Rising food costs rattle Middle Eastern economies and raise risks of unrest

Local government officials and a Ukrainian soldier inspect a grain depot earlier bombed by Russian forces on May 6, 2022 near the front lines in Kherson Oblast in Novovorontsovka, Ukraine.

John Moore | Getty Images

A new report by Standard & Poor’s global ratings shows that rising food and energy prices are echoing in the economies of the Middle East and North Africa, as the Russian war in Ukraine has accelerated inflation, pushing the basic cost of living up for millions of people.

“What history has shown us is, during times when food is going through particularly during this persistent inflationary period, we are seeing these strikes and social unrest,” Satyam Panday, chief economist at S&P Global Ratings told CNBC this week.

“Especially when you have higher unemployment rates among young people, coming out of Covid, when the recovery is still fragile, we are in this kind of situation where, yes, the potential for social unrest increases,” he cautioned.

The analysis by S&P Global Ratings found that among the countries of the Middle East and North Africa, Egypt, Jordan, Lebanon, Morocco and Tunisia would be hardest hit by the economic fallout from the Ukraine war, which saw Russia shut down vital Ukrainian ports to deliver agricultural exports to most countries in the region. developing world.

Russia’s financing mechanisms for its food exports have also been restricted as a result of Western sanctions due to its invasion of its neighbour.

Net imports of food and energy in the aforementioned MENA countries make up between 4% and 17% of GDP, according to the report, all of which import a large proportion of wheat and grains from Russia and Ukraine.

The Black Sea: the lifeblood of food export

Ukraine and Russia together account for about 75% of the world’s sunflower seed oil, an essential cooking oil in many regions, and home to nearly a third of global wheat exports. 26 countries depend on Ukraine and Russia for at least 50% of their wheat imports. Russia is also one of the world’s largest fertilizer exporters.

The warring countries provide the majority of the MENA region’s supplies – Egypt, the Middle East’s most populous country with a population of 100 million, imports more than 80% of its wheat from Russia and Ukraine, and is estimated to be worth $2 billion in 2021.

The Russian invasion of Ukraine threatens global wheat and grain supplies, a particular danger to Middle Eastern and African countries such as Egypt, where bread is a staple food. Cairo, Egypt, March 9, 2022.

Photography by Ahmed Gomaa | Xinhua via Getty Images

“Egypt, which has a more centralized system, has been able to deal with this crisis, it has taken a big hit in terms of getting out of the debt markets, in terms of capital, but its focus on food security is probably a bit more vigilant and a little bit more vigilant,” said Angus Blair, Professor of Practice at The American University in Cairo, told CNBC’s Capital Connection on Monday, “Angus Blair, professor of practice at the American University in Cairo, is at the helm more than other nations.

Lebanon and Jordan spend more than 10% of GDP on energy and food imports, making them among the most crisis-prone countries in the region, according to S&P Global ratings.

Lebanon imports about 90% of its wheat from Russia and Ukraine – and the country’s economic crisis, which has accelerated since 2019, has been exacerbated by food inflation and a currency collapse. Grain silos in the country were also destroyed in the 2020 Port of Beirut explosion.

A Lebanese army member passes through the rubble at the site of an explosion on Tuesday in the port of Beirut, Lebanon, August 7, 2020.

Mohamed Azaker | Reuters

Standard & Poor’s says that despite weak economies, some countries in the Middle East and North Africa have built up strategic reserves of wheat to protect themselves from food supply disruptions.

Standard & Poor’s wrote in its report, “Jordan has the largest reserves in the Middle East and North Africa region, covering consumption of about 16 months. Egypt’s reserves are more limited, and will continue, along with domestic production, until November 2022,” adding that “Morocco obtained a Most of its reserves are for 2022. Annual wheat orders from Ukraine before the escalation of the conflict.”

A farmer wears a flak jacket while sowing crops in Zaporizhzhya region, southeast Ukraine.

Dmytro Smolenko | Future Publishing | Getty Images

The war between Russia and Ukraine has many implications for global markets and food security. Concerns are growing worldwide that the current food crisis will be chronic rather than fleeting.

African Union leader and Senegalese President Macky Sall on Friday met with Russian President Vladimir Putin to discuss liberalization of vital grain exports. The meeting was not decisive. The Kremlin has insisted that Russia is not responsible for the growing crisis, but that Ukraine is to blame for mining its ports against Russian ships, and the West for crippling its banking, shipping and insurance operations with sanctions.

But a hundred days into the war, Russia occupies a large part of the southern coast of Ukraine, and its warships control access to Ukraine’s sensitive ports on the Black Sea.

The poorest region is in danger

Callie Robinson of the Council on Foreign Relations wrote in a report released in April that the poorest in the Middle East and North Africa region are most at risk. “They spend larger shares of their income on food and are more likely to be farmers, so the lack of seeds and fertilizer will affect them severely.

Robinson noted that those who depend on international food aid are also expected to endure more hardships,” adding that, ironically, “Ukraine and Russia are major suppliers of wheat, corn and sunflower oil to the World Food Program.”

The region’s poor in many countries also played a major role in the Arab Spring protests in 2011, which were triggered by economic discontent and the inability to access basic goods and services. As writer Alfred Henry Lewis wrote in 1906, “there are only nine meals among men and chaos”—nine meals equal to three days without food.

A farmer shovels seeds on farmland as Russian attacks negatively affected the agricultural sector in Kyiv, Ukraine on May 30, 2022.

Dojokan Keskinkilic | Anadolu Agency | Getty Images

The crisis is currently showing no sign of abating and will continue to weigh heavily on import-dependent countries, as outsourcing from various places will eventually increase shipping costs for many importers.

Blair of the American University in Cairo warned that “this is not just this year’s harvest, it is now possible that another year or so will continue, because there is a basis for war, we don’t know what will happen, and that uncertainty is the concern.”

“Rising food prices have an impact not only on inflation, but on the social impact. This is a concern in most parts of the Mediterranean world,” Blair told CNBC. “The average citizen is really hurting. But this is a global problem. Those countries with low GDP per capita will be hit even harder,” he added.

Russian Foreign Minister Sergei Lavrov and his Ukrainian counterpart Dmytro Kuleba met to discuss the creation of a possible sea corridor for Ukrainian agricultural exports, but so far they have not been able to achieve success.

Ukraine is currently working with allies to establish a UN-backed effort to reopen its Black Sea export routes.

“We call on countries whose food security may suffer more from Russian aggression against Ukraine to use their contacts with Moscow to force it to lift the blockade of Ukrainian seaports and end the war,” Ukrainian Foreign Ministry spokesman Oleg Nikolenko said on Thursday.

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