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IMF, Moody's warn Russia-Ukraine conflict will impact economies

Kenya's tourism sector likely to be affected.

In Summary

•The impact of the conflict was last week felt at the Nairobi Securities Exchange as investors lost Sh93 billion in paper wealth within a day.

•An increase in global oil prices will impact consumers in the country, as Kenya remains an importer of refined products.

Ukraine tourists arrive in Mombasa for holiday last year/
Ukraine tourists arrive in Mombasa for holiday last year/

The International Monetary Fund (IMF) has warned that the conflict between Russia and Ukraine poses a global economic risk, that could derail post-Covid 19 recoveries by countries and regions.

This comes as the impact starts to be felt across economies, with global fuel prices hitting a high of above $100 per barrel last week, which will increase the cost of transport, manufacturing, and ultimately the cost of living.

Moody's analytics notes significant escalation of the Ukraine-Russia conflict rattled equity markets and led to an increase in global oil prices, which likely had some risk premium already embedded.

“The conflict will have a significant impact on economic growth in Eastern Europe, as it is the most reliant on Russian imports. The effect on the US economy is tied to equity markets and oil prices,” Moodys said.

In Kenya, investors at the Nairobi Securities Exchange (NSE) on Thursday lost Sh93 billion as global stocks plunged on Russia’s invasion of Ukraine.

This is termed the biggest single-day loss in over two years.

With an average market capitalization of Sh2.546 trillion at the start of the week, NSE closed at Sh2.453 trillion on Thursday, as foreign investors who have traditionally been keen on blue-chip companies sold shares.

On Friday, the NSE 20 share index, which tracks the 20 most valuable companies, was down 33.09 points to stand at 1883.33.

All Share Index (NASI) shed 6.94 points to settle at 160.03 while the NSE 25 share shaved-off 120.01 points to settle at 3635.88.

An increase in global oil prices will impact consumers in the country, as Kenya remains an importer of refined products.

It is expected to affect pump prices, pushing up the cost of living for Kenyans who are already taunting the government over skyrocketing prices of goods in the market.

The government has in the past four months used the fuel subsidy kitty to manage fuel price increases. A significant jump in global prices will however dampen the efforts and could lead to increases.

The war also poses a threat to Kenya’s tourism sector as Ukraine was among new markets the country was looking to tap into in post-Covid recovery.

Ukraine had shown potential in recent months with chartered flights flying direct to Moi International Airport in Mombasa.

According to Tourism CS Najib Balala, Charter flights are key in boosting tourism during the pandemic.

He said this during the reception of the first-ever flight from Ukraine, Kiev, to Mombasa, in April last year, a time when the county government signed a Sister City Agreement between Mombasa and Ukraine, Odessa city.

The flight had brought in 189 passengers of which 21 were travel agents who had come for product knowledge and to sample Kenyan tourism products and offerings, to help them effectively sell the destination to consumers in their country.

The Ukrainian market presents an opportunity to push beach and wildlife products that resonate well with the consumers from the country, according to the tourism ministry.

International arrivals from Ukraine have been incremental over the last few years with Kenya receiving 1,523 visitors in 2017 and 1,892 visitors in 2019.

The country was targeting at least 5,000 Ukrainian tourists this year.

Beyond Ukraine, the repercussions of the conflict pose significant economic risks in the region and around the world, IMF has affirmed.

"We are assessing the potential implications, including for the functioning of the financial system, commodity markets, and the direct impact on countries with economic ties to the region,” IMF managing director Kristalina Georgieva said in a statement.

She added:“We stand ready to support our members as needed, in close coordination with our international partners.”

She has termed the events in Ukraine “a matter of grave concern”.

“First and foremost due to the human toll and suffering of ordinary people. The conflict is also having a serious economic impact, which will worsen the longer it continues,” Georgieva said.

The crisis, she said, comes at a delicate time, when the global economy is recovering from the ravages of the Covid-19 pandemic and threatens to undo some of the progress made.