When Russia invaded Ukraine on February 24, it was internationally considered a war of aggression.
The invasion is the largest conventional military attack on a European state since World War II.
Up to now, a big number of Kenyans are still not aware of the reasons for the invasion, and why the war is being blamed for the skyrocketing costs of living in the country.
According to experts, the Russian leader's initial aim was to overrun Ukraine and depose its government, a move that would end its desire to join the Western defensive alliance Nato (The North Atlantic Treaty Organisation).
When Russia sneezed, global crude oil prices soared to a near 14-year high of $140 per barrel, before easing.
The impact has caught up with Kenyan motorists, industries and households as petrol and diesel prices increased by Sh5 in this month’s review. A litre of petrol is now retailing at an average of Sh134.72 in Nairobi, while diesel is Sh115.60 at the pump.
Kerosene, used by low-income households for cooking and lighting, is now Sh105.54 a litre.
During the review, the Energy and Regulatory Authority (EPRA) said the cost of importing the finished products had doubled, affecting the landed cost at the Port of Mombasa.
Without the government subsidy to cushion consumers, they would be paying Sh155.11 for a litre of petrol, Sh143.16 for a litre of diesel and Sh130.44 for kerosene.
On Tuesday, the Central Bank of Kenya’s Monetary Policy Committee (MPC) said there is an increased risk of inflationary pressures.
“The global economic outlook remains uncertain, reflecting the ongoing Russia-Ukraine conflict that started at the end of February,” CBK governor and the MPC chair Patrick Njoroge said.
Financial market volatility has increased amid adjustments in monetary policy in advanced economies.
The global economic outlook remains uncertain, reflecting the ongoing Russia-Ukraine conflict that started at the end of February
HIGH FOOD PRICES
Global prices of commodities such as wheat and fertiliser have risen sharply as a result of supply disruptions, adding to the already elevated global inflationary pressures.
Kenya is reliant on Russian and Ukrainian wheat entirely in the second half of the year. Other source markets such as Argentina and Australia harvest in December.
According to the Cereal Millers Association (CMA)-Kenya, both Ukraine and Russia are key exporters of grain, accounting for 33 per cent of global wheat supplies,
“The war between Russia and Ukraine has affected global prices,” CMA chief executive Paloma Fernandes told the Star.
Depending on the availability of wheat, prices are projected to cross $500 (Sh56,950) per tonne, which would translate to $550 (Sh62,645) per tonne landed in Nairobi.
The Kenya Association of Manufacturers says a 400g loaf of bread could go up from Sh55 to between Sh60 and Sh67.
"Undeniably, the Russia-Ukraine conflict shall affect the cost of production in Kenya and further increase the cost of living in the country," KAM chief executive Phyllis Wakiaga said.
Cooking oil has become a luxury to some homes as prices triple in the past two weeks.
A joke has been making the rounds on social media that it is has become so valuable that one can easily propose, or win a wife, with a jerrican of the cooking oil.
But why the jump in price?
Golden Africa, dealers in cooking oil with brands such as Avena and Pika, says the shortage in the supply of sunflower has forced manufacturers to produce cooking oil and fat solely from crude palm oil, of which Indonesia and Malaysia combined produce more than 90 per cent of global supplies.
Ukraine is the largest exporter of sunflower oil globally, responsible for up to 46 per cent of sunflower seed and safflower oil production. The second-largest producer is Russia, which exports about 23 per cent of the world’s supply.
An alternative, Soybean oil, was also affected by the two-year drought in Argentina and Brazil due to La Nina.
Malaysia posted weak production over the last six months, with December last year being one of the biggest month-on-month tumble in a year thanks to the heavy precipitation and flooding as well as labour shortages.
This has left the world dependent almost exclusively on Indonesia, which has enforced a 20 per cent retention of all planned palm oil exports to be sold domestically.
Crude palm oil prices rose to above $1,980 (Sh227, 601) per metric tonne in the first week of March, from $1,400 tonnes (Sh160,930) before the war. They were at a low of $700 (Sh80,465) per tonne pre-Covid.
“Locally, Covid-related factors had already caused a jump in the price of a 20-litre jerrycan from Sh2,200 to Sh4,500 in under two years,” Golden Africa general manager Abdulghani Al-Wojih says.
“After the invasion, the price shot up to Sh5,100 in under a week.”
FERTILISER FACTOR
Global DAP fertiliser prices increased by 25 per cent in the first week of March, with the impact expected to be felt in Kenya from this month.
It is currently going for an average of Sh5,600 per bag, up from Sh2,500 a year ago.
Freight costs have also increased as a result of disruption in the supply chain.
