Opinion

Kelvin A Emmanuel: Effect of Russia’s Invasion on the Nigerian Economy

On the 1st of February 2022, Putin announced that he was placing a 2month ban on the export of Ammonium Nitrate (Di-Ammonium Phosphate) which is the primary input required for the blending of fertilizer and that this ban was going to take effect from the 2nd of February 2022.

On the 4th of February 2022, Putin arrives in Beijing to meet with President Xi and other leaders of the elite council of the Politburo (which is the most senior echelon of the Chinese Communist Party) to sign a 30-year pact for the supply of Russian Gas through the pipeline built from its eastern flank, called the Power of Siberia 2. On the 21st of February 2022, Putin announced a 28% cap on the export of grains including wheat from Russia. 

Notice that the systematic plan to reduce Russia’s export of food, commodities didn’t happen until he signed a 30-year gas contract with the Chinese government that was priced in Euros to evade any possible US treasury sanctions. Also, notice that his invasion of Ukraine didn’t start until after the 20th of February 2022, which marked 100 years since the creation of the Union of Soviet Social Republics (USSR). Ukraine’s request to join the membership of the North Atlantic Treaty Organization (NATO) that saw to the demise of the USSR in the late 80s was a threat to his plan to reassemble all the members of the USSR under one republic controlled by the Kremlin. 

The reason I took time to analyze the history of the assault on Ukraine and why the Kremlin is hell-bent on controlling Kyiv (since it handed over independence in 1991), is because it’s important to understand that Putin’s play in Europe has been to exercise political power over the continent. 

40% of Western Europe’s gas comes from Russia (which also controls 30% of the Oil supply from non-OPEC countries), the Nordstream 1 through the Yamal pipeline has been a source of Gas to Germany for a long time. The other sources of Gas for Western European countries are Norway and LNG imports from the US and other countries like Nigeria. With the cancellation of the Nordstream 2 pipeline as a result of the withdrawal of its certification by Chancellor Olaf Sholz, the pendulum swings back for Nigeria to cover up the shortfall, as Europe’s energy security in the middle of a harsh winter currently rests on the European Council in Brussels pushing Putin to the point where he decides to ask Gazprom and Rosneft to turn off the gas supply. 

What are the major imports of Nigeria from Russia?

1) 62.8%- Wheat (used for processing flour),

2) 9.8%- Refined Petroleum Products like Premium Motor Spirit, Automotive Gasoline Oil, Aviation fuel and Kerosene,

3) 4.45%- Blood, Vaccines, Culture, Toxin Binders,

4) 4.8%- Semi Iron ore, 5) 1.06%- Ammonium Nitrate gas used for blending of fertilizer. 

Wheat prices went as high as $315 on Friday on indications that the escalation of cruise missiles hitting civilian cargo vessels in the black sea that bothers the southern ports of Odessa might lead to the Turkish Government violating a 1938 pact to close the Bophurus Channel (a tiny aperture that connects northern Istanbul and Southern Bulgaria, and that allows shipping passageway into the Mediterranean). A closure of this terminal and continued increase in the global prices of wheat at the international commodities exchange will lead to an already biting scenario in Nigeria where manufacturers that process wheat into flour might further have to raise their prices of 50kg of baking flour, that has gone up to 23,000 naira, up from 7,000 only a few years ago. 

The question on many people’s minds is this: What is going to be the economic impact of the escalating war in the Baltics? For one, the World Shipping Council will have to impose wartime risk insurance on all vessels going through the black sea (as insurance companies will raise premiums for moving civilian cargo around this passageway that NATO can no longer guarantee safety in.

Secondly, the prices of wheat globally will go up, and this will impact terribly the prices of baking flour in Nigeria (because of the government’s PPP program between the Central Bank of Nigeria and four companies; BUA, Dufil Prima, Olam’s and Flour Mills of Nigeria, that together form the Flour Mills Association of Nigeria).

Thirdly the cost of transporting deadweight tonnage (mostly used for petroleum products) will rise as shipping lines will charge more premiums for transporting PMS, AGO, aviation fuel and kerosene from Refineries around the region.

What is the opportunity for Nigeria in this conflict? The opportunity is Nigeria capitalizing on its status as a country with the fifth-largest deposits of Natural Gas to build a pipeline across North Africa to Spain, like the partnership that was proposed by the King of Spain (King Abdullah) for Nigeria Morocco Gas Pipeline in 2016. The distance from Bonny and Qua Iboe Ports to Europe is seven thousand kilometres (7000km), piping gas above 1,600km is economically not viable, so for you to justify such capital costs that must be amortized over several years, you require solid partners to bear the brunt with you. This gas channel presents Nigeria with an opportunity to quadruple its current LNG exports to Europe and redesign its foreign policy with Gas as leverage (After all, Russian Gas goes through Ukraine to Western and some parts of Eastern Europe). 

This conflict also presents Nigeria with an opportunity to ramp up its production of Di-Ammonium Phosphate gas to fertilizer blenders around Nigeria, to increase the local demand of fertilizer in Nigeria (by insulating the markets from the effect of global inflation), increasing its exports like Dangote has done with the export of 300,000 metric tonnes of Urea to Brazil and the US within the last 9months of his Petrochemical plant coming into operation. 

In all, even though the financial sanctions placed by the UK Government (that has completely excluded Russian Banks from their financial system, and limited the amount Russian Nationals can hold in UK banks) or the sanctions the US treasury has placed on the two (2) largest Russian Banks through the Office of Foreign Assets Control-OFAC on (Sberbank and VTB) with a freezing of their assets, or the likely tendency that within the next 24-48hrs, Viktor Orban (the President of Hungary) that remains the only link to approve for the European Council to ratify the removal of Russia completely from the global network of more than 11,000 banks in the world (Society for Worldwide International Financial Telecommunications-SWIFT), Nigeria has a chance to start investing massively with the right partnerships in piping gas to Europe as well as beginning to become a global leader in the exploration, production of ammonium nitrate gas, as well as blending of fertilizer (A commodity that is going to jack up food prices by at least 12% in Europe in this new farming season coming on in the spring). 

This is the time for the President of Nigeria to summon his national security council (NSC) and have them meet with both the Federal Executive Council (FEC) and the National Economic Council (NEC) to implement the plan I shared above. 

A wise man once said ‘’Never let good crises go to waste’’. May the force be with Ukraine!

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Kelvin A. Emmanuel wrote this article exclusively for NewsWireNGR

CEO| Group

[email protected] 

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