Nigerians may think the country cannot be affected by the ongoing war between European neighbours, Russia Ukraine, but that is far from the truth.
While Nigerians can be sure the country won’t be hit by a Russian missile because of the distance between the two countries, Nigeria is not in any way immune to the ripple effects of this war that has the global community concerned.
Nigeria May Lose Petro-Dollar Windfall From Crude Price
As crude price surged to a new high of over $103 per barrel last week, amid the ongoing Russia-Ukraine war; Western sanctions barring Russian banks & companies’ access to U.S. dollars and British pound Sterling, there is palpable fear amongst experts that Nigeria may not benefit from the multi-billion petro-dollar accruals from the price volatility.
According to Professor Keneth Ife, faculty member at NDA and CBN Programmes facilitator, whatever Nigeria may stand to gain from the current global tension, in terms of windfall, may either go up in flames or go down the drain in the hand of the Nigerian National Petroleum Corporation, NNPC.
About $12.4 billion oil windfall accrued to the country during the Gulf War in 1991 as international oil price flared to an unprecedented levels.
Giving reasons for his fear, Ife said: “The price of Brent crude has jumped above $100 now to about $103 per barrel. So the more tension now, the more the price of crude oil is going up. And Nigeria cannot enjoy the windfall because NNPC is doing crude swap arrangement with all these countries refining for us; they will send crude oil directly to all these international companies refining for us and then take PMS back. So we are not getting the $3billion every month they say NNPC was selling. If we are getting that money for the whole of 2021, there would have been a lot of Dollars around to calm down the exchange rate. But NNPC cornered all that. So if it increases now, we won’t see it. They would now tell us that the subsidy has gone up to N10billion.They just resort to burning the money that comes from that crude. So it (crude price) will be rising and we will be in pain.”
On the waves of sanctions that hit Russia from the Western world in the wake of Ukraine invasion, Ife ruled out the possibility of negatively impacting Nigeria. He reasoned that Nigeria, being a non-aligned nation, does not hold Russian currency in reserves; nor does Russia buy oil from us. They are exporter of oil just like we are exporting.”
He added: “At bi-lateral level, there is nothing to worry about. The people that are really warning about this war are members of NATO. NATO are the ones taking these sanctions against Russia. And, of course, led by America. They are the ones applying sanctions.
“If there are any reactions by Russia, they are targeted at those countries that are closing down their contracts and revoking landing rights of their airlines and those stuffs. I think Nigeria has not gotten to that stage yet.
“What may happen is that if Nigeria has projects that Russia is committed to, and if the projects are going to be funded through a dollar-dominated loan, then that loans would face some challenges. But Nigeria’s central bank may decide to do a currency swap arrangement with Russia and we would start trading between ourselves without bringing Dollars into it, just like we are doing with China by bypassing dollar.
“But if Nigeria does what Ghana is doing by openly condemn Russia, it would just put the arrangement between Nigeria and Russia in the cooler. And they will get back at us at the United Nations. And, again, we will be watching how the African Union would vote when the Russia-Ukraine matter comes up at the AU.”
Capital Inflow Into Nigeria May Reduce As A Result Of Russia, Ukraine War
According to analysts, Russia’s invasion of Ukraine is capable of creating uncertainty in the Nigerian stock market and dampening investors’ appetite.
Speaking in a telephone interview, a professor of the capital market, Nasarawa State University, Uche Uwaleke, said aside from uncertainties, the conflict would negatively impact capital importation and reduce foreign investors’ patronage.
He said although the market closed upbeat at the end of trading on Thursday and Friday, he argued that investors are conscious of uncertainty that the tension could generate and would adopt the ‘wait and see’ strategy.
“The scale of the involvement in the war is huge, it will create global market shock, which is already, happening and this would affect the nation’s stock market. Already people are beginning to say that this could lead to third world war,” he said.
A professor of economics at Olabisi Onabanjo University, Sheriffdeen Tella, said the war may not affect the market directly. He said as it affects the international capital markets, there will be negative effects on Nigeria.
Global stocks came under intense selling pressure last week, as investors were spooked by the escalation of the tensions arising from the conflict.
However, investors’ worries eased late in the week following the West’s decision not to exclude Russia from the international interbank payments system.
Price Of Bread In Nigeria May Rise As A Result Of Russia/Ukraine War
The price of bread, one of the most commonly eaten staples in most Nigerian homes is set to rise if the current Russian-Ukrainian war persists.
Russia is the world’s largest exporter of wheat, accounting for more than 18 per cent of international exports.
The downside to the war is that if supply from Russia is distorted for whatever reason, Nigeria could be faced with further surging wheat prices in its local market as a result of the supply gap, which could lead to an increase in the price of some other by-products of wheat, such as bread, wheat meal amongst others.
The price of bread was increased by more than 80 per cent between 2020 and 2021.
In 2020, the Association of Master Bakers and Caterers of Nigeria (AMBCN) had hinted at a 50 per cent increase in the price of bread citing the surging cost of raw materials and COVID-19 impact.
According to the Central Bank of Nigeria (CBN), wheat is the third most widely consumed grain in the country, with its local production only accounting for just 1% of the 5 to 6 million metric tons consumed annually, with the country relying on importation to meet local demands.
The demand-supply gap has necessitated the spending of over $2 billion on wheat importation annually, representing the second-highest contributor to the country’s food import bill.
A cursory glance at the foreign trade report from the National Bureau of Statistics (NBS), Nigeria imported goods valued at N813.19 billion (over $2bn annually) between January and September 2021, representing 3.7% of Nigeria’s total import in the same period.
A further look at the data shows that Nigeria imported durum wheat worth over N128.1 billion in the 9-month period of 2021, while it recorded a N144.14 billion durum wheat import in the previous year.
Also, Nigeria imports different types of seafood from Russia, some of which include mackerel, meat, herrings, blue whiting, other fish, all in frozen form.
It is also worth noting that Nigeria imported vaccines for human medicine from Russia in Q4 2020.
In 2019, Russia and Ukraine together exported more than a quarter (25.4 per cent) of the world’s wheat, according to the Observatory of Economic Complexity (OEC).
In the event of outright aggression, the flow of wheat and grain could be disrupted. Economic sanctions or military action could have a significant effect on the cost of food as importers seek to find alternatives.
Ukraine is the fifth largest exporter of wheat, accounting for seven per cent of sales globally in 2019.
Speaking exclusively with Daily Trust, the president of AMBCN said the current situation will definitely lead to an increase in the prices of flour.
He said: “Flour millers are happy to hear of things like this because they will capitalise on it to increase prices by hoarding the product to induce artificial scarcity.
“We are in trouble. I wish we were ready with the cassava flour at least, we can substitute with up to 10 per cent and that will save this country billions of naira.
“As we speak, a major distributor of one of the brands has announced a N100 increase from Monday.” Read more