Rencap: Russia-Ukraine crisis to affect Africa in 3 ways

The ongoing crisis between Russia and Ukraine has sent shockwaves across the globe, impacting various regions in unexpected ways. According to Renaissance Capital, the effects of this conflict will be felt in sub-Saharan Africa in multiple ways, with both positive and negative consequences for different countries in the region. Yvonne Mhango, the sub-Saharan Africa Economist and Head of Research at Renaissance Capital, sheds light on the potential implications for African nations. The conflict has already caused a surge in commodity prices, with significant impacts on oil and wheat - two key imports for many African countries. The rise in oil prices, reaching heights not seen in years, and the increase in wheat prices due to the disruption in exports from Russia and Ukraine are expected to lead to a significant acceleration of inflation on the continent. This inflationary pressure could have far-reaching implications for consumers in sub-Saharan Africa, especially on essential goods like bread and fuel. While countries heavily reliant on imports of these commodities are set to face challenges, there are also opportunities for some nations to benefit from the conflict. Commodity exporters are likely to be the biggest winners, with oil-exporting countries like Nigeria and Angola expected to see improvements in their external sectors. The increase in commodity prices, particularly for metals like palladium and copper, is anticipated to boost export revenues for countries like South Africa, Zimbabwe, and Guinea. The rise in prices and demand for these commodities could lead to currency gains and economic growth in these exporting nations. However, the situation also poses risks for investment flows in sub-Saharan Africa. The uncertainty and risk aversion triggered by the conflict have led investors to seek safe haven assets, impacting capital flows into the region. As the outlook becomes clearer, investors may become more selective, favoring markets with strong fundamentals. Russia's declining attractiveness as an investment destination could redirect capital flows to other emerging markets, presenting opportunities for some African countries. Policymakers in sub-Saharan Africa face a delicate balancing act in response to the crisis. The surge in inflation due to rising commodity prices raises the possibility of central banks implementing rate hikes to curb inflationary pressures. However, this comes at a challenging time as many countries are still recovering from the pandemic and striving to stimulate economic growth. Finding the right balance between controlling inflation and supporting growth will be a key challenge for policymakers in the region. While the direct trade impact of Russia on African countries is relatively limited, some nations such as Uganda and the Republic of Congo have significant trade ties with Russia. These countries may need to seek alternative sources for goods previously imported from Russia, such as fertilizers and medicines. On the flip side, mineral exports to Russia from African countries could face disruptions, affecting some industries on the continent. The humanitarian impact of the conflict is devastating, particularly for Europe and the refugees fleeing the conflict zone. In sub-Saharan Africa, the focus remains on the economic repercussions, particularly the potential for increased inflation and social unrest stemming from price hikes on essential goods. Countries like Nigeria, heavily reliant on imported wheat and oil, are set to feel the effects of the crisis acutely. Nigeria's budget may face strains from rising import costs, potentially leading to prioritization of certain expenses over others. The rise in wheat prices is also expected to fuel food inflation unless alternative solutions are found. The dynamics are complex for Nigeria, highlighting the challenges and trade-offs policymakers in the country will need to navigate amidst the evolving crisis.