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University of California Institute on Global Conflict and Cooperation

How the War In Ukraine Is Affecting African Economies

May 16, 2022
Prince Paa-Kwesi Heto and Lindsay Morgan

Podcast

How is the war in Ukraine impacting African countries? In the latest Talking Policy episode, Lindsay Morgan talks with Prince Paa-Kwesi Heto, a doctoral candidate at UC Irvine and Ghanaian political economist, about food price increases, the risk of debt distress, and Western calls for African countries to “get off the fence” and condemn Russia.

The reverberations of Russia’s invasion of Ukraine are being felt worldwide. What is the impact of this crisis right now in sub-Saharan Africa?

I think about the impact on sub-Saharan Africa along four different dimensions. One is the impact on food supply. Africa is a net importer of food. What is happening now is you are seeing a rise in food prices and there is a potential for food shortages. Morocco gets a lot of its grain supply, like wheat, from Russia and Ukraine. Tunisia imports half of its soft wheat from Ukraine alone. A country like Libya gets 75 percent of its wheat from Russia and Ukraine. But the good news is that some of these countries have strategic reserves. So, Morocco says its strategic reserve could last for about five months, and that was two months ago. And Tunisia’s strategic reserve could last them for about three months. They made that announcement about a month ago.

Now let’s turn to oil. Gas prices have been increasing across the continent. The gas inflation problem is compounded by prior policies introduced during the COVID era—border closures for example. So gas and basic supplies were not getting across the border. Now you factor in the Ukraine-Russia war. This has compounded the problem some of these countries are facing.

Another shock that is important for us to talk about is cooking oil. Many people don’t know that Ukraine is the hub of sunflower oil, which a lot of homes in Africa use as a substitute for vegetable oil. Sunflower oil is a little bit cheaper than soybean oil. So, the challenge now is that the price of this has increased dramatically. The price of sunflower oil is now four times what it was in 2019 in Africa. Soybean oil that used to sell for $765 per liter per metric ton in 2019 is now $1,957 per metric ton. This has hit people’s pockets significantly. Palm oil is up almost 200 percent. This has created more problems for countries in Africa, especially east African countries that depend on the import of this cooking oil.

All of this has also impacted the cosmetic industry because crude palm oil, and some of these cooking oils are basic ingredients in the production of things like soap. And so you can now understand how just one incident is having a chain effect.

Is there concern that rising prices will lead to like social unrest? How are people responding to these exponential increases in the costs of basic goods?

I think it’s also important to first take a step back and look at the impact on multiple levels. So, the impact I already talked about is the immediate impact. There are longer-term impacts related to the costs and supplies of other things like fertilizer, which will affect productivity in the agriculture sector. Therefore, we are seeing potentially that next year, the next harvest season might be lower in yield. If we don’t get the fertilizer to be able to boost production, Africa will have to import more food.

If we are talking about social unrest, it’s not only immediate concerns, but what will be the long-term repercussions like the number of people falling back into poverty.

Governments are introducing immediate mitigation measures. For example, some of the countries like Ghana, Kenya, and Rwanda have cut taxes on some basic goods to be able to accommodate price increases. But that means lost revenue for governments that are already struggling to mobilize revenue.

At least 18 countries in sub-Saharan Africa are at risk of high debt distress. Can you tell us about what that means and what is causing this?

The debt situation is a very complex issue. The IMF 2022 report states that 20 African countries are either at high risk of debt distress, or already in debt distress. Out of the 20, eight are already in debt distress. And then there are countries that are under leverage in terms of their debts on the continent as well. But compounded in this situation is the issue of exchange rates. I started off by saying Africa is a net food importer. So, if Africa is already a net importer of food, and 70 percent or more of the continent’s population are employed in the agriculture sector, then you can imagine what happens to manufactured goods and luxury goods. Demand for the currency means they’re having lower exchange rates.

