Ukraine: Commodity prices benefit Mozambique but food becomes more expensive – consultant

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Ukraine: Commodity prices benefit Mozambique but food becomes more expensive – consultant

2:28 CAT | 30 Mar 2022

in file CoM

Consultancy Oxford Economics Africa said on Tuesday that the impact of the war between Russia and Ukraine benefits Mozambique due to the increase in the price of commodities, but risks an increase in food costs.

“The sharp rise in the prices of certain commodities following Russia’s invasion of Ukraine will increase Mozambique’s export earnings, but the high price of food in a country already affected by extreme poverty and food insecurity increases the risk of protests over food and the reintroduction of more comprehensive subsidies,” analysts say.

In a note sent to Lusa about the impact of the war in Mozambique, the consultancy writes that, although Mozambique does not have significant trade with any of the countries in conflict, “almost 18% of fertilisers, 15% of wheat and 11% of cooking oil come from these countries”.

“Although Mozambique’s exposure to imports from these countries is relatively low, compared to other African countries such as Egypt or Morocco, the global prices of these commodities, together with the prices of other agricultural products such as fuel or flour, have risen exponentially due to the conflict,” analysts point out.

The rise in these prices will keep inflation in Mozambique high, with Oxford Economics Africa anticipating a figure close to 10% by the third quarter of this year, “which will have a huge impact on global inflation, as food and non-alcoholic beverage prices are worth almost 34% of the price basket”.

This, in fact, leads analysts to increase the forecast for inflation in Mozambique to almost 9% this year, compared to the 7.3% previously forecast.

With regard to exports, despite the fact that sales to Russia are small, “the prices of the main exports, namely coal, refined aluminium and titanium, in addition to oil, have risen a lot in recent weeks, representing 60% of goods exported globally in 2021, which were already on the rise even before the conflict”.

The consequence, they conclude, is that the value of exports in US dollars of Mozambican raw materials is expected to rise to US$9.2 billion, a 40% increase on analysts’ forecast at the beginning of the year.

Leaving public finances aside and looking only at the domestic situation, Oxford Economics Africa points out that the outlook is not positive. “The increase in exports and government revenues due to higher commodity prices led us to increase GDP growth estimate from 2.4% to 3.2%, but we have to underline that a higher GDP does not necessarily equal more wealth in families,” they warn.

“Mozambican consumers are very dependent on food subsidies and will, therefore, get worse with higher food prices,” they say, recalling that in 2010 there were deadly demonstrations and large protests when the government decided to end food subsidies.

“With food inflation expected to reach a level similar to 2010 and government forces already stretched to fight Islamic extremist rebels in the north, there has been an increased risk that protests against rising inflation, if that happens, could put pressure on the government. to use raw material revenues to re-apply subsidies to food and fuel,” they conclude.

On February 24, Russia launched a military offensive in Ukraine which has already killed at least 1,179 civilians, including 104 children, and injured 1,860, including 134 children, according to the latest UN data, which warns of the likelihood of the real number of civilian casualties being much higher.

The war caused the flight of more than 10 million people, including more than 3.9 million seeking refuge in neighbouring countries and almost 6.5 million people internally displaced.

The UN estimates that around 13 million people are in need of humanitarian assistance in Ukraine.

The Russian invasion has generally been condemned by the international community, which responded by sending weapons to Ukraine and imposing economic and political sanctions on Moscow.

Source: Lusa