Such a protracted and escalated conflict creates crises outside of Ukraine and Russia. North Africa is a perfect microcosm of how this conflict has created both political and economic dislocation beyond the borders of Europe.
The conflict is aggravating a food crisis in the region, as Ukraine and Russia are the main exporters of agricultural products to North Africa, while forcing countries to do a geopolitical dance to avoid choosing sides, especially when countries have military and diplomatic ties with either Russia or the United States, or sometimes both countries.
The conflict also presents opportunities for exporters who can fill gaps in the global supply chain, particularly energy…but again, these gaps are the result of economic and political challenges, political challenges not being never so easy to solve.
Algeria: Who needs more gas?
Europe’s rush to wean itself off Russian energy will benefit Algeria with its large gas reserves. Given its proximity to Europe, Algerian leaders and Sonatrach officials were on the shortlist of calls in the early days of the conflict in Ukraine.
The United States also took the initiative to meet Eni and Total among other companies operating in Algeria in the first weeks. One of the results of targeted European and American efforts was Italian Prime Minister Mario Draghi’s announcement last week of an agreement with Algeria to increase the flow of gas to Italy through the Mediterranean pipeline.
The deal could be the start of Qatari-style leadership from Algerian President Abdelmadjid Tebboune whose administration maintains close diplomatic ties and military alignment with Russia while willing to increase the flow of Algerian gas to Europe. .
Such business pragmatism could yield significant long-term economic and political benefits. Moreover, with European officials floating the idea of a gradual ban on imports of Russian energy sources, Algeria would be better advised to present itself as the neutral and commercially savvy partner of European countries in need of energy.
Such a positioning would be a great geopolitical victory for the Algerian leaders. Ironically, this positioning depends on its former colonizer, France, as European officials are reluctant to proceed with the import ban and actually vote on the measure until they know who wins the second round of elections in France. .
Egypt: Food inflation, tourism at a loss and political dance
According to the story, no meal in Egypt feels good without some bread. Subsidized bakers across the country offer 20 Egyptian flatbreads aish baladi for one Egyptian pound, or about $0.6.
The bread costs about $0.50 to $0.60 to make; therefore, the state’s bill for the tasty pita is not small at around $3.0 billion per year. And as the other story goes, no sane Egyptian politician has the chance to retain power if he makes this grant the target of his financial frustrations.
President Anwar Sadat once dared to scrap the bread subsidy in 1977 and backtracked after the army had to put down riots in the streets. So the ultimate question is how much the wheat (and indeed bread) price subsidy will cost the government.
Egypt also cnot escape the global partnership agreement signed in 2018 with Russia to strengthen trade and other relations between the countries.
It was this treaty (and discussions related to it) that led to the resumption of direct flights between Russia and Egypt, which had been suspended after a bomb planted by the Islamic State shot down a plane. aircraft over Sinai in October 2015 and killed 224 people on board.
Today, Egyptian tourism, which accounts for 12% of GDP, is heavily dependent on the influx of Russian and Ukrainian tourists who won’t be returning any time soon.
The end result is huge economic loss as the war continues. As for the political situation, there is no better example of a country stuck in the middle as a major ally of the West, especially the United States, and also a major beneficiary of ties with Russia. , especially militarily where Russia supplies about 30-40% of Egyptian weapons.
Let’s see how Egyptian leader Abdel Fattah al-Sisi plays his part in this situation. Ideally, a winning hand pays financial dividends.
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Libya: rich in oil, but commercially engaged with Europe?
Europe is not just looking for gas; he could use a partner to help replace Russian oil. But Libya, which has Africa’s largest oil reserves (plus a significant amount of gas), is mired in an ongoing internal conflict, which is plagued by a nasty mix of Russian mercenaries and Russian money ( as well as money from the United Arab Emirates and Saudi Arabia) supporting General Khalifa Haftar and American forces and money supporting the UN-backed government and its efforts to hold an election.
It should come as no surprise, then, that Libya’s oil minister was quick to announce last month that he did not have “sufficient reserves to make a difference” in global supply.
It was a strategic exit from a conservation for a tainted country by its own political uncertainty. That said, if Libya cannot seize the oil opportunity, it certainly cannot avoid the pain caused by the conflict in Ukraine. Food prices in Libya are rising as the country imports around 75% of its wheat from Russia and Ukraine.
It can’t trade oil for wheat if it really doesn’t have the reserves to do so and if it can’t capture the windfall in oil prices. In the most optimal situation, oil windfalls would pay for food inflation (creating a quasi-neutral position if possible. Unfortunately, the situation in Libya has not been optimal for some time.
Morocco: Remain calm and remain neutral as long as possible
Morocco is the odd child of this group, offering no energy resources and not exactly doing the political dance. Instead, Morocco is allowing Russian airlines, Azur Air and Nordwind, to stopover in Morocco with sanctions requiring those airlines to choose different routes to complete certain trips and avoid plane resumption.
Morocco adopts a neutral position in this conflict. Moroccan leaders also want to avoid any conflict with Russia, with which they continue to forge better relations and which they consider to be the main ally of their quasi-sworn enemy, Algeria.
Yet neutrality can only go as Morocco relies heavily on grain, mineral and energy imports from Russia and increasingly faces domestic budget constraints as the prices of its main imports continue to rise.
Morocco’s state-owned OCP, which is the largest exporter of raw phosphate, has a healthy and growing fertilizer business and could capture additional market share with declining exports for Ukraine and Russia , but soaring gas and ammonia input prices are likely to thwart any efforts to boost production. . Therefore, expect Morocco to stay put and avoid stirring the pot.
Tunisia: oil imports and food inflation
Tunisian President Kais Saied is sending a delegation to meet with the IMF to, as political analysts note, cover holes created by Covid-19 and further exacerbated by rising food and oil prices.
Tunisia, both a major importer of cereals and energy, faces economic challenges amid political turmoil. President Saied has dissolved parliament and has already proposed economic reforms (seen as a precursor to his discussion with the IMF) that Tunisia’s UGTT union warns will lead to future strikes and protests.
Tunisians have been stocking up on food in anticipation of the end of the Ramadan period when food consumption increases, so the country’s supply is strained.
Unsurprisingly, as supplies of wheat become tight (Tunisia depends on Russia and Ukraine for about 60% of its supply) and supplies of semolina (the main ingredient in couscous) run out, President Saied could face a situation where worker protests are accompanied by empty supermarket shelves.
Rising energy costs just add fuel (no pun intended) the frustration of Tunisians. Tunisians should also prepare for a drop in tourism during the summer with a drop in tourists expected from Russia and Ukraine. This situation could eventually become a toxic political and economic cocktail for President Saied. For now, Tunisians are not exactly pointing the finger at President Saied but blaming Covid-19, global supply, war, etc. which may be the only thing preventing major social unrest.