Debt servicing also becomes more expensive for them. And you also have the issue where the credit rating agencies have been very brutal towards African countries. They’ve been downgrading their creditworthiness significantly—60 percent of African countries had some kind of credit downgrades during the pandemic. Ghana’s credit rating went from okay to barely good by both Fitch and Moody. The downgrades have implications for financial markets. They have implications for capital flights, and for the cost of financing these debts. All of these have compounded the problems in the sense that it is making African debt way more unsustainable. Nigeria right now has an 80 percent of debt to revenue ratio. With the credit rating downgrades I talked about earlier, you have a perfect storm.

What is the role of China as a creditor?

Western creditors hold most of the debts in Africa—Bretton Woods Institutions, and Western private financial markets that are buying the bonds of some of these countries. The myth is that China is the one saddling African countries with debt. China actually holds less than 25 percent of the total debt on the continent. 

What are the creditors able to do to respond to major shocks outside the control of borrowing countries? And what are they actually doing?

First, what are they doing? Some of them, especially Western creditors, have been really good. Well, let me roll that back a little bit and take the “really” out. They’ve been doing okay in the sense of restructuring some of the debt. They paused payments during the pandemic and provided some relief, including the Bretton Woods institutions—and that is where the difference is between China as a creditor and Western creditors. So in the money markets, there are different rules for different players and different actors. Sovereign borrowing is treated a little bit differently from commercial borrowing. China does not have that differentiation. China treats all loans as commercial business deals. If you signed a deal that you have to pay, you can’t use the pandemic as an excuse. That’s what happened to Kenya. Kenya had to pay over $300 million on some of its loans that were due to China. And that caused currency devaluation and a lot of fiscal problems for Kenya during the pandemic because the Chinese lenders were not ready to be as flexible in dealing with a sovereign entity compared to what the Western financiers and creditors were doing.

It’s important that China start playing a meaningful role in this space. But I do understand people who argue that that also gives an incentive to some of these governments to borrow recklessly. And so there has to be some mechanism in place to discipline the borrower. But we cannot forget that without providing relief during COVID, it is the poor citizens of those countries, not the ruling elites, that have to pick up a significant portion of the impact.

Given the significant impacts on African economies, some analysts have questioned the apparent reticence of some African leaders to condemn Russia for its invasion of Ukraine. For example, South Africa was one of 58 countries that abstained from the vote that resulted in the UN resolution to suspend Russia from the Human Rights Council, and several African countries voted ‘No’ including the Central African Republic, Congo, Algeria, Burundi, Ethiopia, Eritrea, and others.

One commentator writing in Foreign Policy said: “Russia’s war in Ukraine will kill more Africans from starvation than Ukrainians on the battlefield. Africa should get off the fence and condemn Russian aggression.” What is going on here? How is this war viewed in African capitals?

I think that the criticism by itself is a gross misunderstanding of what has been happening. And it also provides a clue into something that not only the Africans have been saying, but that Asians and South Americans have all at different points pointed out, which is that sometimes Western commentators lack a deeper understanding of the politics of the developing world. So, what really is happening when it comes to the Russia-Ukraine war? African countries, a number of them actually, have been on record condemning the war. Kenya on February 22—before Russia invaded—used their chairmanship of a UN Security Council proceeding to call on Russia not to invade, using words like “we are representing the whole of Africa” to tell Russia that “we came from oppression and colonialism and therefore we will not tolerate, or we will not stand for a new kind of imperialism.”

The chairperson of the African Union, who is currently the president of Senegal, came out to condemn Russia’s aggression on behalf of the African Union. The African Union Commission itself issued a statement calling for Russia to stop the war. Ghana, Nigeria, and Ethiopia all have expressed different levels of concern. Yes, there are multiple African countries that have been silent in terms of condemning Russia, but we cannot minimize the level of courage it takes for the people who have come out against [Russia]. When they [African countries] were oppressed, when they were under colonial rule, China and Russia were countries that were there for them.

