Wednesday, February 1, 2023

War in Ukraine and casualties beyond the shore of Europe: What can we do in The Hague?

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Diplomat Magazine
Diplomat Magazinehttp://www.diplomatmagazine.eu
DIPLOMAT MAGAZINE “For diplomats, by diplomats” Reaching out the world from the European Union First diplomatic publication based in The Netherlands. Founded by members of the diplomatic corps on June 19th, 2013. "Diplomat Magazine is inspiring diplomats, civil servants and academics to contribute to a free flow of ideas through an extremely rich diplomatic life, full of exclusive events and cultural exchanges, as well as by exposing profound ideas and political debates in our printed and online editions." Dr. Mayelinne De Lara, Publisher

 The Diplomatic Magazine invited Ambassador Sheikh Mohammed Belal, Managing Director of the Common Fund for Commodities (CFC) for an interview on the aftereffects of the war on the developing countries and possible responses that The Hague community could expect to pursue globally.

DM: In some of your remarks recently, it seems CFC have been urging its member states to pay greater attention to the impact of the Ukraine war on developing countries. The War is in Europe. Why would the developing countries be so concerned?

MD: Thanks Dr. De Lara. It is a pleasure to speak to Diplomatic Magazine (DM). I (MD) am happier to see that you chose, very rightly, to focus on the aftereffects of war on the developing countries as well. Indeed, the irony of this war is that the devastations of this war doesn’t stop at the border of Europe.

While our hearts go out for those paying the prices of this absurdity with their lives in Ukraine, we are equally concerned, indeed shocked, to see how this war is wreaking havoc on the developing world. I wish I can make you talk to a vendor in my home country Dhaka or one in Dakar, Senegal. You would see the discussions are around inflation, hunger, famine, fuels, or lack of medicine.

The Russian war in Ukraine is a major event in our lifetime. It is perhaps the most dangerous international incident since the Cuban missile crisis. Yes, there were pre-existing vulnerabilities. The war came at a time when the global economy is still in the grip of a pandemic and in the midst of inflationary pressures, which are likely to intensify, especially if the war is protracted.

Commodity markets have been thrown into disarray since February when war begun. The war has boosted prices and cut off supply, creating a harrowing environment for consumers of raw materials but the perfect conditions for trading houses. Because of supply bottlenecks created by this war, the world of commodities divided into two parts.

One, the developing country people paying a staggering high price for the essentials they ought to buy. The other part is the big businesses in the North making hefty profit. One commodity business recently published that its marketing division will record profits “comfortably” above the top end of its $2.2 billion to $3.2 billion guidance range this year [1]

Commodity traders, who transport the world’s resources, have been able to profit from the volatility, arbitraging cargoes through the web of sanctions and supply disruptions to keep material flowing. “What we’ve always found is that in times of high volatility, high prices and high volume is when we have the opportunity to make the most money,” one Executive of a big commodity business house boasted recently. [2]

Soaring food and fuel prices already affecting the most vulnerable in the developing countries, putting pressure on the poorest households which spend the highest share of their income on food, resulting in hardship and hunger. With more money needed to buy those essential commodities, developing countries deficits and debt stress could blow up to a level putting more people to poverty and hunger. This will add to their external imbalances and concerns about inflation persistence and the path of their public debt. The Ukraine conflict will not only be devastating for countless Ukrainians, but also for millions of vulnerable people elsewhere.

DM: Could you be little specific in which way this war is hurting countries beyond Europe and how?

MD: This is a great question. The war in Ukraine threatens to cause lasting damage to the economies of low- and middle-income countries, pushing millions of people into poverty and tipping dozens of countries into a debt crisis. This not CFC, but the World Bank has warned. High commodity prices, collapsing trade growth, rising interest rates and a stronger US dollar will exacerbate fiscal pressures in many countries, making it harder for net importers in particular to service mounting debts.

As you asked me to be specific, among many, let me draw attention of your readers into three major areas, that we consider, will be hit particularly hard by the Ukraine effect.

First, supply shock. As we all now know, more than before, that both Ukraine and Russia are a big part of these global grain, oils, fuel, and fertilizer markets. They provide some of the most essential commodities. These are things that people can’t do without.

According to UNCTAD, both Ukraine and Russia are global players in agri-food markets, representing 53% of global trade in sunflower oil and seeds and 27% in wheat. As many as 25 African countries, including many least developed countries, import more than one third of their wheat from the two countries at war. For 15 of them, the share is over half.

When we talk about commodities, people tend to think more about Russia than Ukraine. But Ukraine itself is a big player in the world commodity market.  So it’s the number one exporter of sunflower seeds. It’s the fourth largest exporter of wheat with a 10 percent share, and it’s the fifth largest exporter of corn with a seven percent share.  On the other side, Russia is a commodities giant. And it’s the biggest exporter of wheat. It accounts for a quarter of the market for natural gas, nearly 20 percent of the market for coal. Fourteen percent of the market for platinum. And more than 10 percent of the market for crude oil.

