November 01, 2024
Economy

How the Russia, Ukraine conflict impacts Namibia

March 03, 2022
How the Russia, Ukraine conflict impacts Namibia

If you are wondering how the Russia, Ukraine conflict, which is 13 000 kilometers away, will impact you in Namibia, wonder no further. Simonis Storm Economist, Theo Klein, unpacks the impact. Below is his analysis.

Food and beverage

Namibia has experienced significant annual price increases in some of the food products in which Ukraine is a large global producer or exporter of. For example, cooking oil prices have increased by 21.4% on average in Namibia in the last year alone.

Food production and exportation in Ukraine is likely to be disrupted with the ongoing resistance battle against Russia and thus Namibia can expect to see higher prices in bread, corn, baking flours, honey, beverages in aluminium cans, cheese, cooking oils and many other products.

Global beer producing countries are likely to scramble for barley from other countries if risks to barley production in Ukraine amount. This will increase global prices of barley - leading to higher beer prices. Namibia currently does not have any barley producing operations and therefore remains vulnerable to global barley prices, this could lead to an increase in beer production costs and ultimately higher consumer prices for different beer products. With the above-mentioned risks to global food prices, it could be that local inflation in Namibia surprises to the upside and surpasses our forecast of 4.7% for 2022.

International trade

Trade between Ukraine and both Namibia and South Africa is about 0.07% of total SACU member states imports. Therefore, in light of a war in Ukraine and reduced exports to SACU members as a result of economic disruptions, we do not see a material impact on SACU revenues received by Namibia.

Commodities

As a result of the invasion, global oil prices have surged to levels last seen in 2014 and economists now believe that elevated oil prices will derail the pandemic economic recovery in developed countries, which could negatively impact Namibia’s exports, limiting growth in sectors reliant on trade with developed countries and foreign currency reserves with Bank of Namibia.

Transport

Extensive conflict or blockade of the Black Sea area would severely impact trade of agricultural commodities amongst other products. This would also inflate transport costs in the region as countries try to reroute trade shipments around the Black Sea. This in turn could disrupt global supply chains, leading to higher logistics costs of imports for the rest of the world, including Namibia.

If global oil prices remain elevated or continue to rise (which is more likely), then Namibians can expect higher fuel prices in the coming months, potentially reaching levels of N$18 to N$20 per litre.

Financial markets and investment portfolios 

All Namibians who have pension funds with their employers would be impacted by the negative global stock market movements in recent weeks. However, with the additional pension fund contributions in the last 3-months, Namibian pension fund managers had opportune buy-in or entry points to purchase additional foreign stocks at lower prices. In the long run, this will prove a benefit to Namibian pension funds as stock markets tend to rally strongly after an invasion has taken place. The same can be said for any Namibian investor who holds a certain portion of their investment portfolios in offshore stocks.

In conclusion

The Russian invasion on Ukraine imposes potential significant risks to Namibia. The biggest of these potential impacts include the global oil price shock, which has inherent risks to economic recovery and inflation in Namibia. Adding to financial burdens on pressured household budgets and corporates in Namibia. Food price inflation on basic food staples will worsen food insecurity.

There are a few positive effects to Namibia as discussed earlier, but the mining sector stands out and would improve GDP growth figures for 2022, if the miners can ride the commodity price wave.

Lastly, if history repeats itself (as it so often does) the current stock market environment presents good buying opportunities to investors.

 

 

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Last modified on Friday, 04 March 2022 18:28
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