NEGATIVE ECONOMIC EFFECTS OF THE RUSSIA- UKRAINE WAR ON ZAMBIA AND THE GLOBAL ECONOMY.
By Alexander Nkosi
The Russia – Ukraine war will affect the performance of the global economy beyond soaring of crude oil prices. Crude oil prices rose to around $105 per barrel, the highest since 2014. This is just within days of the war. If this drags on and sanctions and disruptions in trade take full effect, a lot of things will be affected. Leaders and economic experts world wide have warned of hard economic times for the global economy:
Addressing the emergency Security Council meeting, UN Secretary General Antonio Guterres warned that the consequences of the war will not only be devastating for Ukraine and Russia, but will have an impact we cannot even foresee in relation to the consequences for the global economy.
The USA President, Joe Biden, addressed Americans and warned that despite the fact that they will not send troops to Ukraine, the war will also affect the American economy. This is a country with a GDP of over USSD 20 trillion and has been building fuel reserves for decades for that needy hour.
Zambia is not an island, it is heavily dependent on imports: fuel, fertiliser, machinery and other inputs in production. Hence, if global economic giants are projecting difficult economic times, we should also brace for hard times as a country. It is a global crisis and war, depsite taking place in eastern europe has far reaching economic effects even on countries that are not taking part.
The new Zambian government has only been in power for 6 months and it inherited an economy with USD12.9 billion external debt, K189.7 billion domestic debt and K46.9 billion domestic arrears. It is practically impossible to change these economic fundamentals and cushion the economy from unforeseen external forces within such a short period of time. There is no magic wand in economic management, we deal with the real world where we have to go through a painful process and make huge sacrifices to get things right. This road is not always smooth. Sometimes you make two step forward and then three steps backwards when external forces hit you. What is important is to remain focused and not be drawn into panic borrowing which might end up with insignificant effect on reducing the pain but actually worsen the debt crisis and jeopardise debt restructuring and economic recovery.
We can engage government to revisit the monthly review of fuel prices to make it more predictable and enable businesses plan better but we should not dramatise this increase in fuel prices, it is actually way less considering the fact that this is the highest global crude oil prices have gone up since 2014. Also note that Zambia is still heavily subsidising fuel at current prices through tax suspension.
We need to be prepared and adjust positively like everyone else is doing world wide. If this war goes on, we should expect the global economy to be hit badly. Prices of fuel, fertiliser, machinery and other imported goods will go up. Zambia will spend more dollars on imports, hence when we see kwacha depreciate, we should be fully aware of how dynamics in the global economy are affecting this. When we see a sharp increase in prices of goods and services, we should understand the dynamics at play. When we see 2022 revenue and expenditure targets shifting, it shouldn’t come as a surprise, we need to understand the dynamics at play.
In conclusion, we are in this together, we need to work even harder and positively adjust so that we can pull through and continue on the path of economic recovery. This is a physical war to Russia and Ukraine but it is an economic war to Zambia and the rest of the world. To win, we need to adjust positively and engage our leaders positively.
Thank you.
For clarifications contact me on 0963190263 or email: alexnkosi2006@yahoo.com.