Economic insightsPan-Africa

18 March 2022

Russia-Ukraine Crisis: Geopolitics boiling pot brews volatility; fundamentals reign supreme

In brief

  • War and conflict have rarely been absent from Europe, but the Russian-Ukrainian crisis is proving to be far-reaching – with its economic collateral damage extending beyond Europe.
  • Sharp increases in commodity prices have exacerbated the vulnerabilities of many countries, especially African sovereigns that have high oil and grain intensities.
  • As commodity prices surge, we see West and North African countries as most vulnerable to consumer price pressures, while regressive subsidies in Nigeria, Egypt, and Kenya constitute a drag on fiscals.
  • However, a possible diversification of Europe’s energy reliance on Russia portends a long-term growth opportunity for Africa’s natural gas bright spots – including Nigeria, Senegal, and Tanzania.
  • Among our coverage countries, Kenya appears to be the most vulnerable to the crisis due to its relatively higher dependence on its imports of oil and wheat, as well as its unsustainable fuel subsidy
  • The overall implications of the crisis on African countries will be soaring inflation, weaker fiscal and external health, and a possible dent in earlier growth prospects as the region’s central banks respond to inflation.
  • Central Banks in Egypt, Morocco, and Ghana are likely to be more responsive in stabilizing consumer prices in the near term.