Fallout from war in Ukraine overwhelms poor countries

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Zouhair Khafiyeh’s shop window is empty of the pastries and meat-filled pies he has been selling for years, helping his children go to college. The price of a bag of flour on the black market has risen more than 1,000% since the Russian invasion on February 24. Mr Khafiyeh has raised his prices by 50%, he said, and now only cooks when customers order and pay in advance.

“We can’t go on like this,” said Mr. Khafiyeh, 54. He fears that he will have to close his bakery within a month.

Russia’s invasion of Ukraine has caused pain in the developing world. It caused the biggest price shock in decades and stifled commodity imports, triggering particularly difficult shortages for poorer countries that were already far behind in their economic recovery from the pandemic.

In Kenya, bread prices have recently jumped by 40% in some areas. In Indonesia, the government has imposed price controls on cooking oil. In Brazil, state-owned energy giant Petrobras said earlier this month it could not contain inflationary pressures and raised gasoline prices to distributors by 19%.

In Turkey, a sharp rise in the price of sunflower oil triggered panic buying. People scaled supermarket shelves and climbed over other shoppers to grab what was left. Street protesters in Iraq, angry at rising food prices, have called themselves the “revolution of the hungry”.

Some 50 countries, mostly poor ones, import 30% or more of their wheat supply from Russia and Ukraine. The two countries together provide a third of world grain exports and 52% of the sunflower oil export market, according to the Food and Agriculture Organization of the United Nations.

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In Kenya, bread prices have recently jumped by 40% in some areas. In Turkey, a sharp rise in the price of sunflower oil triggered panic buying. (Photo: AP)

“If this conflict continues, the impact is likely to be greater than the coronavirus crisis,” said Indermit Gill, World Bank vice president, who oversees economic policy. “The lockdowns were a deliberate political decision, which could be undone. There aren’t as many easily reversible political options with that.”

By the end of 2022, economic output in most advanced economies will likely reach pre-pandemic forecasts, he said. For developing countries, GDP will still be 4% below these projections by the end of 2023. With debt levels in developing countries at their highest in 50 years, price increases driven by the Ukraine’s war could scare off investments in emerging markets, Mr Gill said.

According to Goldman Sachs, the Russian attack on Ukraine has caused the biggest disruption to world grain markets since a failed Soviet harvest in 1973, and it has the potential to cause the biggest disruption to oil markets since the Iraqi invasion of Kuwait in 1990. The bank expects oil to average $130 a barrel for the rest of the year, nearly double the average of $71 a barrel in 2021, when global inflation took off.

Russia is the world’s second largest exporter of crude oil behind Saudi Arabia, accounting for 12% of global supply, according to the Paris-based International Energy Agency. It is also the world’s largest exporter of natural gas and the largest producer of fertilizers. Higher fertilizer costs mean farmers are likely to use less of it, reducing crop yields and driving up food prices around the world, but hitting countries that can least afford it the hardest.

‘Too much’

As elsewhere in the world, parts of Africa were already struggling with inflation before the war in Ukraine. In 2021, Uganda’s wheat import bill rose to $391 million, up 62% from the previous year.

In the capital, Kampala, grocery store owner Everest Tagobya struggles to keep his business afloat. In recent months, he has paid more for everything from pasta to vegetable oil to wheat. Since the start of the war, he says, the price of vegetable oil has doubled and a carton of wheat has risen by more than 25%.

“I’m having a hard time replenishing stocks because prices are going up every day,” said Mr Tagobya, 44, pointing to empty store shelves.

The Middle East and North Africa are particularly dependent on wheat from Ukraine and Russia. Egypt, the world’s largest wheat importer, gets more than 70% of its wheat supplies from both countries, as does Lebanon. For Turkey, it is more than 80%. A rise in bread prices helped fuel the 2011 Arab Spring uprisings in the region.

In Egypt, the government has said the Ukraine crisis will add about $1 billion to the cost of the bread subsidy, and it is looking for new suppliers. The government introduced price controls on unsubsidized bread to halt a sharp rise.

“Rising prices scare me,” said Sara Ali, 38, a translator in Cairo. This affects our core products, not the luxuries that I have already discounted.”

