BY: ONOME AMUGE
Commodity prices are skyrocketing globally as Russia’s invasion of Ukraine continues to keep markets roiling, with agricultural products surging beyond projections, metals setting record highs, while oil and energy prices race towards highest valuations, altering the contours of policy making and corporate strategy globally.
Given Russia’s colossal position in the pricing of major global commodities such as aluminium, nickel, wheat, natural gas, crude oil, as well as concerns over shortages in energy, metals and the agricultural space, the world could be “sleepwalking into a recession,” MUFG, a global financial group, stated in its commodities weekly report.
With Western entities exiting Russia and the imposition of more stringent sanctions on the world’s largest country, the permanency of the bullish pivots across all commodities remains a central focus as prices sway towards inflationary pressure due to supply disruptions.
In an assessment of the potential effect of the geopolitical crisis on Nigeria’s domestic market, Paul Alaje, senior economist at SPM Professionals, an economic development research firm, explained that Nigeria, being a top producer of crude oil, is supposed to generate more revenue as the crisis has led to a sporadic increase in the cost of crude per barrel of which Nigeria produces about 1.8 million barrels a day.
Alaje, however, bemoaned that Nigeria is not prepared for gains as the country is a net-importer of petrol, which means that Nigeria will be forced to spend more on fuel importation which will in turn drive up local commodity prices and production costs.
“Government used to spend about N1.8 trillion on fuel subsidy payments, and will [now] be forced to spend more due to the increase in PMS and Nigeria’s negative exchange rate,” he added.
The economic analyst warned that if the situation between Russia and Ukraine is not urgently resolved, it is likely to lead to sporadic inflation in Nigeria with inflation figures rising to 18 percent in the next six months.
Sharing a similar sentiment, analysts at financial services group, Cordros Capital, opined that the impact of a prolonged Russian-Ukraine crisis will primarily impact inflation, the external sector account, and fiscal policy for the domestic economy.
They explained that the imminent upsurge in petrol import and subsidy bill has inflationary implications across sectors and the situation may worsen if the conflict escalates as it would affect cost of production, profit margins, purchasing power and may further worsen living conditions of the average Nigerian.
Commenting on the impending impact of the crisis on food commodities, Aliko Dangote, chairman of Dangote Group, one of Africa’s largest conglomerates, said it is likely to lead to food scarcity in Africa’s most populous country within the next two to three months.
Dangote, while speaking at the recent annual Nigeria food processors and nutrition forum held in Lagos, explained that Russia and Ukraine produce 30 percent of the world’s urea, 26 percent of global potash and a significant amount of phosphate; major ingredients used in the production of fertilisers.
According to him, the scarcity of these products in the global market due to the conflict will consequently lead to a decline in the production of food products, especially wheat, maize and other staple foods.
Dangote further noted that the effects of the crisis are already being felt in the food processing chain as prices of fertiliser, wheat, maize, among other products, have already soared and are likely to surge if both countries fail to reach a ceasefire agreement.
To avert the impending food crisis in Nigeria, the business mogul advised export authorities to immediately halt the ongoing export of maize by some Nigerian producers/marketers.
He also called on the Nigerian government, food processors and stakeholders in the food production value chain to urgently meet and seek ways towards addressing the impending food crisis.
“Right now, you start seeing people exporting maize to earn foreign exchange, which I think we need to stop, so that we don’t create a shortage; and we need to make sure we grow more so we don’t have a shortage. It is about food security, and it is very, very serious,” he said.
According to the business mogul, the government and food processors and other concerned parties need to urgently sit at a round table to seek ways towards averting the impending crisis.
Boye Olusanya, chief executive officer of Flour Mills of Nigeria, who spoke in the same vein, expressed concern that Nigeria’s food production sector will be affected by the Russia-Ukraine crisis.
Olusanya stressed that Russia and Ukraine occupy the first and fifth spots respectively in global wheat exportation, describing their production volume as almost one-third of global output.
He also observed that the prices of wheat have risen so far and there is a lag that comes due to inventory control, adding that it has become imperative that industry players meet with the government to discuss what measures can be put in place to alleviate the situation.
The Flour Mills CEO spoke further on the devastating impact of the conflict on fertiliser production, noting that the impact is not short term and could linger over a year to 18 months.
“When you look at all that and what then happens in pricing, obviously, if we don’t manage this well, there will be significant volume compression, in terms of material that comes in and therefore the volume of food that is sold,” he said.
The latest foreign trade data released by the National Bureau of Statistics (NBS) showed Russia as Nigeria’s sixth largest trading partner.
According to the NBS, Nigeria imported N339.19 billion worth of goods including, durum wheat, fertiliser, iron, steel and mineral fuels from the transcontinental country, representing 4.16 percent of Nigeria’s total trade in the third quarter of 2021.
The NBS data further showed that Nigeria imported durum wheat worth over N128.1 billion between January to September 2021, reflecting Nigeria’s high dependency on Russian wheat.
Commenting on the geopolitical crisis, which has led to multi-year highs in the global wheat market, the Association of Master Bakers and Caterers of Nigeria (AMBCN), said the current situation will definitely lead to an increase in the prices of pasta, bread, cake and other confectioneries, leading to food inflation.
The association further projected that flour millers could capitalise on the situation to increase prices by hoarding the product to induce artificial scarcity.
AMBCN called on the government and players in the sector to intensify the usage of cassava flour as a substitute for wheat flour, noting that the move is capable of saving the country billions of naira.
