The effect of Russia’s latest invasion of Ukraine is a major cause of concern for the entire world and the reason isn’t far-fetched: the country is the eleventh largest economy in the world and is the world’s largest producer of oil. But beyond that, its impact is especially felt in Africa as many African states depend on Russia for trade. Even countries that do not trade are affected by the conflict as they experience the same surge in the price of commodities. Current, gold which is considered the safest store of value has grown to two thousand dollars per ounce while palladium is now above $3300. Similar upsurges are seen in coffee, cocoa and wheat as the crops are in short supply due to the combination of sanctions and disruptions in the supply chain. For many African countries, this posits an interesting conundrum: are there any benefits for those that produce some of these commodities, or it’s a dire situation for many already strained countries? The discussion of Business Edge today looks at the many cons of the global surge of commodities in Africa as a result Russia-Ukraine crisis and examine the potential pros therein. Gospel Obele, the Chief Economist at Streetnomics Ltd joins Tolulope Adeleru-Balogun.
The Gulf War of 1990-91 saw commodity prices reach a record high, which is why this current conflict in Ukraine is reminiscent of that crisis. Gospel thinks it reflects badly on African countries not to have taken lessons from previous conflicts that have had ripple effects on the continent, which appears to be happening again. “What we’re seeing in now is what was seen during the Gulf War where the impact of these shocks will affect the African economy much more than it was, and that’s because we did not self-correct the trajectory.” Unsurprisingly, it’s happening because Africa is by and large, import-dependent.
The price of oil is also a part of the Business Edge conversation as it’s inching swiftly towards the $150 mark. Gospel Obele says “The way events are unfolding, it’s likely to get to $150 per barrel… or probably even higher than that. The rise in price is also fueled in part by sanctions being placed on Russia impacting heavily on the supply chain.”
Watch the full episode above.