Secondly, a good part of the money that were earmarked for development may finds its way into the battlefield of destruction or better prepared to destroy next time. Donor budgets are facing immense pressure to reallocate funding in response to the colossal human cost of Ukraine’s conflict. Some donors are reportedly pulling funding from aid budgets in other regions to fill the gaps, which will have significant consequences for millions. We are so busy, rightly though, with the Ukraine that we hesitate to remind our member states about the worsening circumstances in the Yemen, Afghanistan, South Sudan, and the likes. They deserve our attention too. The Hague community can help us to remind our member states precisely that. We are all in this together.

Third, forces of deglobalization are much empowered and energized after this war. Please recall that the forces of globalization are already at a stress since the pandemic. Western countries have responded to Russia’s invasion of Ukraine with sanctions and extensive military support to the Ukrainians, while NATO is working for more funding for defense preparedness. At the same time, US-China tensions remain high. Fears of a global conflict are growing. The last thing we wish to see is any event that could spark a military confrontation beyond the borders of Ukraine. The Financial times recently hosted a webinar on “Are we on the path to World War Three?” This is too dangerous for both the developing and the developed countries as the concept of “comparative advantage” will be replaced by the forces of geo-politics.

DM: Please tell us why commodities became such a big part of this war? The recent compromise on Black Sea Grain deal is any good for the developing world?

According to FAO, in March 2022, world food prices reached an all-time high, with fuel prices up 86% and fertilizer prices up 35% from just two years prior. World Food Program accounted for  50 million people in 45 countries teetering on the edge of famine. Even in a high-income country like the United States, 2.4 million people are severely food insecure.

Of the total number of undernourished people in 2020 (768 million): 282 million live in Africa, 418 million in Asia, and 60 million in Latin America and the Caribbean. Nearly one in three people in the world (2.37 billion) did not have adequate food in 2020 – an increase of almost 320 million people in just one year.[3]

As per the African Common Position paper, in 2019 Africa expended US$43 billion on food imports, and it is projected to raise to US$90 billion annually by 2030, pointing to two contrasting realities, namely existing opportunities for African agriculture and farmers, and on the other hand, growing unsustainable food supply dependence on foreign sources.

CFC is small yet would like to remind the humanity that without fairness to those 570 million smallholder households, or about two billion people engaged in the production of food and other essential commodities like coffee, cocoa, cotton etc., there may not be enough food to feed, dress to wear, chocolate to eat. This is why CFC is working towards commodity value chains, which is much shorter, transparent, and traceable so that our smallholders get what is rightfully due to them. As we speak, they receive laughingly little sum to what they produce with their toil and sweat.

The Hague could help us to do it with more innovations and scale. We need good research to make the conscious consumers, of Gen-Z and the likes, much aware about what they eat or what they wear. Poverty alleviation is everyone’s mission. We truly wish to help our producers making the consumers aware so that they can ask the brands and business for the fairness that is sadly missing now.

DM: We are aware that with your mission to alleviate poverty, CFC have been investing the most in Africa. Is it because that Africa is rich in commodities or Africa has the highest number of people in poverty? Overall, how do you see this war would affect Africa?

MD: Your question has two parts. First, why we pay such a high degree of attention to Africa? And how the narrative of African resource curse could be transformed into blessings for all. Right?

In response to your first part of the question, Africa remains a matter of our utmost attention for a host of reasons. It is not only the continent of future, it is also the continent that will provide most of the CEOs of Fortune 500 in the not-too-distant future. If we don’t invest in Africa, we will continue to see that commodities will only serve the interests of the biggies, not the smallholders and SMEs (Small and medium enterprises).

Africa’s youth population is set to double by 2030, which presents a great opportunity to increase the consumer demand for new products and services. Currently 1 in 3 Africans is aged between 15-29 and approximately 40% are under-employed.  We would like to see those youth take a better care of their commodities and thereby turn the so called “resource curse” into a true blessings for all.  If young Africans could have access to a job in the ongoing African Continental Free Trade regime and an opportunity to use their talent and creativity, these young consumers could be the next big wave of market opportunities for products made in Africa.

On the issue of “resource curse”, we are hopeful. Africa is changing. They started discussing on value addition to what they produce in a way that we haven’t seen before. We see the President of African Development Bank Group H.E. Mr.Akinwumi A. Adesina tweeting this:

Quote:

“Africa’s prosperity must no longer depend on exports of raw materials but on value-added finished products…Across Africa, we need to turn #cocoa beans into chocolate, cotton into textiles and garments…” [4]

Unquote:

If Africa can take care of their own resources, the world will be better placed to achieve the SDGs and all other derivatives that you can ask for.

