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What Does the Ukraine-Russia War Mean for Kenya?

Russia and Ukraine have been in conflict for the past eight years since Russia annexed the Crimean Peninsula in 2014. Russia took advantage of Ukraine’s political instability in 2014 to invade and establish control over the Crimea Peninsula in the south of Ukraine. The ensuing war was brought to a ceasefire in 2015 following the signing of agreements by Russia, Ukraine, France, and Germany, known as the Minsk Accords.

In 2019, there was a change of the constitution of Ukraine that enshrined closer links to both North Atlantic Treaty Organization (NATO) and the European Union (EU). This change in constitution confirmed Russia’s fears over the influence of the US and Western European states on its borders, thereby increasing tensions in the region.  Russia has always viewed Ukraine as a Russian province rather than a sovereign state. To counter this perceived threat to its independence, Ukraine resolved closer ties with NATO and the EU. Russia, in turn, viewed this as a threat to its security. Ukraine remained strategically and economically important to Russia as a buffer between Russia and the Western states and as a food powerhouse, respectively. It is for this reason that Russia was concerned about losing Ukraine, leading to the invasion.

Several sanctions have been put in place against Russia. These include financial sanctions, trade sanctions, import sanctions and technology sanctions. On financial sanctions, Russia is excluded from the SWIFT payment system and has been denied access to the international bond market. Excluding Russia from the SWIFT system has made it very difficult for Russian companies to receive and make payments. In 2014, following Russia’s annexation of the Crimea Region, the same sanction was imposed on Russia. As a result, Russia developed its own Ruble-based payment system known as the System for Transfer of Technology Messages (SPFS). The system has, however, not grown significantly to be a major competitor for SWIFT. SPFS currently has 400 financial users. Russia’s demand for payments to be made in Rubles from unfriendly nations has meant that there is more demand for Ruble-based system, giving more credibility to the system and potential to grow as a formidable competitor to SWIFT. Russia has opted for an alternative, the China Cross-Border Interbank System (CIPS), operated by about 1,280 financial institutions. With denied accessibility to international bond markets, Russia is not able to raise a large amount of debt from the international market. However, Russia’s debt has been historically relatively low compared to its economic size, and this sanction will not cause a major problem.  

Trade sanctions have been fully imposed by the US, Canada and the UK, who no longer buy oil and gas products from Russia. However, the response from other European countries has been mixed. Germany and Italy, for example, have a large dependence on Russia’s oil and gas for their industries and consumers who are supplied through installed pipes at low cost. It will take time and huge investments to completely replace Russia’s oil and gas with alternatives. Leading companies and brands have exited Russia’s market, and logistic companies no longer want to ship goods to/from Russia. However, Russia has changed legislation, giving freedom to any Russian company that finds goods from any country in the world to import to Russia. The world is very interconnected today, and with technology sanctions, Russia will not be able to update its existing technology and will not be able to develop as the rest of the world.

Kenya-Ukraine bilateral relations started in March 1993 when Kenya recognized Ukraine as an independent state. The two countries have since established good relations with the establishment of the Ukraine Embassy in Kenya in 2004, and a Consulate of Kenya in Kyiv, Ukraine. There has been cooperation in areas spanning from trade, economic military, and culture between Kenya and Ukraine. Kenya’s imports from Ukraine were valued at Ksh 7.47 billion in 2020 and doubled to Ksh 19.29 billion in 2021 owing to increased imports of wheat and products of iron and steel. The doubling of imports from Ukraine to Kenya can be partly attributed to the 2021 change in law in Ukraine to allow the sale of farmlands for the first time in 20 years. The ban had been in place to prevent oligarchs from taking over. For Ukraine, this created a huge opportunity to fill a gap in the global food chain caused by the COVID-19 pandemic. At the beginning of 2022, Ukraine was the biggest exporter of sunflower oil and the fourth-largest exporter of corn. Kenya’s exports to Ukraine mainly consist of tea, coffee, cut flowers and vegetables. The Ministry of Foreign Affairs in Kenya declared that there are 201 Kenyans in Ukraine, comprising 18 Consular staff and 183 Kenya students as of February 2022 when the Ukraine-Russia war began.

Russia has a great interest in Kenya in terms of trade and development cooperation. Russia has established diplomatic relations with Kenya since 1963. Kenya has an embassy in Moscow and Russia has an Embassy in Nairobi. Bilateral trade between Russia and Kenya reached a total of Ksh 48.13 billion in 2021. Kenya exported goods worth Ksh 10.47 billion to Russia and imported goods worth Ksh 37.66 billion in 2021. Russia and Kenya have partnered to promote and develop education at higher levels, and under this partnership, the Russian Federation provides limited scholarship opportunities for undergraduate and postgraduate studies towards the development of human resources in Kenya. Other areas of cooperation include trade, investments, energy, development cooperation, technical cooperation, and partnerships, which were identified during the first Russia-Africa Summit in 2019 held in Sochi.

