Russia-Ukraine conflict poses profound economic implications for Nigeria, global economy ― CPPE CEO

The Chief Executive Officer of Centre for the Promotion of Private Enterprise (CPPE), Dr Musa Yusuf, has raised concerns over the profound economic implication of Russia’s invasion of Ukraine

The CEO of the economic and business advocacy think tank, in a statement on Tuesday, noted that if the invasion persists, it could pose unprecedented challenges and downside risks to the Nigerian and global economy in the areas of higher energy costs, higher fuel imports and subsidy bills, fiscal operations of the government, smuggling of petroleum products, global wheat export and effects on national and global trade.

“The Russian invasion of Ukraine has profound and multidimensional implications for the Nigerian economy, especially if it gets protracted. These include the escalation of energy prices (diesel, aviation fuel, kerosene and gas), mounting petrol import and subsidy bill and the aggravation of petrol smuggling.

“There are also significant macroeconomic outcomes which include heightening fiscal deficit, growing debt levels, spike in debt service payments, money supply growth, exchange rate depreciation and more intense inflationary pressures. Additionally, the cost of flour, price of bread and other confectioneries may also take a hit,” Dr Yusuf said.

He said that Russia, being the second-largest oil producer globally, producing about 10 million barrels per day, the current conflict would disrupt oil supplies, reduce output and trigger higher prices.

“In Nigeria, the deregulated components of petroleum products would witness sharp increases. These include diesel, aviation fuel and kerosene. Gas would suffer the same fate.

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“The escalation of these costs obviously has serious inflationary implications across sectors. The geopolitical tension of the recent weeks had actually bolstered energy prices even before the current onslaught by Russia. The situation may get worse if the conflict escalates,” he said.

Dr Yusuf said the crisis would lead to an upsurge in petrol import and subsidy bill in Nigeria with the increase in the landing cost of petrol occasioned by the rise in crude oil prices. This, he said, would impact Nigeria as “regrettably, we remain a major importer of petroleum products and typically when oil prices increase, petrol import bill and subsidy payment also increase.”

On the impact on fiscal operations of the Nigerian government, Dr Yusuf said higher crude oil prices which have already crossed the $100 benchmark, should otherwise be to the advantage of oil-producing countries like Nigeria as it impacts positively on foreign exchange earnings, foreign reserves and government revenue.

He noted, however, that with the peculiar case of Nigeria, higher crude prices would lead to higher petroleum products and subsidy bills and “consequently, fiscal deficit will be higher than projected, debt profile will increase, debt service commitment will rise and government borrowing will intensify. This may worsen an already weak fiscal space.”

There is also an impact of the Russia-Ukraine crisis on the Federation Account as there would be little remittance by the Nigeria National Petroleum Company (NNPC) Ltd as a result of rising subsidy commitment. This would ultimately affect revenue allocations to the various levels of government, especially for states that are hugely dependent on FAAC allocations.

The CPPE CEO noted that bilateral discussions between the Federal Government and the Russian government on the resuscitation of the Ajaokuta Steel Plant could also be strained if the conflict in the region persists.

This is even as he further noted that global wheat export would suffer a setback given that Russia and Ukraine are the major producers of wheat, accounting for 30 per cent of global wheat export.

“The current development is going to disrupt the supply of wheat in the global market. There is, therefore, a risk of a hike in the cost of wheat which will affect the price of flour and a knock-on effect on the price of bread and other confectioneries,” said Yusuf.

“For as long as these conflicts and the barrage of sanctions continue, the resultant uncertainty would continue to dampen the prospects in the global equities market and soften the pace of global economic recovery,” Yusuf said of the impact of the conflict on the global economy.

Yusuf is also apprehensive of the escalation of cyberattacks in the ensuing conflict, leading to further disruption of global trade, investments and economy.

“There are also risks of cyber-attacks because Russia has very strong competencies in cyberspace and if the situation degenerates we may see the deployment of cyber attacks as part of the process of this war.

“There is also the frightening rhetoric by the Russian President of the possibility of deploying nuclear weapons. That again will further create more uncertainties and more disruptions in the global economy,” he noted.