How sanctions imposed on Russia could affect Rwanda
Wednesday, March 02, 2022
Some of the Africans try to flee Ukraine to Poland border on February 28. According Professor Herman Musahara, an economic analyst, the sanctions on Russia will also affect Rwanda.

Russia is facing sanctions imposed on it over the ongoing humanitarian crisis in Ukraine. The sanctions include banning Russia from using the SWIFT global inter-bank payment system, and transactions in major currencies including the US Dollar and Euro.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a network that provides services related to the execution of financial transactions and payments 

The sanctions were placed on Russia by the European Union (EU), UK, US, Canada and Japan among other countries after Russia waged a war on Ukraine on February 24, 2022. 

Blocking Russia from SWIFT and the use of major currencies in international financial transactions imply that the country will be unable to sell its products such as oil and wheat at major global commodity markets.

Also, Western countries froze Russian central bank's funds estimated at $640 billion foreign reserve to prevent it from supporting its own banks and companies.

All such sanctions curb Russian exports and imports.  

Speaking to The New Times, Professor Herman Musahara, an economic analyst at Economic Policy Research Network (EPRN Rwanda) said the implications include the likely increase in commodity prices especially on petroleum products as Russia is one of the major producers.

Impact on oil sector

According to the International Energy Agency (IEA), Russia is the world’s third largest oil producer behind the United States and Saudi Arabia. Again, Russia is the world’s largest exporter of oil to global markets and the second largest crude oil exporter behind Saudi Arabia. 

The IEA said the crisis which broke out last week on February 24 has as of yet not affected the supply of oil to the global market.

Nevertheless, the agency said, oil prices surged by $8 per barrel to $105 per barrel following the news, on expectations that sanctions against Russia would cripple energy exports.

It is estimated that Russia supplies about 40 percent of the EU’s current oil imports. 

"I think that those sanctions will not only affect Russia, but also other countries including those which imposed them,” Musahara said.

Eric Herbez Mutaganda, the Chairman of Rwanda Association of Petroleum Product Importers (ASSIMPER) told The New Times they were not importing any petroleum products from Russia, rather from other countries including in the Middle East and South Asia.

However, he said that when there is a crisis in oil producing countries, it affects all countries because it makes the producers unable to take the fuel to the export market which results in supply shortage.

"Russia is the second country in oil supply to the global market, the sanctions meant to curb the country’s trade will likely lead to price increase,” he said.

"The increase in oil prices will affect Africa such as through manufactured products imported into the continent, not necessarily oil,” Musahara said, referring to the indirect effect of the sanctions against Russia.

Wheat industry 

Russia accounts for about 24 percent of global wheat exports, while Ukraine contributes about 10 percent to the global wheat market. North Africa and the Middle East import over 50 percent of their cereal needs and a large share of wheat and barley from Ukraine and Russia.

Faradjallah Ndagano, Company Relations Affairs Manager at Bakhresa Grain Milling Rwanda Ltd/AZAM – a major wheat processor in the country – said that the company needs at least about 150,000 tonnes of wheat per year, which it has to import because of shortage of the produce on the local market.

Though the wheat is imported from different countries including Russia, USA and Canada, he pointed out that Russia is a key supplier. 

As of March 1, wheat prices had increased by 5 percent at the global market.

"They [sanctions on Russia] will definitely affect us. Though we have not yet measured the extent of the impact, the world will be much affected because Russia accounts for a large share of global wheat supply, especially hard wheat” he said, indicating that the sanctions will hinder its exports and disrupt the wheat industry.

Hard wheat is a wheat with hard kernels that are high in gluten and that yield a flour especially suitable for bread and macaroni.

Data from the Ministry of Trade and Industry show that in 2020 indicates that Rwanda spent over $44 million (about Rwf43 billion) on importing more than 177,740 tonnes of wheat, representing an increase of over 10 per cent compared to more than $40.8 million (about Rwf39 billion) spent the previous year.

The data indicate that in 2019, Russia was Rwanda’s top wheat import partner where more than 73,324 tonnes worth $17.5 million were imported, while in 2020, the United Kingdom came first with 67,145 tonnes of wheat for $16.1 million, followed by Russia with over 60,855 tonnes for $15.2 million.

 "Wheat is a raw material. When its prices increase, they also affect derived products such as bread, among others,” Musahara said.

Meanwhile, Musahara observed that some countries could benefit from the existence of such sanctions. He cited those having oil and wheat as they will get the market because countries will have to look for alternative sources for the supplies.

Ndagano said they were looking for other alternative areas to source wheat, though he suggested it might take long for the gap that would be left by Russia to be filled.

Meanwhile, it is to note that Russia accounts for 15 percent of global trade in nitrogenous fertilisers and 17 percent of global potash fertiliser exports, according to the International Food Policy Research Institute.