Russia-Ukraine War Effects on Egypt's Economy

The invasion of Ukraine by Russia is affecting the international political economy. It has pushed energy, food, and commodity prices to unprecedented heights for the past 2 weeks. For instance, on March 8, Brent crude oil went up to $130 a barrel as the natural gas price increased in Europe. Ukraine and Russia account for a 3rd of world wheat imports of which Egypt is the global largest importer. This shows that Egypt with its economy isn't left out with the war consequences.

The war which broke out on February 24, 2022, has affected the Egyptian economy, especially on inflation, wheat, gas, and sunflower oil. The war pushed Egypt’s inflation to 10%. The yearly inflation got to 10% in February, making it the biggest in the country since 2019. According to CAPMAS, the inflation rate peaked at 4.9% in February 2021. And it has exploded to 10% since February 2022 as prices for beverages, bread, vegetables, fruit, and cereals climbed to 20.1%. It's safe to say that the conflict created a food security crisis in Egypt, which has now posed a threat to the economy. 

The somewhat poor state of Egypt's food security comes from the inability of the agricultural industry to produce sufficient cereal grains, including oilseeds and wheat to meet the demand of half of the nation's domestic demand. The north African country relies on big volumes of huge, subsidized imports to ensure affordable supplies of vegetable oil and bread for its million citizens. Getting these supplies has made Egypt become the largest importer of wheat in the world and one of the top 10 sunflower oil importers in the world. In the same vein, the ongoing conflict has instigated prices in Egypt to unsustainable levels. It has caused the increase of wheat by an extra 44% and sunflower oil by 32% overnight. 

The war is also threatening Egypt's physical supply. About 85% of the nation's wheat emanates from Ukraine and Russia, with 73% of the sunflower oil. What's more, the Ukraine-Russia fracas has stopped activities at Ukraine's ports. Consequently, Egypt needs to get alternative suppliers. Apart from the economic sanctions on Russia, more escalation that would stop all exports in the Black Sea can remove Russian supplies from the market, leading to catastrophic effects.

Egypt still has 4 months of wheat reserves that can meet its domestic wheat challenge. However, it should take a quick and decisive measure that will mitigate any major wheat challenge as a result of the war. Conclusively, Russia is the largest wheat exporter globally. Ukraine is the 5th largest. They both account for a total of 30% of world wheat exports. This means that there would be an increase in prices and scarcity.

It's all left for the Egyptian government to quickly discuss importing or getting wheat from other nations to diversify its wheat imports. The government should have a strategic stockpile of wheat that would be enough for at least 5 months while increasing the strategic stock of remote or local production.

Reference

·        CAPMAS

·        africanews.com