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Russia-Ukraine war tremors rock Zimbabwe economy

by Staff reporter
11 Mar 2022 at 18:14hrs | Views
TREMORS from the Russian invasion of Ukraine are spreading across the world as well as in Zimbabwe as record-high oil prices, excessive spending during forthcoming elections and disruptions of wheat supplies stoke inflation, with ordinary Zimbabweans suffering the brutal ramifications.

Less than a month after Russian President Vladimir Putin deployed troops to western parts of Ukraine, knock-on effects of the conflict are now spreading across the globe.

Zimbabwe's business sector is fretting over the war and forthcoming by-elections amid fears that the polls will fuel politically motivated violence.

Russia and Ukraine are major wheat producers due to their favourable climatic conditions for the production of the cereal and the conflict between these two countries is resulting in increased grain prices.

Economic analysts also contend that Zimbabwe, which recovered from two years of economic contraction, may backslide and miss its key growth targets due to the conflict despite getting a shot in the arm from the International Monetary Fund.

The southern African nation received the equivalent of nearly US$1 billion worth of IMF Special Drawing Rights holdings to help cushion the country against the effects of the Covid-19 pandemic which has claimed the lives of millions across the globe.

Price of bread and Zimbabwe's staple mealie-meal also rose due to a war-induced spike in commodity prices on the global market. Official figures show that Zimbabwe is consuming 16 000 metric tonnes of bread flour monthly, and approximately 1.2 million loaves a day. Demand for bread is expected to increase as aggregate demand improves, owing to removal of Covid-19 lockdowns.

Tafadzwa Musarara, the Grain Millers' Association of Zimbabwe chairperson, yesterday said the Grain Marketing Board has increased the cost of maize from ZW$43 000 to ZW$50 000 per metric tonne, necessitating an upward review of mealie-meal prices.

"Maize-meal retail price for 10kg roller meal will increase by 15% from ZW$955 to ZW$1 099. Bread flour will move up by 14.74% from ZW$ 119 000 to ZW$136 544 per metric tonne," Musarara said.

The millers say the wheat landing price has surged from US$475 to US$675 per tonne, cautioning that the upward trend was anticipated to continue on the back of the disturbances in Eastern Europe. Wheat constitutes between 30% and 42% of the cost of bread.

The Confederation of Zimbabwe Industries (CZI), the country's manufacturing sector lobby group, said rising fiscal expenditure during elections and the Russia-Ukraine conflict would drive inflation. Compared to its regional counterparts, Zimbabwe is the only country that recorded annual inflation above 50% in January 2022.

"History has taught us that, a year prior to elections, there will be massive fiscal spending as political parties campaign. In an economy like Zimbabwe, massive injection of liquidity in the market has dire consequences on the inflation front," the CZI report says.

"Due to high velocity of circulation of the local currency, even if the government is using its own funds to implement the expansionary fiscal policy, it will have a bearing on money supply growth. Inflation in Zimbabwe is largely a result of increases in money supply."

"Zimbabwe imports approximately 50% of its wheat requirements for two main reasons, which are: to cover for the deficit from local wheat production and the second reason being that of enhancing the quality of bread flour. Therefore, an increase in wheat prices will translate into increased prices for goods such as bread and cereals," the CZI report further reads.

Fuel prices have sharply risen twice in the past week with experts saying prices of basic goods and commodities will also head northwards.

The research unit of financial behemoth Old Mutual warned that the rising political temperatures in the country were likely going to escalate as the polls draw closer.

Over 100 parliamentary and local authority seats fell vacant due to recalls by political parties and the deaths of incumbents.

Already, civil society organisations like the Crisis in Zimbabwe Coalition and the Nelson Chamisa-led Citizens' Coalition for Change have raised the red flag over the country's political situation.

"Campaigns in February were marred by the death of two individuals who attended a CCC rally. Tensions between Zanu PF and CCC are on the rise. The March 26 by-election results will be telling of the political mileage of the two parties," Old Mutual said in its latest economic environment report.

"The international community has raised concerns against human rights violations with the EU and the US maintaining sanctions. (We expect) continued tensions on the political front, not ruling out violence."

Zimbabwe has a long history of disputed election outcomes with the opposition accusing the governing party of election fraud and impunity during election time. Zanu PF denies the claims.

Foreign currency demand is expected to increase given inflation (greater need to preserve value) and imported inflation, raising prices in US dollar terms, Old Mutual further said.

As the war rages on, its impact is already being felt across the globe. Even a superpower like the United States has sneezed, with inflation hitting a 10-year high at 7.9%. This week, US crude oil spiked to a 13-year high of US$130 per barrel.

Regional powerhouse South Africa which alongside Zimbabwe abstained from a United Nations General Assembly extraordinary vote on censuring Russia, will also feel the pinch.

Increases in the price of fuel have taken the price of petrol inland to over R21 a litre – a 60-litre tank now costs over R1 200 to fill. With the war on Ukraine sending the prices of oil, gas and coal spiking, the impacts here are already being felt.

South Africa's financial services sector has also swiftly responded to sanctions by the US and other Western powers by removing Russian banks from the Swift inter-bank network. Some corresponding banking arrangements with Russian banks were also discontinued.

A Swift code - sometimes also called a BIC number -is a standard format for Business Identifier Codes (BIC). It is used to identify banks and financial institutions globally. It says who and where they are - a sort of international bank code or ID.

These codes are used when transferring money between banks, in particular for international wire transfers or SEPA payments. Banks also use these codes to exchange messages between each other.

"Any payments made to any other institution in Russia or Ukraine may be subject to additional scrutiny or delays by Bidvest Bank or correspondent banks and will be done on a best effort basis," reads a statement issued by Bidvest, one of South Africa's largest banks.

"If a sanctioned entity or person is identified in the payment, the payment will be dispositioned according to the applicable sanction regulations, which may include blocking or rejecting the transaction. If a customer believes that the payment is authorised by an OFAC General Licence, the payment order must clearly reference the applicable OFAC General Licence in the payment message. Currently, MoneyGram and Western Union payments to individuals are still possible with more limited locations being able to payout in Russia and Ukraine."


Source - thenewshawks