Such inflation increases the likelihood of popular unrest in Egypt, said Timothy Kaldas, an expert in Egyptian political economy at the Tahrir Institute for Middle East Policy, a nonpartisan think tank in Washington. Years of government austerity have already eroded Egyptians’ purchasing power, he said.

Lebanon only has a month’s supply of wheat, said Amin Salam, the economy minister. The country’s economic crisis has left nearly a quarter of households unsure of having enough to eat. “We are now reaching out to friendly nations to see how we can procure more wheat on good terms,” ​​he said.

In 2008, a spike in food prices sparked riots in 48 countries. Since then, the burden of feeding needy populations has only grown, weighed down by the pandemic and wars in Syria, Yemen, Ethiopia and elsewhere, said Arif Husain, chief economist at the World Food Programme, or WFP, a branch of the United Nations.

In Ukraine, fuel, fertilizer and labor shortages are limiting maize planting and wheat harvesting in early summer, indicating longer-term food shortages.

Rising costs are putting pressure on WFP’s ability to feed people at risk of starvation, including more than 3 million in Ukraine. The war has added another $29 million to the program’s monthly food and fuel bills, Husain said. Since 2019, its food and fuel costs have increased by 44%, to an additional $852 million per year.

The WFP said it had cut rations for refugees and others in East Africa and the Middle East in recent days due to rising prices and limited funds.

Somalia, which faces a crippling combination of drought, widespread militant violence and political stalemate, saw a spike in near-famine cases before Russia invaded Ukraine. Kismayo General Hospital in southern Somalia treated 207 children under 5 in February for severe acute malnutrition with complications, double the number from the previous year.

“In countries like Somalia which are extremely vulnerable due to protracted armed conflicts and the growing impact of climate shocks, even a slight fluctuation in food prices could have a dramatic impact,” said Alyona Synenko, Chief word for Africa of the International Committee of the Red Cross. “It’s going to be too much for people.”

Reduce

Economies heavily dependent on energy imports are particularly at risk, including India, Thailand, Turkey, Chile and the Philippines, according to S&P, a ratings firm. India imports nearly 85% of its oil. Thailand has the highest energy import bill among major emerging markets, totaling 6% of GDP.

The price shock is enough to knock down growth forecasts for many developing countries, including India, by one percentage point, according to S&P.

For countries with already anemic growth prospects, such as South Africa and Turkey, that could mean a halving of growth this year, said the World Bank’s Mr Gill. Oil prices at $115 a barrel would shave up to 3.6 percentage points off Thailand’s growth this year, according to S&P.

In Pakistan, where inflation persists, the government announced $1.5 billion in subsidies in late February to try to keep gasoline prices low during the Ukraine crisis. In recent days, cooking oil has risen another 10% in the market, traders said. The holy month of Ramadan is approaching, which usually leads to higher prices. Criticism that the government cannot control inflation has prompted opposition parties to overthrow Prime Minister Imran Khan.

“It’s an alarming situation for us where the purchasing power of customers is already declining and sales have dropped significantly over the past few weeks and months,” said Shahid Ali, sales manager of a supermarket in Islamabad.

Benson Kisa, who works at a labor recruitment company in Kampala, is now skipping the restaurant where he used to eat breakfast. Prices for coffee and a snack known as rolex, consisting of an omelette, tomatoes and wheat flour, have risen by almost a third in recent days.

“My salary hasn’t changed but I pay more money for almost everything,” Mr Kisa said.

In India, farmers who can afford it buy and store large quantities of fertilizer for fear of future shortages and price increases. Most Indian farmers own small plots and cannot afford to do so.

“If I don’t get enough supplies on time, my production will probably drop,” said Satnam Singh, a 42-year-old wheat farmer with an acre and a half of land in northern Punjab state. ‘India.

Tanzania, a net oil importer and heavily dependent on Russian wheat, scrapped its tax on fuel imports this month, but the regulator raised prices by 5%.

Tanzanian President Samia Suluhu Hassan has warned citizens to prepare for more. “All goods will go up in price, all tariffs will go up and everything will go up in price because of the war in Ukraine,” she said. “It’s not caused by the government. It’s the state of the world.”

—Jared Malsin in Istanbul, Michael M. Phillips in Nairobi, Amira El-Fekki in Cairo, and Vibhuti Agarwal in New Delhi contributed to this article.

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