Countries in Africa don’t think about relationships only from a transactional perspective. It’s something you invest in, something that you build over time, which doesn’t mean you don’t call the other party [out] when they are wrong. You still call them out, but not in the same way that is done in the West.

Some people talk about the nonaligned movement simply as a movement that was not ready to take a side in the Cold War between the Western sphere of influence and the Eastern sphere of influence. But the nonaligned movement means a lot more than that. It is a statement by these countries to say, we want to reserve the right to determine our foreign policy. We want to reserve the right to determine who we will choose as friends and who we choose not as friends. And maybe our neutrality could be a force to prevent war from happening between these two countries or these two spheres of influence. The nonaligned movement was not simply a passive thing of “we don’t want to choose.” It was a statement of intent. A self-determination movement—I think that is a better word for it.

What is happening here is [not the same thing] that happened in the past. Because now, African countries are more vocal and ready and willing to take a stand. Let’s look at the UN General Assembly vote you were talking about. The first vote to condemn Russia’s aggression is a better measure of Africa’s political temperature than the second vote. And the reason is simple: the first vote is to tell your partner that what you are doing is wrong and I don’t approve of it. The second vote is to punish that partner. And the question is, what kind of punishment is appropriate? I don’t think the African side has worked out yet what the appropriate punishment is. And so in the first vote, only one African country voted “no,” which was Eritrea. Out of the 35 countries that abstained, 17 African countries abstained. But more important is that 29 African countries (out of a continent of 55 countries) voted yes, to condemn Russia.

The second vote, for reasons that I already mentioned, is a bit more complicated. I think that nuance is very important so we don’t just label Africa as sitting on the fence. They’re actually not sitting on the fence.

I want to ask you a bit more about narratives. One narrative you see sometimes in the Western media is that China’s influence is hovering over African countries and preventing those states from responding [to the situation in Ukraine] in a way that Western states would think is more appropriate. Whatever the nuance of that narrative is, the bottom line is that China’s influence is considered a threat. What do you think about that narrative? Is that anywhere close to the truth of things?

I like the word we’re using—narrative. Because most of the world is narrative, right? Language matters. And I believe that this narrative about China—China’s negative influence on the continent and China’s growing influence as a threat to U.S. influence—is very simplistic. And here is why. One, China’s engagement with African countries was, until recently, within the frame of what you could call geo-economics. It’s trade driven, economic development driven. And these are countries that have a significant infrastructure financing gap. So, if you have a willing lender that is ready to take more risk and a willing borrower or someone who needs the resources, you’ll always get a match. But that is at the elite level. Time and time again appeal research, Afrobarometer research, and a lot of the major research done on the continent on public opinion show overwhelming support for the U.S. over China in these countries. And therefore, American leaders have to ask: what are we missing in the African story? And how do we effectively partner with Africa? Because at this point, we still continue to see Africa from the humanitarian lens—a burden that we need to help. We don’t see Africa as a viable trading partner. We only have one free trade agreement on the continent, with Morocco.

When we talk about bilateral investment treaties, we have nine. If we talk about TIFA, which is Trade Investment Framework Agreement, we have 10. And so, our economic footprint on the continent is very minimal. And if Africa is now talking about economic growth, which is a new narrative that the elites are coming up with on the continent now against the older narrative of decolonization, we should be there with them. You know, the Trump administration at least got one thing right. They started moving in that direction. They asked Kenya, for example, for free trade agreements. The Biden administration came in and put the hold on that. So, in 2025, we have to renew the only trading instrument that ties Africa to the U.S., which is called AGOA, the Africa Growth and Opportunity Act. But AGOA has so many flaws. Out of the 60-something thousand-line items that can come in duty-free, most of them don’t include crops and goods that Africa has a comparative advantage in.

Right. While the U.S. protects its own industries.

