Ukraine-Russia conflict to worsen cost of living in Kenya

Oil prices yesterday skyrocketed to the highest level since 2014, to $100 a barrel, just after Russian President, Vladimir Putin, ordered a military operation against Ukraine.

Energy and Petroleum Regulatory Authority (Epra) Director-General Daniel Kiptoo yesterday noted that Kenya, which keeps small reserve fuel stocks due to the volatility of global crude prices, would feel the impact of the price increase almost immediately. 

“If you keep large stocks of fuel when you think the prices are low, then the prices go down (further,) you will have a hard time selling that stock,” said Mr Kiptoo, during release of the Energy Statistics Report 2021. 

He said Kenya’s fuel stocks can last just 10 days, meaning the higher fuel prices will be reflected in the next fuel pricing on March 14, unless the government continues to apply the fuel subsidy to keep the prices low. 

Kenya imports products worth billions of shillings for consumption at household level annually from the two countries, making the conflict a big concern for an economy already battling the impact of the Covid-19 pandemic and a rising cost of living.

The country also imports billions of shillings’ worth of machines used by manufacturers in production of goods, construction materials used in real estate and raw materials for packaging bags used by retailers.

Of the Sh40.6 billion products Kenya imported from Russia in 2020 based on data submitted to UN Comtrade – a repository of official international trade statistics -- wheat constituted Sh16.5 billion, maize Sh989 million and fertilisers Sh4.9 billion.

Of the Sh8 billion commodities Kenya imported from Ukraine in 2020, according to the database, soy beans constituted Sh1.08 billion, wheat and maize Sh1.07 billion, vegetables Sh655 million, and sunflower seed and cotton seed oil Sh434 million.

Read: Dozens killed as Putin launches full-scale invasion of Ukraine

Kenya also imported semi-finished products of iron and steel worth Sh11.9 billion, bars and rods worth Sh1.5 billion and aluminum valued at Sh853 million. It imported iron and steel from Ukraine worth Sh4.45 billion.

The three products are essential in the production and construction industries locally and their shortage could affect the real estate and retail sectors.

The retail sector imports more than Sh1 billion worth of kraft paper and paperboard from Russia -- used in making shopping bags among other items, from Russia.

Yesterday, Ukraine’s ambassador to Kenya, Mr Andrii Pravednyk, warned that should the conflict between his country and Russia escalate, Kenya would feel the impact, with students wanting to study in Ukraine losing the opportunity and those already there having to leave, as well as import and export disruptions, since the capacity of Ukraine’s exporting companies would be affected, among other supply disruptions that would hinder her imports.

“Exports to Ukraine will also be affected. Economic relations with Kenya are still growing, and this year, we generated about $250 million, which was breakthrough for Ukraine and an increase from $92 million. If we manage to have the international support and assistance, we will be in a position to restore trade between Ukraine and Kenyan governments,” said the ambassador. 

Ukraine, the ambassador said, still hopes to get Kenya’s support, as a country and as a member of the UN Security Council, indicating that the launch of the military operation by Russian President Vladimir Putin had eliminated chances of further peaceful talks.

“We would be grateful to the Kenyan Government if Kenya’s representative will condemn Russia for invading Ukraine. Initially, there was a hope for peaceful resolution of the occupation of some areas of Ukraine, but with the start of this invasion, there is no room for peaceful negotiations anymore, and the only way is to defend ourselves.

“We also call on friendly capitals to continue strengthening Ukraine’s defence capabilities by providing weapons and military equipment. Not only the lives and security of Ukranian citizens, but also security of citizens of the entire Europe and the future of the world order depend on our joint response,” he said.  

A two-way traffic -- trade between Kenya and Ukraine and Kenya and Russia -- also affects the lives of Kenyan farmers, who export cut flowers, tea and fruits worth billions yearly.

In 2020, Kenyan farmers exported tea worth Sh5.2 billion to the two countries, Sh2.6 billion cut flowers and more than Sh900 million fruits such as avocados, pineapples, figs and dates.

Read: Oil prices soar past $100 a barrel as Russia enters Ukraine

Any disruptions in the exports would mean that the farmers will lose the market, which feeds thousands of families here in the country.

Already, the situation has attracted the attention of Parliament, with Kwale Woman Representative Zuleikha Hassan yesterday asking the government to outline the plans it has in evacuating Kenyans caught in the crosshairs in Ukraine.

Ms Zuleikha, raising the issue on the floor of National Assembly, called on the government to evacuate Kenyans in Ukraine to peaceful countries, for their safety.

“Does the government have a plan to repatriate Kenyans in Ukraine who want to come back to the country and if yes, what is the timeline for this?” asked Ms Zuleikha.

Economists also warn that tough times lie ahead, with a looming cost inflation due to an expected imports shortage that would lead to a sharp price rise for major commodities globally due to supply restrictions emanating from the situation in Ukraine. 

Mr Ken Gichinga, the chief economist at Mentoria Economics, said crude oil prices would be the first pressure point, with Brent crude prices already hitting $100 per barrel hours after Russia announced it had commenced a “special military operation” in Ukraine. 

“Kenya is a net importer of fuel and therefore, any increase in global crude oil prices is felt very keenly. But a worse effect is that high fuel prices also lead to increase in the cost of other basic goods,” he explained.

Kenyans have experienced first-hand the effect of imported inflation in recent months after the prices of cooking oil nearly doubled due to supply chain hitches caused by the Covid-19 pandemic, which disrupted supply of palm oil globally. 

The economist said the only way Kenya can cope with the crisis in the short term, would be to reduce taxes on fuel and other basic items, something unlikely to happen, with the current fiscal pressures the National Treasury has been facing. 

“However, longer term measures need to be undertaken to boost preparedness against such externalities in future, such as boosting fuel storage capacity,” said Mr Gichinga. 

Report by Peter Mburu, Mercy Chelang’at, Samwel Owino and Brian Ambani