Kenya has no finalized trade agreements with Russia and Ukraine. During the Russia-Africa Summit in Sochi (2019), Russia and Kenya resolved to form a joint business council to spearhead the formulation of trade agreements. The finalization of trade agreements will improve imports and exports by the two countries. The trade between Kenya and Ukraine has been based on long-term ties and mutual respect as there are no finalized formal trade agreements between the two countries. In 2021, a Kenyan delegation visited Ukraine to carry out an audit of bilateral agreements that are under consideration, and to intensify relations and increase trade between Ukraine and Kenya.

The Kenyan economy is a commodity market, implying it generates most of its revenue through commodity exports. Kenya’s major exports include coffee, tea, cut flowers and vegetables. The sanctions against Russia have a direct impact on Kenya, with the disruption in trade of Kenya’s main commodities. Flower farms in Kenya are already reducing production because of depressed demand, and the tea sector is not spared either as Russian tea buyers have kept off the auction following the announcement of the sanctions. The major shipping companies are also keeping away in response to the sanctions. The exclusion of Russian banks in the SWIFT payment system has made it difficult to receive payment for sales of commodities to Russia.

Kenya imports wheat, oil, iron, steel, and fertilizers from Russia and Ukraine. Russia and Ukraine dominate wheat imports to the East African region. In Kenya, 67 per cent of wheat is from Russia, 22 per cent from Ukraine and 11 per cent from the rest of the world. Russia is the world’s largest exporter of fertilizer and exports a significant volume of fertilizer to the East Africa region. Disruption in fertilizer production and exportation has already caused a spike in the price of fertilizer in Kenya. In March 2022, the price of fertilizer doubled from the long rains planting season of March-April-May 2021 from Ksh 2,500 to more than Ksh 5,000. The government through the Ministry of Agriculture has introduced a fertilizer subsidy programme following a spike in fertilizer prices, but not all farmers benefited from this. The war and the subsequent sanctions against Russia have disrupted the oil supply in the world. The supply shocks have resulted in more costly oil products in Kenya, leading to increased cost of living. The increased cost of oil products has a wide-ranging welfare impact through increased transport and costs of production, which are in turn transferred to consumers. For example, rising wheat prices have contributed to food inflation in the country. Kenya has an established fuel stabilization fund to provide subsidies and cushion consumers against the negative effects of skyrocketing fuel prices.

The Kenya-Ukraine trade and Kenya-Russia trade is modest when compared to total trade between Kenya and other countries. Kenya’s exports to Ukraine in 2020 were valued at US$ 9,177,000, representing only 0.15 per cent of the total Kenya exports valued at US$ 6,025.429. Kenya’s imports from Ukraine in 2020 were valued at US$ 70.238 million, representing 0.46 per cent of Kenya’s total imports valued at US$ 15,415.397 million. Further, Kenya exported products worth US$ 75.264 million in 2020 to Russia, representing 1.25 per cent of Kenya’s total exports. Regarding imports from Russia, Kenya imported various commodities worth US$ 350.090 million from Russia, representing 2.32 per cent of Kenya’s total imports.

There is need for Kenya to find other sources of these products. For example, Kenya could source its wheat products from other top exporting countries such as India, Australia, and countries in the European Union to bridge the gap. Serbia has already indicated that it will supply Kenya with 150,000 tons of wheat to bridge the gap caused by the supply shock resulting from the Russia-Ukraine war. In addition, Kenya could take advantage of the situation and boost its wheat production by putting up measures such as subsidies on wheat production inputs. Kenya produced 245,300 tons of wheat and imported 1,888,900 tons of wheat in 2021. This brings to the fore the magnitude of the amount of local production needed to narrow down the dependence on imports.

Kenya is taking steps to correct the shocks occasioned by the Russia-Ukraine war. The cost of goods and services has increased significantly as a ripple effect of the disrupted supply of oil and subsequent price increase. Following this increase, Kenya has continued to implement a fuel stabilization programme to stabilize and maintain oil prices. The government has also taken measures to ensure that oil marketing companies do not take advantage of the situation to cause artificial shortages and increase oil prices. The government has moved to increase its strategic oil reserves by allocating a higher quota to the National Oil Corporation of Kenya (NOCK) to act as a national strategic oil reserve. Diversification of wheat sources has been recommended to wheat importers in Kenya to meet domestic demand. A constant supply that meets the local demand will stabilize wheat prices in the country. The government has also encouraged local millers to purchase wheat from local farmers.

Author: Elvis Kiptoo, Young Professional

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