How Russia-Ukraine war sent shock waves into Tanzania in 2022

Dar es Salaam. The battlefield could be thousands of miles away in Europe, but the Russia-Ukraine war has sent shock waves around the world, with Tanzania experiencing both positive and negative impacts that shaped its economy in 2022.

From the sharp increase in oil prices to the shortages of wheat and metal supplies, products that are mainly supplied by Russia and/or Ukraine, the world also experienced a disruption of financial and investment flows.
Tanzania, like many other African countries that had nothing to do with the war, is still feeling the pinch of the conflict.

The cost of living is high at the moment, partly due to the conflict which has lasted for 10 months now.

Transportation cost

Fuel prices rocketed higher too. The price of petrol hit an all-time high of Sh3,410 a litre in August in Dar es Salaam, largely due to a disruption in the global supply chain occasioned by the war, which started on February 24, 2022.

This also came against the backdrop of a rise in demand after global economies resumed production after the Covid-19 lockdowns in 2020 and 2021.

The cost of transportation services rose as motorists had to dig deeper into their pockets to afford fuel. The price of almost everything went up to compensate for the operating costs.

The government responded with the introduction of subsidy funds that, together with the positive trend in the global market, leading to a relief in the prices of fuel.

Agriculture, food security

The conflict sent prices of corn, wheat, and soybeans to a surge, prompting importers to look for alternative import destinations.

For instance, the country imports over 90 percent of its wheat, which is now sourced from countries like the USA, Canada, Argentina, Germany, and Australia.
Ukraine and Russia together used to account for more than a quarter of the global trade in wheat.

The shock of losing this crucial food alerted the government to improve domestic wheat production in partnership with the private sector.

Sources within the government say that plans are afoot to increase land for wheat cultivation from 100,000 hectares to 400,000 hectares.

Furthermore, reports have it that over $66 million (Sh151.8 billion), would be channeled into research and development in the next three years while 55,000 tonnes of improved wheat seeds will be distributed to farmers.

The war also affected the global supply of fertiliser, as Russia produces about 25 percent of the world’s nitrogen fertiliser. Tanzania imports over 70 percent of its fertiliser.

The rising cost of natural gas has also contributed to increased prices of fertiliser. Natural gas is a key ingredient in fertiliser production.

Tabling the 2022/23 budget, agriculture minister Hussein Bashe said the government had allocated Sh150 billion in the current budget to subsidise fertiliser.

The country also intends to supply more subsidised fertiliser to the market in order to increase uptake and boost the productivity of local farmers.

Coal boom

The European tension has also influenced the diversification into non-petroleum sources of energy (natural gas, renewable power sources, and biofuels).

In Tanzania, coal exports have peaked on the back of rising demand from the European market for countries such as France, Germany, Britain, and Poland as they try to reduce dependency on the Russian energy supply.

During a coal stakeholders’ meeting in Ruvuma recently, the Minister for Minerals Dr Dotto Biteko said that during the first three months of the current financial year (July to September 2022), Ruvuma Region had produced 764.816.15 tonnes of coal valued at Sh287.557 billion while Songwe produced 4, 587.9 tonnes valued at Sh331.371 million. Njombe produced 444.41 tonnes valued at Sh47.04 million.

The figure is impressive given that the Ruvuma region produced coal weighing 1,477,351.24 metric tons worth approximately Sh485.545 billion in the fiscal year 2021/22; the Songwe region produced coal weighing 16,328.35 metric tonnes worth Sh1.122 billion; and the Njombe region produced 2,762.76 metric tonnes worth Sh234.19 million. The port of Mtwara mainly dealt in cashew nuts until late last year, but it now bustles with vessels loading up with coal as Russia’s invasion of Ukraine drives a worldwide race for the fuel.

Logistics

As a result of the disruptions to the supply chain, freight charges, congestion and severe disruptions increased in the logistics networks.

According to the United Nations Conference on Trade and Development (UNCTAD), as a result of constrained logistics supplies coupled with a surge in e-commerce demand, freight rates went up, reaching a historical peak in early 2022 and sharply increasing consumer prices.

In Tanzania, official data revealed that regardless of those challenges, total cargo handled at the country’s ocean and lake ports increased by 14.9 percent in fiscal 2021/2022 compared to the previous fiscal year.

According to the Bank of Tanzania (BoT), cargo handling at both sea and lake ports amounted to 19.8 million tonnes in the year to June 2022, up from 17.19 million tonnes that were handled during a similar period the preceding year.

Lessons learnt

According to experts, Tanzania has to learn a lesson from the crisis and take measures that will prepare the country and its people for such emergencies.

According to Dr Mwinuka Lutengano of the University of Dodoma, one thing a third-world country like Tanzania can learn is to increase domestic production in order to positively influence price reductions.

“First of all, the country can reinforce contract farming and embark on more production of wheat, which has been highly imported until recently. It is worth noting that wheat is used to produce many other edible products,” he said.
“Secondly, a review of the entire bulk fuel procurement system is needed. We can work on our tariff rate structure, fuel storage infrastructure, and bid modalities to know whether we need to adopt a dual approach of opening the market for other oil importers and bulk procurement to lower general prices,” said Dr Lutengano.
Dr Tobias Swai, a financial expert from the University of Dar es Salaam, suggests promoting self-reliance as a country to build resilience against future shocks.

“We can start by importing more technology and technical know-how that will support our local manufacturing and sustainable solutions,” he said