Page 27 - MiNDSPACE Issue 2 2022 - Old Mutual Corporate

A WINDFALL FOR EXPORTERS OF NATURAL RESOURCES
Africa’s natural resource exporters will benefit from a price- rise-induced cash windfall. Already, the Russia-Ukraine crisis has triggered a spike in prices of internationally traded energy commodities (crude oil, natural gas, liquefied natural gas
and coal), industrial metals (including aluminium, copper, cobalt, iron ore, nickel, palladium and steel), precious metals and lumber. These commodities are produced in abundance
in Africa and most were trading at or near historic highs throughout March and April, while prices are expected to remain elevated for as long as the conflict in Ukraine continues.
African hydrocarbons and mining ventures, which are spread widely across the continent, will help to drive up
export earnings, corporate revenue and tax receipts for major exporting countries in 2022. On balance, the economic outlook for major resource exporting countries in Africa remains positive because of high prices and increased demand for their produce.
GREATER PRESSURE ON AFRICAN FOOD SECURITY
RENEWED INTEREST IN LONGER-TERM ENERGY DEVELOPMENT PROJECTS
In addition to a positive short-term price shock, some extractive sector ventures in Africa are eyeing up longer-term opportunities that could be created by a possible redirection
of international demand away from Russian supplies and towards more secure and less risky sources. This is particularly the case for natural gas and liquefied natural gas supplies to Europe, which could benefit projects in Algeria, Egypt and Nigeria, as well as new ventures in Mozambique, Senegal and Tanzania. There is little to no prospect of countries in Africa replacing Russian supplies of gas to Europe, but suppliers on the continent stand to benefit from a larger role in Europe’s future-energy import mix.
The Russia-Ukraine crisis poses a specific threat to food security in Africa due to both reducing accessibility and rising prices of food supplies. The conflict has added to agricultural input and operating costs, including the cost of fertilisers and fuel, hampered access to adequate food supplies and pushed up the cost of food imports. Securing supplies of wheat, maize and oil seeds from Russia and Ukraine has become more difficult and food price inflation is putting household budgets under severe stress, risking political instability. Wheat was up 61% to $465/t year-on-year in Q2 2022.
In 2020 African countries imported agricultural products worth almost $4 billion from Russia and $2.9 billion from Ukraine – predominantly wheat and to a much lesser extent maize, barley, rye and vegetable or seed oils. Morocco, Algeria, Tunisia and Libya as well as Egypt, Sudan and the Horn of Africa (Eritrea, Somalia, Ethiopia and Kenya) lead the pack. Nigeria, South Africa, Ghana and Mozambique are other major net importers of wheat. These countries face a possible shortage of grains and much larger food-import bills at a time when domestic agricultural production has been stifled by a combination of adverse weather, conflict and natural disasters. Governments will attempt to mitigate the impact of the war on food availability by signing alternative supply contracts with, for instance, producers in Europe, the Americas and other parts of Africa, and building stocks where possible.
Global food-price inflation was a growing concern before
the war due to the pandemic and the associated global supply- chain disruption, export restrictions and stockpiling. On top of that, higher fuel prices were already driving up fertiliser and transport costs. Now the war in Ukraine has turbocharged
the surge in fuel, fertiliser and food prices, especially wheat and maize which are produced in large quantities in Russia and Ukraine.
Finally, while Africa as a whole has limited exposure to Russian tourists, a few countries on the continent will feel the pinch from the Ukraine crisis at a time when the sector is still struggling to recover from the Covid-19 pandemic. Egypt,
in particular, will rue the loss of a significant tourism market, as Russians and Ukrainians accounted for about a third of visitors before the pandemic. M
This article was written in May 2022.
Algeria – Africa’s largest natural gas exporter – exports natural gas to Europe through the Maghreb-Europe Gas (MEG) Pipeline via Morocco to Spain and Portugal (although the pipeline is currently offline) and the Medgaz pipeline directly
to Spain. Capacity enhancements are a work in progress and could be fast-tracked to facilitate an increase in Algeria’s gas exports to Europe. In addition, Egypt could receive a boost to long-term energy sector development plans that include natural gas pipelines to Europe and liquefied natural gas distribution networks to supply markets in Europe, North Africa and the Middle East.
RUSSIAN TOURISM TO AFRICA WILL BE SQUEEZED
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