As the war in Ukraine intensifies, acute food insecurity is threatening the lives and livelihoods of 345 million people, the International Monetary Fund (IMF) has warned. According to the Fund, the suffering was worst in 48 countries, many highly dependent on food imports from Ukraine and Russia, adding that the financial costs of the crisis are rising, too. In an article jointly penned by IMF’s Managing Director, Kristalina Georgieva, Sebastián Sosa and Björn Rother, that was published on the Washington-based institution’s website, they called for a rapid response to the unprecedented humanitarian challenge. “We must all act now to ease the suffering of those experiencing hunger, by supporting countries who take strong policy action with the financing they need,” the authors added. The IMF estimated that the rising cost of food and fertiliser imports in countries highly exposed to food insecurity would add $9 billion to their balance of payments pressures in 2022-23. This, they noted, would erode their international reserves and ability to pay for food imports. “In many countries, policymakers have introduced fiscal measures to protect people from the food crisis. Highly exposed countries will need as much as $7 billion this year alone to help the poorest households, according to staff estimates. The international community must…take decisive action to ensure that the needed financing is in place,” it added.
According to the UN, almost 630 million people in the world faced malnutrition in 2015. The UN defines undernourished people as individuals whose food intake falls below the minimum level of dietary energy requirements. At face value, 630 million people looks like a lot of people. However, this can be described as tangible progress seeing that the figure is equivalent to a 23% decline from undernourishment levels in 1990-1992. But that’s where the good news ends.
By 2019, that figure increased to 690 million in 2019 and the COVID-19 pandemic significantly exacerbated the situation, funnelling an additional 161 million into hunger. In real terms, about one in 10 people globally are undernourished or suffer malnutrition today, and that figure is going to rise (and already has) sharply due to the Russia-Ukraine war. The countries helping Ukraine prosecute its war with Russia, who are now reducing aid as a consequence, are partly to blame for the increase in food prices. Although fertiliser and food imports from Russia are not restricted, financial sanctions applied to Russian banks including its agriculture finance institution, have made countries who need Russia’s fertilisers go through circuitous routes, raising costs. Countries like Brazil that rely on Russian fertiliser have to route payments through countries that don’t have such restrictions in place, such as China. This feeds into the increased cost of fertilisers which is priced into the cost of staples.
For developed economies, the game has been to absorb the shock by deploying their significant fiscal mettle. Many of the economies that give aid to low-income food-deficit countries have made Russia’s war on Ukraine their business. Some of these aid-giving states are in the North Atlantic Treaty Organisation (NATO), which was created to combat any perceived threat from the Soviet Union and its chief successor state, Russia. Although Ukraine is not an inductee, NATO member states have security cooperation agreements with Ukraine. After Russia annexed Crimea in 2014, alliance members promised to adhere more seriously to their annual defence spending commitments. Nine of the 30 member-states will reach that target this year and others have made committed projections to hit that mark. To reach that target, they have to take that money from somewhere and development aid appears to be the preferred pot to scoop out of. Germany, for example, reduced its foreign aid budget for 2023 but increased military spending by setting up a multi-year €100 billion fund to improve its combat effectiveness. Funding for Germany’s two key development aid channels – its ministry for economic cooperation and foreign office – was slashed by a combined €2.1 billion, reducing the size of its spending to agencies like the World Food Programme and the UN High Commission for Refugees. On the other hand, it is spending more money within its shores to cope with rising living costs including €50 billion in handouts to vulnerable citizens, the United Kingdom has announced over $100 billion in schemes aimed at freezing energy prices and Spain plans to spend a historic €274 billion next year on social welfare.
These are monies that Somalia which is experiencing its worst famine in about 40 years, and Nigeria, the country with the highest food insecure population in West and Central Africa, do not have and will likely not receive from the G7 or G20. Borrowing on global markets is an option but that is becoming more expensive as the global economic outlook worsens and lending rates rise, making fresh debt issuances expensive. Germany, Spain and much of the developed world are also tapping debt markets at rates many analysts have projected will be close to historic levels. The difference between these countries and a developing country such as Nigeria is that Abuja lacks the wiggle room that London, Berlin or Madrid have. While the UK can afford to borrow, Nigeria cannot because its fiscal responsibility is a sorry sight and uninspiring to creditors.
For Nigerian economic actors, food imports have become expensive as inflation and scarce forex tag-team wreak havoc on government revenue, corporate margins and household spending. In our last published Jollof Index, traders reported being overwhelmed by the high cost of replacing stock. If the world is serious about ending hunger, it might have to consider policy stop gaps as the global economy adjusts to bringing online latent capacity from other food-growing countries to replace sanctions-locked Russian production. The IMF, the World Bank and the G20 should consider giving cheap concessionary loans to these countries which are tied specifically to food and fertiliser importation. Ultimately, increasing climate financing aimed at adapting to and mitigating the consequences of the warming globe, would really help developing countries to be more resilient – that is if the said governments are committed and responsible.