Over the past two years, the world has experienced changes due to the COVID-19 pandemic, the effects of climate change, and, recently, Russia’s war in Ukraine. These changes greatly contribute to Africa’s rising costs of food and fuel. According to experts, the situation is more worrying in West Africa. “We had a wake-up call at the end of 2021 when we noticed that the average food price in the region over the last quarter was 39% higher than the average over the same period in the last five years,” says Ollo Sib, a Food and Agriculture Organization (FAO) analyst for Central and West Africa.
The International Monetary Fund (IMF) notes two ways the war in Ukraine impacts countries are through the rising prices of food and higher oil prices. While a higher cost of fuel benefits petroleum exporters, the high price of food disproportionately hurts the poor and small businesses.
For Micro, Small, and Medium-sized Enterprises (MSMEs), the rising cost of food and fuel affects their ability to operate and grow. Small businesses, the backbone of the African economy, provide an estimated 80 percent of jobs across Africa and are essential drivers of economic growth. While large companies usually have the cash reserves to weather the storm, small businesses generally have little or no cash reserves, so price increases affect their operations. The COVID-19 pandemic helped reveal the financial fragility of many small businesses. Now, coupled with Russia’s war in Ukraine and climate change, MSMEs are affected by the rising costs of food and fuel, which could set their recovery efforts back.
The rising fuel and food costs also affect consumer spending power and disposable income. The cost of food makes up 40 percent of consumer spending in the region. The rising costs are an issue for small businesses because it is difficult to pass on the high price to consumers, which can affect business survival. The smaller a business is, the more vulnerable it is to ride out periods of reduced consumer spending.
High costs also affect small business owners, who must now spend more on food for their own households. Most micro and small business owners in Africa do not fall into the high-income bracket. The high cost of food means most of the business income is less available to put back into the business. Business income is necessary because small enterprises usually meet cash flow requirements from their savings or family since access to finance is a significant obstacle for them. A reduction in business owners’ disposable income means less money to invest back into the business.
High Food costs
The disruptions from the war in Ukraine, along with climate change effects like drought, has helped increase food cost and heightened the food crisis in Africa. The United Nations (UN) notes that “no other region in the world (save for Africa) presents a higher share of its population suffering from food insecurity.” The World Bank adds that the increase in food prices could push additional six million Nigerians into poverty since food supply chain disruptions caused by the pandemic affected the costs of food items across the nation.
African countries importing food are more susceptible to increased food prices because global happenings have local implications, especially with a globalized supply chain. In 2020, African countries imported agricultural products worth $4 billion from Russia. Egypt is one of the leading African countries that rely on imports from Russia, followed by Sudan, Nigeria, Tanzania, Algeria, Kenya, and South Africa. These countries import 90 percent of their wheat and 6 percent of their sunflower from Russia.
Local farmers who are part of the agriculture value chain are also feeling the impact of the war, as potash—a key ingredient in fertilizer that is exported mainly by Russia—has doubled in price from about $30 a bag to $60. The price increase has caused difficulties for farmers in planting, harvesting, and selling their farm produce. The increased fertilizer cost could lead to smaller crop yields which could further impact food prices. This impact on farmers could flow to other actors in the agribusiness value chain, affecting small businesses and consumers alike.
High Fuel Prices
The war in Ukraine has caused the global oil trade to reduce drastically, making petrol very pricey. The European government imposed a partial embargo on Russian oil to condemn Russia’s attack on Ukraine. The repercussion is limited petrol leading to a rise in fuel prices and ultimately, a rise in goods and services. After the announcement of the EU oil embargo, the price of a barrel of crude hit $124.10 (£98.59), its highest level since March.
The high fuel prices and fuel shortages impact transportation costs. Most micro and small businesses are dependent on transportation to move around and get supplies for their businesses from wholesalers. High fuel costs also affect micro and small businesses that run on generators and need fuel to power their enterprises. Even for entrepreneurs renting out coworking spaces, the increase in fuel (used to power office generators) cost has increased monthly rent prices.
In addition, higher fuel prices impact domestic food production because it affects farmers, increasing food insecurity. In Kenya, for example, the energy and petroleum regulatory authority announced that it was discontinuing a fuel subsidy scheme introduced by the government. The halting of petroleum subsidy will cause an increase in the price of petrol and diesel by 5 Kenya shilling per liter. Farmers have complained that the hike in fuel prices will reduce their ability to use and transport farm machinery, which would reduce their ability to grow sufficient crops now and in the future.
Recommendations To Support MSMEs
Transition to Solar Energy – Support MSMEs to adopt solar energy. The future is clean energy, so now is a good time for MSMEs to consider switching to solar power. Climate change is accelerating and is one of the causes of the food problem in Africa. Small businesses must not be left behind in the transition to renewable energy. Solar power can provide a stable source of energy and enable the phase-out of generators that are detrimental to the environment. Small businesses’ transition to renewable energy is an excellent strategy to mitigate climate change and phase out the burning of hydrocarbons that is meeting developing countries’ rapidly growing energy demands.
Capacity-building – Provide training to enhance MSMEs’ financial literacy skills. Apart from access to finance, lack of business skill training is the top obstacle small businesses face when operating. Equipping MSMEs with financial management, entrepreneurship, and other skills will help them manage their business, stay in business, and boost their resilience to the current crisis.
Direct Transfers – Provide safety nets for vulnerable informal and micro enterprises, especially for women-owned enterprises. Safety nets in the form of cash transfers would help small businesses afford the high food costs. During the COVID-19 pandemic, measures were put in place to support MSMEs, such as reducing taxes, extending loan payments, and access to loans. There should be similar measures to help MSMEs now. Direct transfers could help micro and informal business owners purchase food for their households and help vulnerable consumers afford the high cost of food.
Target Food Insecurity – Eliminate agricultural export bans and export restrictions. For example, India put an export ban on wheat and sugar on May 13, 2022. India’s share of global trade in 2020-21 was small, but the war has slowed Russia and Ukraine’s export of wheat, making India’s wheat export vital. In Mali, measures were implemented to enforce a ban on agricultural exports, while Egypt also placed a ban on foodstuff, including flour and wheat. Maintaining open markets is imperative, especially for Africa, which is facing a food crisis.
Conclusion
African governments and major stakeholders must put in place policies and actions that will enhance the income earnings of small businesses and improve their economic access to sufficient food. African governments must also develop homegrown solutions to mitigate the impact of food insecurity and petrol shortages resulting from COVID-19, climate change, and the war in Ukraine. Some African countries, such as Ethiopia, Nigeria, and South Africa, have domestic price controls to help. Other countries, such as Malawi, Zambia, and Uganda, offer cash subsidies to vulnerable groups.
Now is an opportune time to begin transitioning small businesses to renewable energy, support them with social safety nets through mobile money, provide capacity-building training, and open markets so food supply can flow. Additionally, adopt targeted food subsidies to curb the severe impact of the soaring food and fuel prices, which will help informal, micro, and small businesses, including vulnerable households.
The African government should also invest more in promoting agriculture and supporting farmers. Governments should empower local farmers with fertilizers, funding, and technical skills to ensure that they are successful. Africa is home to 60% of the world’s arable land but is still a major food importer. If there was never a time for Africa to work towards feeding itself, now presents a perfect opportunity.
