fertiliser being used and hence a reduced crop. 

Food supply chain

Multiply this by the reduced use of fertiliser all round and it is clear we will have shortfalls in crop production especially in the second half of this year.

I use the word “crop” because shortfalls will be felt throughout the whole food supply chain.

The all-round scenario for domestic food production does not look promising, to say the least, although there could be some alleviation of this if the next rains are sufficient since we are still heavily dependent on rain-fed agriculture.

But the overall drift is hardening and food prices will likely rise for some time to come, especially when we need to supplement our stocks with imported maize, which is at a 10-year high.

This is the likely scenario in the election run-up, which means that ‘stagflation’ is likely to be a vibrant ingredient to the already tense social and political cocktail.

Metaphorically speaking, it is akin to throwing a Molotov cocktail into a crowd of people.

Food is just one part of this loaded equation. The rocketing price of oil and gas is another. 

Oil prices at one stage reached a 14-year high, which brings back scary memories of world recession and general economic fallout.

Again the Kenyan government is between a rock and a hard place as it has been cushioning the consumer from rising oil prices with its largely depleted Fuel Development Fund.

The subsidy has been largely depleted and the last thing the government needs now is an upward pressure on world prices.

Pump-price increases

It is difficult for the government to avoid passing some of these increases onto the consumer since its subsidy options are limited, to say the least. 

Yet such pump-price increases in an election run-up are politically unpalatable.

There is a broader concern as well. 

Post Covid-19 recovery is a fragile and vulnerable exercise, especially when one is dependent on tourism, tea and horticulture prices.

Tourism is a good example. Numbers maybe up but they are nothing like the good old days.

The message that comes across is that the main drivers of the economy have already had a battering and the last thing they need is more of the same from rocketing food and fuel prices.

Remember the fallout is global. All countries, whether rich or poor, are being hit by the upward price turbulence of one sort or another.

Look at for example Germany and its heavy economic dependence on Russian gas supplies. Germany, in turn, is a primary supplier of tourists to Kenya.

Does that mean that there will be fewer German tourists and will their budgets be smaller? 

In conclusion, what is happening in Ukraine now, complete with its immediate fallout through all of Europe, Russia included, should be a serious wake-up call to us all.

Those leading or aspiring to lead this country should realise that the road ahead is going to be rough and bumpy and will require people who can seriously walk the talk. 

The Ukraine factor has hardened our recovery options massively.

Robert Shaw is a public policy and economic analyst:[email protected]