In Africa, Putin’s War on Ukraine Drives Food, Fuel and Finance Crises
But there is an opportunity for the continent, as Europe is increasingly looking to Africa’s burgeoning energy reserves.
Vladimir Putin’s unprovoked war on Ukraine has unleashed a wave of destruction and atrocities against its brave people. But the suffering and instability are not contained to Europe. Indeed, a continent away, Putin’s war has unleashed a “three-headed hydra” of food, energy and finance shortages in Africa, further threatening vulnerable Africans and putting dozens of countries at risk of default. Recognizing the need to tackle food insecurity, the Group of Seven (G-7) countries pledged billions more in assistance this week. But will it be enough given the severity of these challenges?
These three interrelated crises — caused or worsened by the war in Ukraine — have European officials bracing for a significant migration wave from Africa and the Middle East. The World Bank has warned that “several years” of stagflation — defined as above-average inflation and below-average growth — could have “potentially destabilizing consequences” for the developing world. Throughout history, hunger has sparked instability and even revolution.
Helping Africans withstand these threats is not only a humanitarian imperative but would also demonstrate a willingness to listen to Africans about what they need and help them manage the economic consequences of Putin’s war. Indeed, many non-Western countries have been reluctant to stand firmly behind the Western response to Russian aggression because they believe sanctions are driving soaring food prices and shortages.
The Food Crisis is a ‘Catastrophe on top of Catastrophe’
Even before Russia’s invasion, food assistance officials were warning that 2022 was going to be a terrible year. Severe weather on top of COVID and surging food and fuel costs has sent global hunger to “terrifying levels,” tweeted David Beasley, who heads the United Nations World Food Programme. The war in Ukraine is “piling catastrophe on top of catastrophe,” Beasley said.
Long a “breadbasket” for the world, Ukraine’s key food exports such as wheat, barley and sunflower oil provide the calories to feed 400 million people worldwide. Russia and Ukraine provide over 40% of Africa’s wheat supply. Yet Ukraine’s key ports — like Odessa, through which 98% of grain exports typically pass — are being illegally blockaded by Russia. Some 20 million tons of wheat are stuck in Ukraine, unable to reach those who desperately need it. Putin is using famine as a weapon of war just like Joseph Stalin did in the 1930s when he starved millions of Ukrainians to death.
Only this time, the potential victims are scattered around the world. U.N. Secretary-General António Guterres laid out the grim picture last month: “Global hunger levels are at a new high. In just two years, the number of severely food insecure people has doubled, from 135 million pre-pandemic to 276 million today … More than half a million people are living in famine conditions — an increase of more than 500 percent since 2016.”
In Africa, a drought in the Horn has left roughly 16 million hungry across Somalia, Ethiopia and Kenya. Earlier this month, the head of the African Union, Senegalese President Macky Sall, traveled to Russia to meet with Putin on the food crisis — a trip Putin will gladly use to further divisions in the international response to his war on Ukraine. At the same time, the United States is warning several starving African countries that Russia is attempting to sell them wheat stolen from Ukraine. Faced with such dire prospects and dilemmas, it is no wonder some analysts are seriously proposing deploying U.S. and allied naval vessels to the Black Sea to escort Ukrainian grain shipments.
The reality is that no country will be immune from the global food crisis. Indeed, food prices worldwide are 23 percent higher than a year ago. However, they will hit the hardest in sub-Saharan Africa, where food consumes 40 percent of household budgets.
Fuel Costs on the Rise, Finance Under Stress
Of course, African economies aren’t just contending with higher prices and food availability — but rising energy prices too. While the continent is home to significant oil reserves, a lack of refining capacity means oil must be exported and then imported as refined fuels. This has sent disruptions across the continent, with drivers lining up at the pump and airline flights halted.
Moreover, health systems continue to be stressed from the pandemic, depleting government resources. “It’s like wildfires in all directions,” said one economist. “This is much bigger than after the global financial crisis. Everything is stacked against the low- and middle-income countries.”