Therefore with sharpened focus on Africa, here in the CFC, we are asking countries in the Latin Americans, China, India and others to come forward to collaborate each other to learn from your best practices and even from their failures. We are also urging our United Nations entities like UNCTAD, FAO, WTO etc. to look into the commodity value chains so that they can work for both the producers and consumers.

As we speak, because of war, inflation is wreaking havoc across the developing world. For millions of people in the developing world, their calculation of finance got upside down because of this war.

Let me give you a very recent example. Zambia, a very commodity rich yet a least developed country, has been trying to negotiate a debt restructuring for nearly a year and a half, since November 2020. Zambia was compelled to seek this restructuring as almost 70 percent of their revenues would go to servicing debt if it resumed payments on schedule.  Yes, you heard it right. Seventy percent. Likewise, Zambia, there are many countries that are experiencing similar or more pain. As the world now gradually going into the discussion of debt restructuring for Ukraine and so on, we should be thinking about all these other countries that really do need debt relief.

To cap it off, we urge the international community, through your esteemed magazine, to make finance easier, cheaper, and de-risked as much as they can if they wish to put both the developing and the developed world on the growth trajectory for a world past the shocks of the pandemic, war, and the effects of climate change.

DM: We got a sense on why commodities became such a big part of this war. But please tell us how the recent compromise on Black Sea Grain deal is any good for the developing world?

MD:  Let me , first, begin by thanking the United Nations and its Secretary General Mr Antonio Guterres for his leadership to work out this much needed deal. The Black Sea Grain Initiative, brokered by the United Nations and Turkey, was set up to reintroduce vital food and fertilizer exports from Ukraine to the rest of the world.

Since the war in Ukraine begun, exports of grain from Ukraine, as well as food and fertilizers from Russia, have been significantly hit. The disruption in supplies pushed soaring prices even higher and contributed to a global food crisis.

CFFC Sheikh Mohammed Belal War in Ukraine and casualties beyond the shore of Europe

As could be seen from the infographic, around 25 per cent of the cargo has gone to low and lower-middle income countries. Egypt (8 per cent), India and Iran (4 per cent each), Bangladesh, Kenya and Sudan (2 per cent each), Lebanon, Yemen, Somalia, Djibouti (1 per cent each), and Tunisia (less than one per cent). Because of this deal, poor people in need are the most benefited ones as it helps to calm markets, and limit food price inflation.

What you may not see is, what I call, double jeopardy of the smallholders. Because of the rise in the price, they hardly, if at all, see any substantive increase in the receipt of their income. When the high price of cocoa, for example, reaches back to the cocoa farmers, it is not enough to meet the increased cost of inputs, like fertilizers, seeds, pesticides, chemicals they must buy. So, the smallholders lose out on both ways-the double jeopardy. (Please read the “COVID in COCOA” at the end of this interview).

DM: We discussed a lot of commodity issues while we remain focused on diplomats and diplomacy. We thank you for bringing this new dimension which, we believe, our readers may find interesting. Do you have any concluding thoughts?

MD: Firstly, we thank the Diplomat Magazine to speak commodities. It is poor people’s life. It is poverty alleviation. None of us will have the comfort of living in peace leaving those two billion commodity producers in poverty and hunger. So, we thank you for making this possible. We would like to thank the Diplomat Magazine for embracing grassroots when you publish interviews like “Green Hydrogen: A Promising Future For Chile And The World” or “Perspectives On The Cocoa Sector in Ghana”.

So, please keep speaking commodities, doing commodities as a voice to those two billion people who are feeding us. I thank you.

CFC is an UN affiliated international financial organizations mandated to ease the trap of commodity dependence globally. With 101 member states and 9 institutional members, CFC is headquartered in Amsterdam. Following sustainability roadmap, CFC has been working to make the commodity value chains work for both the producers and the consumers. With its focus on smallholders and small and medium enterprises (SMEs) in the commodity producing developing countries, CFC have been working to bring innovations in the commodity value chains in a way so that smallholders could increase both their income and productivity in a climate and gender friendly way. CFC’s investments helped a good many smallholders and SMEs be the part of global value chains and thereby lifting them from the pit of poverty.


[1] https://www.bloomberg.com/news/articles/2022-04-28/war-in-ukraine-brings-commodity-traders-uncomfortable-windfall (accessed on 30 November 2022)

[2] https://www.bloomberg.com/news/articles/2022-04-28/war-in-ukraine-brings-commodity-traders-uncomfortable-windfall (accessed on 30 November 2022)

[3] United Nations: https://www.un.org/en/global-issues/food.

[4] https://twitter.com/afdb_group/status/1598712408868110336 (accessed on 07 December 2022)

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