Correct. If you are giving me a gift that I can’t use, is it still a useful gift? But if somebody is coming to say, what is your need? So China created FOCA, the Forum on China-Africa Cooperation, which is the forum where they discuss cooperation and trade with Africa. If you read the declaration from the eighth FOCA, which took place last year in Senegal, you would realize that China has been listening to a lot of criticism that it’s been getting from Africa. It is treating Africa like a customer who they get feedback from. They go rethink their strategy and come back and say, is this what you want? So China is saying: we want to hire more people, we want to do more training on the continent, we want to buy more local products when we are building the infrastructure projects.

China has been listening. I wonder if Washington is also listening, if the European Union is also listening, because a lot of the things that the European Union and the U.S. are doing are much more reactionary, rather than a strategic plan for Africa.

We need to start creating new trade vehicles to allow Africans to be able to trade fairly and freely so that they can support and add depth to the economic growth story, and recover from all the stresses we talked about—using trade, not aid.

What reforms are needed among international institutions to help African countries weather this storm? And do you think that reforms to international institutions is where the focus should be?

One of the reforms that I think is needed is to start relooking at the credit rating agencies, because I don’t think they’re factoring in political risk and disasters, especially with climate change on the horizon. If that’s going to be our new normal, why punish countries for something that is not their doing? Yes, it’s good for you to be honest in reporting the creditworthiness of countries, but downgrading countries should not be taken lightly. At this point they have too much power, too much monopoly to decide these things. They should be a bit more transparent in their formulas, a bit more transparent in their decisions. Or maybe we should have more [agencies] to have some competition.

Another reform that is needed has to do with how the Bretton Woods institutions provide support. So for example, they’re already earmarking money for recovery in Ethiopia after the war which is a good thing. But [that financing rests on the assumption that] the government that is fighting with its own rebels would be fair in distributing the money that is going to pass through them for rebuilding. We need a new architecture to make sure that financing gets to where it’s needed. At this point, the international development system doesn’t have a way to target financing. We are still working in the Westphalia system where the state has to be the conduit, and sometimes they are tainted conduits. And I’m not saying this to discredit the Ethiopian government. I’m making a broader statement.

The last thing is, should the focus be on international institutions? I think we should be focusing on domestic institutions as well—both domestic and regional institutions. One of the paradigm shifts that is needed on the African continent is that the governors have to start shifting their mentality and start thinking: how do we make life easier for our people? Because a lot of the policies they come up with tend to create more bureaucracy rather than remove the bureaucracy and make simplified processes to make it easy for people to get documents from the government, do business, make a living, and make it easy for your citizens to actually be treated right. If you make your bureaucrats more powerful or you impose more steps between service delivery and service production you are actually creating a space for all those middlemen and women to become too powerful and on a continent where people make statements like “I will show you where the power lies,” “do you know who I am.” People become intoxicated with power. And so, the more opportunity you create for them, the more opportunity you create for sabotage. I think that African governing systems and institutions have to start evolving in a direction that limits the number of middle people, or steps, and sorts out how we can provide services in the most efficient and effective way.

As a long-time expert of the political and economic trends on the continent, I’m curious what you make of what is unfolding and what you might be seeing that the rest of us might miss.

I think we have grossly misunderstood the role economic interdependence plays in creating peace and stability. And that is an indictment on the whole literature that I don’t take lightly. We have assumed over time that there is a direct connection between economic interdependence and peace and stability. That once you have interdependence, interdependence is going to lead to peace and security. Yes, of course, there’ve been different variations, and there’ve been different nuances, but the logic and the framing continue. Countries that trade with one another, don’t go to war with each other.

We’ve forgotten that economic interdependence creates a political need for negotiation, that calls for some level of adjustments to be made on each side. The current stalemate [in Ukraine] is going to have to end with some level of compromise. So why don’t we start now developing frameworks that allow us to make those compromises a lot sooner rather than wait until we have a war?

Because a lot of the posturing before the war sounded as if negotiation was more like a political play, for people to be able to say, “you see, we tried negotiation.”

Thumbnail credit: WFP/Katharina Dirr

The music featured in the IGCC podcast is courtesy of Gato Loco de Bajo.

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