The worldwide tightening of credit to deal with inflation threatens to pour gasoline on the fire. In recent years, central banks in major economies like the United States and Europe maintained extremely low-interest rates to spur economic growth. That led investors toward emerging markets, where their higher risk was met with greater returns. As the Federal Reserve and other central banks raise interest rates to combat inflation, these investors are fleeing lower-income countries for less risky assets in wealthy countries. This has helped push down the value of currencies in emerging markets, making their imports — on things like food and fuel — more expensive and threatening to drain foreign currency reserves just when increasing rates mean borrowing money will be more expensive.
This month the World Bank warned that developing countries owe a record amount of debt to rich countries, multilateral banks, bondholders and China. About a quarter of that debt carries variable interest rates that could quickly rise. “As global financing conditions tighten and currencies depreciate, debt distress … is spreading,” the bank warned. Indeed, last month Sri Lanka defaulted on its foreign debts amid protests that turned violent and led to the collapse of the government. The World Bank said that over 60 percent of countries in sub-Saharan Africa are in — or at a high risk of — debt distress.
Opportunity amid Tumult: Africa’s Energy Potential
But more fundamentally, the dire financial situation many African governments find themselves in stems from the fact that their debt-funded spending has not produced enough economic growth to pay back their loans comfortably. Those fundamentals won’t easily be fixed in the near term. But the same factor driving much of the economic tumult — Russia’s invasion of Ukraine — also offers an economic opportunity.
As Europe scrambles to replace energy imports from Russia, the continent is increasingly eyeing Africa’s burgeoning energy reserves. To date, a central factor holding back African countries with significant natural gas reserves was that Russian gas was less expensive and more readily available to Europe. And just months ago, Western leaders swore off financing fossil fuel projects in the developing world. The stance that Africans freeze or cut back their already low levels of emissions has led to charges of hypocrisy from African leaders, with some questioning how they can move their economies forward without access to their energy resources.
Responsibly developing Africa’s natural resources doesn’t discount the need to continue advancing renewable energy on the continent. Indeed, in Senegal, one-third of its energy needs come from wind and solar, and 22 of Africa’s countries use renewables as their primary energy source. But the lesson from past oil shocks is that they can spur the transition to new fuels and develop new energy sources (along with demand reduction).
To be sure, many of Africa’s natural energy resources will be years off from coming online. But as the World Bank noted, “Markets look forward, so even mere announcements of future supply would help reduce prices and inflation expectations.”
What Can Be Done?
Governments risk worsening the food and fertilizer shortage by stocking up on supplies or blocking exports. India banned wheat exports, and Indonesia only recently lifted a halt on palm-oil exports. In all, some 20 countries have placed restrictions on over 10 percent of globally traded calories. Keeping the world fed necessitates a global commitment to maintaining open markets.
For its part, the United States Congress has recently approved, on a bipartisan basis, $5 billion for global food aid. This assistance should target the most vulnerable. Frustratingly, a month after this was signed into law, these funds have still not been distributed. And while the United States has spoken out against unjustified trade barriers worldwide, policymakers should ensure that U.S. food assistance is similarly delivered unimpeded. For instance, a requirement that half of American food aid be shipped on U.S.-flagged vessels threatens to raise costs and slow the program when it is already under great strain.
The prospect of ballooning bills across the developing world will inevitably lead to calls for payment suspensions and debt relief. Indeed, World Bank President David Malpass has called for “rapid, comprehensive, and sizable” debt relief. Yet, in reality, the effort is more likely to be slow and cumbersome. The “Common Framework” set up by the G-20 to help those in financial trouble restructure what they owe to private and government lenders alike has been anemic and could use a shot of life.
In the run-up to the next climate conference scheduled for Egypt this fall, Western leaders would do well to listen more to Africans and take a more nuanced view toward their energy outlook while balancing climate goals. Critically, this could help fill Europe’s energy void and African budget coffers. Encouragingly, G-7 leaders took a step in this regard this week when they revised their earlier commitment to end financing for natural gas projects overseas altogether.
Unfortunately, Russia’s war on Ukraine and its unrelenting human toll shows no sign of ending. The economic suffering will increase, and the food shortages will become a political and humanitarian stress worldwide. And even if the war ended today, the world will be feeling the impact of dislocations in energy and commodities markets for years to come. World leaders have only just begun to digest this dire outlook.