Possible effects of Russia-Ukraine war in Ethiopia’s economy

Recently, the price hike of edible oil shocked customers. Meanwhile, the Russia-Ukraine war lasted over 3 weeks. This war is believed to have economic burdens on developing countries such as Ethiopia. Yared Nigussie of Origins Business spoke to Eshetu Ejara, an Agricultural Economist by trade to know the details, excerpts;

Both Russia and Ukraine are the highest producers of Sun flower and Wheat.

Considering the size of wheat demand and over-reliance on imports from Russia and Ukraine, Ethiopia is likely to be more severely affected in the future by the fallout of the ongoing conflict, according to experts.

Other countries in the region are also likely to be either directly affected (through increased prices of wheat-based products) or indirectly affected (consumption of substitute products, resulting into increase in prices of other cereals).

Egypt can be mentioned here as good examples as the price of bread soared following Russia- Ukraine and war.

Together, Russia and Ukraine account for a huge portion of the world’s agricultural supplies, exporting so much wheat, corn, sunflower oil and other foods that it adds up to more than a tenth of all calories traded globally. Now, shipments from both countries have virtually dried up.

Ethiopia used to export wheat form these two nations.

Analysts have projected that disruptions to oil flows from Russia has the potential to push global oil prices to $120 per barrel. However, lately oil price has fall below $100 a barrel. The current State-backed fuel subsidies aimed at cushioning consumers (for example in Kenya) and price controls (Djibouti, South-Sudan) are highly unlikely to keep pace with short-term pump price inflation.

“I think we’ll not face problems as we are imported enough supply of wheat from the two nations. But, it’s likely to face challenges ahead if conditions are not improved,” says Eshetu Ejara, an Agricultural Economist by profession, told Origins Media.

“Either we’ve to import similar products from other nations or producing high-yielding commodities through import-substitution strategy,” he recommended.

“The war will have medium and long term effects,” he said.

“The current drought in parts of the country could even make the import-substitution more important than ever before,” Eshetu said.

Global oil price surge and effects in Ethiopia

As Russia and Ukraine are engaged in conventional war, the global price for oil was fluctuated between above and below $100 a barrel. Especially, the latter is the major supplier of oil and gas to nations.

Nations are expected to look for other alternative markets of oil. When shortage of oil happened that shortage will create inflation of oil price and Ethiopia would bear the brunt of it, Eshetu said.

“We should move aggressively to green and renewable energy,” he said.

Ethiopia recently has started assembling electric vehicles locally. “We have to further strengthen such efforts,” he says.

Russia-Ukraine war possible effects on local businesses

Local companies could sign contracts with businesses of Russia and Ukraine. “But, generally speaking, at this moment of active war the trade ties will be ceased,” he said.

“It’s better for such companies to implement a compensation mechanisms to the damages that would likely be happen due to the war,” he recommends.

Lack of business ethics challenges trade activities

Eshetu blamed lack of business ethics among few businesses as a challenge for high price increment on commodities trade.

He told Origins Media that lack of business ethics is the basic problem among the businesses.

The government said recently that it has seized hoarded edible oil products across parts of the country. Even, a price of 5 liter of edible oil reached to over 1000 Birr from 650 Birr a month ago. That price hike shocked consumers.

Hoarding of basic needs and other commodities has been the major problem in business activities.

“They [businesses] increase prices even without any change in production costs,” he said, adding, “That’s not an ethical deed”.

Some business owners prefer to hoard products and sell it by higher prices, he says, which is not an advisable deed.

There are shortages of supplies at the same time. To solve that boosting supplies is the best way out, he says.

“Providing incentives to investors who are interested to engage in producing edible oil products and increasing supplies will bring fair competition in the market,” he recommends.

The National Bank of Ethiopia (NBE) changed the list of items imported to the country that are prioritized for foreign currency allocation from commercial banks.

Inputs for edible oil production are included in the first lists alongside medicine, pharmaceutical manufacturing, and laboratory reagents. That NBE’s directive has been issued on December 1, 2021.

Domestic annual demand of edible oil of Ethiopia is around 900 million liters. Smallholder farmers harvested around eight million quintals of oilseeds from 770,000 hectare of land last year.

Sesame and niger seeds account for close to 60 percent. In commercial farming, sesame made up over 95 percent of the 2.43 million quintals produced, nearly all of it was destined for export.

This year, the federal government has allocated $400 million to import crude palm oil. The quota was set when prices for a ton of crude oil were at $1,110, nearly double the going price from the previous year.

Around 34,000 ton of crude oil worth over 2.2 billion Birr was import was imported since last September. Around 18 percent of came from Ukraine.

Cooking oil is among the commodities that have seen prices surge since the war broke out. Last week, prices in the global market skyrocketed to nearly $2,000 in a ton. Others include petroleum, wheat and fertilizer.

“We have to unlock our potential of producing oil from Sesame and other agricultural products, which paves the way for import- substitution,” as Eshetu puts it.

The government should have to discharge its role of enforcing regulations against illegal activities; that regulation should prevent hoarding and making unfair profits, he says.

Import substitution mechanisms

“Implementing mechanized farming scheme is a most,” Eshetu said. In agricultural economics there are two types of farming: intensive and extensive farming. Intensive involves use of fertilizer, best seeds and high yielding varieties. Extensive farming on the other hand involves using huge farmlands to produce a bulky production, he explained.

“We have been implementing intensive farming and now we have to shift into extensive mechanized farming,” he said.

“Agricultural extensive workers should work in tandem with the farmers and bring friendly approaches to boost agricultural productivity,” Eshetu explained.

There has to be a synergy among the Ministry of Agriculture, extension workers and farmers to make the agricultural sector a productive, he says.

Using extensive farming in vast farmlands and make use of fertilizers and best seeds on smallholder farmers is the most advisable way out, he adds.

Seamless supply chain in agricultural practices

Seamless supply chain involves distribution of commodities, finance, information, trade system and commodities protection and safety. Creation of the seamless supply means distribution of commodities has become fast and easy.

Changing the informal into formal activities and adding values is among the traits of a seamless supply chain.

Seamless supply chain will be realized when input supply, operations and processes means providing the goods and services for customers by the providers, according to Eshetu.

Ensuring the implementation of seamless supply chain means ensuring a boost in productivity and efficiency, Eshetu said.