For example, importing a container to Kenya now costs an average of $10,000 (Sh1.1 million) from $1,500 (Sh172,425)
Elgon Kenya Limited, which deals in agri-inputs, recently warned of a major shortage and price jump in the next two months if sanctions and global supply disruption continue.
Elgon's catalogue includes agriculture chemicals, fertilisers, seeds and irrigation equipment.
Managing director Bimal Kantari says fertiliser prices could go above Sh7,000 for a 50kg bag.
This is on increased costs and a shortage of nitrogen ( gas) a component in fertiliser making.
“We currently have enough but we are going to have a big shock in the next three to four months,” said Kantari, who also chaired the Agriculture Sub-committee at Kepsa and KAM.
An increase in the cost of fertiliser means food prices will also rise.
This, adding to the cost of manufacturing, high cost of raw material and increased cost of transport, means households will have to dig deeper into their pockets to afford meals and other commodities.
To mitigate the situation, the government has subsidised fertilisers by more than 50 per cent of the existing price, capping their cost at Sh3,000.
Early this month, the Kenya Transporters Association (KTA) asked its members to review by a minimum of five per cent transport cost, with the spiral effect likely to be felt in many sectors.
"This is in response to the recent increase in fuel landed costs and the depreciation of the Kenya shilling,'' KTA chairman Newton Wang'oo said in a statement.
The cost of construction has also gone up significantly, leading to the stalling of projects by individuals and institutions.
The rising cost has been attributed to a disruption in the global market by the Russia-Ukraine crisis, and the weakening shilling, with some cement, steel and paint firms announcing a price surge of at least two per cent.
The price of a bag of cement has gone up by at least Sh300 in the past two months, from an average of Sh600 to Sh900. In some areas, the prices have jumped above Sh1,000.
TOURISM AND CARS
The tourism sector, which was slowly picking up from the impact of the pandemic that brought global travel to a near stop in 2020, has suffered a setback.
Industry players are wary of the impact of travel cost, which has been driven up by the rise in global oil prices, the rising inflation, the Russia-Ukraine war and reduced disposable income among households.
The players include the Kenya Association of Hotelkeepers and Caterers and the Kenya Coast Tourism Association.
For instance, Mombasa has been receiving a direct charter flight from Ukraine every 10 days, bringing in about 200 guests.
This has since stopped. Other charter markets affected are Poland and Romania.
The industry has been surviving on domestic tourists, whom Tourism CS Najib Balala says remain key in cushioning the sector.
Car prices have also risen and are expected to remain high for at least the next one year, occasioned by global factors such as the war in Ukraine, which has affected production of semi-conductors, the cost of shipping and reduced production, which has seen owners hold on longer to their units.
“People are holding on to their used vehicles longer rather than trading them in every five years, as has been the case for many,” says Jojo Hemi, president and CEO of IBC Japan, a leading exporter of cars to Kenya.
“This is because of the reduced supply in the market, which is affecting prices.”
There is also increased demand for used cars in the Japanese market itself, which is the source of more than 80 per cent of Kenya’s imports.
These factors have pushed up prices by about 20 per cent in the Kenyan market.
For instance, a Mazda Demio, which used to go for about Sh550,000, is now costing Sh750-800,000.
Toyota Probox has hit Sh1 million from as low as Sh550,000.
A seven-year-old Prado, which used to go for between Sh4.3 million and Sh4.5 million, is now selling at about Sh5.5 million.
“The prices are expected to rise further if owners continue holding on longer to units, not taking them to the auctions,” says Steve Otieno, director at Ziara Special Economic Zone, Nairobi.
“Secondly, the effect of the war (Russia-Ukraine) has not even been felt yet.”
REASON FOR HOPE
Leading indicators point to a strong performance of the economy supported by robust activity in information and communication, wholesale and retail trade, transport and storage, and manufacturing sectors.
The CBK says inflation, a measure of the cost of living, is expected to remain anchored within the target range (2.5-7.5), supported by the government’s policy interventions.
The economy is expected to remain resilient, supported by recovery in agriculture and continued strong performance of the services sector despite the downside risks to global growth in 2022.
Three surveys conducted ahead of the MPC meeting — Private Sector Market Perceptions Survey, CEOs Survey, and the Survey of Hotels — found continued optimism about business activity, employment, and economic growth prospects for 2022.
The optimism is attributed to reduced Covid-19 infection rates, anticipated favourable weather conditions, and increased infrastructure spending.
Nevertheless, respondents were concerned about the impact of the Russia-Ukraine conflict on commodity prices and supply chains, in addition to the increased political activity.
The Survey of Hotels found continued recovery in the sector, with a majority expecting a return to pre-pandemic level of operations by the end of 2022.
Economies, both in Africa and different parts of the world, are hoping that Russia and Ukraine reach a truce that will end sanctions and pave way for recovery.
