The impact of Russia’s invasion of Ukraine and the war that ensued is most likely to be felt across the world, affecting not only neighboring countries but also those that are far away and on the edge of poverty. The Middle East and North Africa (MENA) region is very close to Ukraine and Russia as trade partners. Thus, the war between the two countries may impact MENA economies and could have an intensifying negative effect on food security and welfare across the region.
Mustafa, which sectors of the MENA economies are most affected by this war?
Russia’s invasion of Ukraine has sparked various economic expectations worldwide, and the MENA region is no exception. While some sectors are witnessing significant damage, others are reaping increasing profits. This is easily seen in the energy sector. Spurred on by the remarkable spikes in fuel prices, oil producers in the region anticipate a boost to their foreign revenues to the extent that they may not face a budget deficit this year, contrary to their energy importing neighbors. As for the international trade sector, the invasion has triggered trade disruption, and commerce levels are expected to be low due to relatively modest direct trade ties between Russia and the MENA region, except Turkey, and the import of grain and maybe tourism. While overall the region ranks low among Russia’s key trading partners, Turkey is the fifth-largest market for Russian exports. Equally important, the MENA region’s grain importers will suffer the most as more than two-thirds of Russia’s wheat exports go to the Middle East and Africa. Apart from the grain sector, the invasion could also significantly impact the region’s hospitality sector, as Russia and Ukraine represent the primary source of tourists visiting some of its countries.
What are the short and long-term consequences of the impacts?
In the short term, rising prices on most of the world commodity markets will have mixed direct monetary and financial effects around the region. For instance, the surge in the price of energy products will boost energy export revenues and so improve the balance of payment of natural resource-abundant countries. At the same time, the enlarged food and energy import bills, on the contrary, are a significant burden for most MENA countries (which are net food and energy importers). This is a real challenge for regional governments, that is to mitigate its socio-economic repercussions in both the short and long term, particularly for those already struggling to recover from the COVID-19 pandemic. Within the same context, top tourist destinations for Russia and Ukraine in the region will also witness an immediate reduction in revenues and job opportunities in the hospitality sector. The long-term consequences depend on the nature and scale of the potential structural changes in the world commodity markets triggered by the escalating financial sanctions imposed on Russian exports. Of course, some MENA region exporters could further maximize their benefits should they gain more global market share from Russia, especially when it comes to oil and gas.
How could the international community mitigate the impact of this war on poorest regions?
While the Russian invasion has generated a major economic challenge in the region, it also presents an invaluable opportunity for the region to re-configure its development narrative. I think the correct direction is the prioritization of initiatives that foster MENA food security with the view to not only mitigating the negative consequences of the war but also improving resilience to potential future shocks. It’s in the region’s best interest to seek the international community’s support to develop and scale up the agro-industrial-related sectors. This could be done by attracting more foreign direct investment and benefiting from the best practices and lessons learned. Within the same context, providing concessionary loans and foreign debt rescheduling could be some of the options available to ease the escalating budgetary and financial constraints encountered by most MENA countries.
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