There are fears that the Russia-Ukraine war will likely drive economic instability in Nigeria and other countries beyond this year. A war that has created serious bottlenecks in the supply of the global value chain of some commodities.
An impact so painful that the prices of basic food items and refined crude oil products have witnessed an upward movement. According to the latest publication from Financial Derivative Company (FDC) the price of a loaf of sliced bread which used to sell for N300 before the escalation of tension in Ukraine now sells for N600. In contrast, diesel which used to sell for N200 a litre now goes for N650.
With Russia and Ukraine seen as some of the largest producers of wheat, sugar, and cereal, products that are essential components in the production of flour and numerous basic items, fears are that the prices of bread that currently cost N500 will hit N1000 before the end of the year.
With bread, which is a staple food amongst Nigerians experiencing a hike price, it is clear that more people will opt for cheaper alternatives or face the stress of meeting up with the increase in price.
In a report by the World Population Review, Russia and Ukraine produce a combined 111 metric tonnes of wheat yearly as of 2020, making up 20 percent of the production fo the top ten wheat producing countries.
As long as the war continues, the absence of this amount of wheat in the global total will continue to drive the cost of staple foods that depend on flour.
“Smaller supplies and higher prices for food mean that the world’s poor could be forced to do without,” Ngozi Okonjo-Iweala, the director-general of the World Trade Organization (WTO) said.
Maize is another agricultural produce which since the start of the conflict in Ukraine has experienced a jump in price. Now many countries exporting the product have decided to hoard the product to satisfy the domestic market. For example, the FDC report says that “Countries are banning exports in response to rising domestic inflation”.
The impact is that Maize products having it as major raw material will become more expensive and may be out of the reach of the poor.
Crude oil is one commodity that has been badly affected by the war. Since the start of the war, the price of crude oil has jump from $65 in February to an all-time high of $120 per barrel. The immediate impact has been a rise in petrol, diesel, kerosene, and jet A1 prices to levels many countries are struggling with.
Despite promises of increased supply from OPEC+ to close the shortages by more than 600,000 barrels a day, the fear that crude oil prices would fail to fall below $100 per barrel is real. As long as the price moves within the region of $120 and $100 per barrel, expectations of a fall in the retail price of fuel is unrealistic.
The immediate effect is that the price of diesel rose from N200 to N650 within just four months of the war, a rise which represents a more than 200 percent increase in price. Jet fuel on the other hand had the most jump in price, as it gathered a nearly 500 percent spike in price. A litre of jet fuel which used to cost around N190 now sells for N700.
The impact of these increases has been a serious jump in airfare for most domestic airlines and international ones. It cost N48,000 for economy class when you fly Arik air. Whereas when global crude oil price was around the pre-Russia-Ukraine war level of $65 per barrel, the price of an economy class ticket for Arik Air no return sold at N25,000 per adult.
There have been calls for subsidy on fuel to be removed as the cost especially with the international price pressure makes it almost impossible to continue to subsidize the product. According to the NBS, “petrol subsidy payments grew by 349.42 percent from N350 billion in 2019 to N1.573 trillion in 2021, propelled by the rising price of crude oil in the international market and the falling value of the Naira.”
In the international market, energy prices are a major driver of inflation. The price of a gallon of gasoline in the US sells for $8.35 the highest it has ever been in more than 40 years, while a litre of petrol in the UK sells for £1.76. This development is a sharp contrast to what it was before the war started.
There are fears as rightly expressed by Akinwumi Adesina, African Development Bank (AfDB) president, Africa is likely to face political instability following the impact the shortages the basic food items is having on the continent.
With food inflation nearing an all-time high in most countries, the political stability outside Nigeria is seriously threatened.
“Headline inflation will likely increase due to supply bottlenecks, exchange rate pass-through effects, and higher energy costs.” FDC continued in its statement about what to expect in the next inflation report from the Nigerian Bureau of Statistics (NBS). We should expect food prices and the cost of living to advance northward this month and in the months to come.
Just on Friday, June 10, the much-expected inflation report of the US was released by the US Bureau of Labor Statistics. Unfortunately, inflation spiked to a 40-year high of 8.6 percent for the month of May, following rising food and gasoline prices in the US. A result that will definitely end up with another 50 basis point increase in interest rate in the next MPC meeting of the US Federal reserve bank.
The Bank of England is no different, as the prospect of an interest rate hike was announced after Governor Andrew Bailey reacting to rising inflation made worse by the situation in Ukraine projected a further rise in interest rate.