Zimbabwe’s ailing economy feels the heat from Russia-Ukraine War

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MUTARE: Phillip Kambamura, 32, could not believe that he had just refuelled his taxi for $1.67 per litre in early March in Mutare, up by 23 cents before the Russia-Ukraine war began.

Kambamura drives his taxi around the 40-kilometre radius of Mutare which is near the border between Zimbabwe and Mozambique.

This is the second time that fuel prices have risen in a week with the regulator, the Zimbabwe Energy Regulatory Authority (ZERA) citing the war in Eastern Europe as the major cause.

While the government has paused its price increases for now, they are still “just exorbitant”, says Kambamura, a father of two who stays in Dangamvura, a high-density suburb in Mutare. At these prices “the taxi business is becoming unprofitable,” he added.

But the war is affecting commodities beyond fuel. With Russia and Ukraine exporting about a quarter of the world’s wheat, those prices too have been shooting up globally since the start of the invasion.

Its ripple effects are hitting developing nations like Zimbabwe hard as supplies of these products are disrupted both by the war and the sanctions that have since been imposed by the West on Russia and some of its allies.

For Zimbabwe, it is worse as it heavily relies on Eastern nations including Russia, China, Belarus and Singapore for trade and gets at least half of its wheat from Russia. But with wheat prices up nearly 15 percent in early March from 119,000 Zimbabwe dollars ($595) to 136,544 Zimbabwe dollars ($682) per metric tonne, residents have to pay more for bread.

The rising fuel and bread prices have in turn triggered a wave of price hikes of basic commodities around the country, worsening the situation for many Zimbabweans who are already grappling with widespread poverty amid stagnant salaries, uncontrolled inflation due to economic mismanagement and corruption by President Emmerson Mnangagwa’s government.

According to the World Bank’s social and economic update, 7.9 million people in Zimbabwe fell into extreme poverty in the past decade and are living under the food poverty line of $29.80 for each person a month.

More than five million Zimbabweans, a third of the population, did not have enough food to eat in rural and urban areas between January and March 2022.

“With higher oil prices, Zimbabwe will need more US dollars to import fuel,” Tinashe Manzungu, president of the Zimbabwe National Chamber of Commerce, told Al Jazeera.

According to the latest trade data, Zimbabwe’s biggest import is fuel and oil, which made up 21.5 percent of all imports in December 2021. “High fuel prices have a domino effect and this could lead to inflation,” Manzungu said.

According to the ministry of finance, the average annual inflation in Zimbabwe is projected to fall from a high of 94.6 percent in 2021, to 32.6 percent in 2022 and 17.5 percent in 2023.

Both the World Bank and the government have projected a growth of more than five percent, welcome news after a year of deep recession and two years of the pandemic, but economists warn the continuing Russia-Ukraine war will drag back these figures.

“Zimbabwe’s major imports are fuel and grains. The increase in costs of these will increase our import bill and put serious pressure on inflation which will lead to price increases of most commodities,” Harare-based independent economist Vince Musewe told Al Jazeera.

Business people like Kudakwashe Mapurada, who operates a small grocery store in Chikanga, a high-density suburb in Mutare, have lifted prices of maize-based mealie meal, sugar and cooking oil to pass on the costs involved to their customers to protect slim profits.

“The wholesalers have increased prices of these commodities citing a rise in distribution costs. I have no choice but to also increase prices of the goods by a smaller percentage,” said Mapurada, while standing behind the counter in his grocery shop at a shopping centre in Chikanga.

Stevenson Dhlamini, an applied economics lecturer at the National University of Science and Technology in Bulawayo, Zimbabwe’s second-largest city, said the fuel price increase has further worsened the cost of production in the whole supply chain as evidenced by the increase in the cost of public transportation as well as higher prices for bread and flour.

“All this has had the effect of eroding people’s average incomes and further reducing the standard of living in Zimbabwe,” he said.

Russia-Zimbabwe ties

Zimbabwe’s close ties with Russia date back to the 1970s when it was struggling to gain independence from Britain. At the time Russia sent in weapons and trained the Zimbabwean army to fight.

Hence today, despite the sanctions, Mnangagwa has maintained cordial relations with Russia.

When the United Nations General Assembly took a vote on Russia’s war against Ukraine in an emergency session on March 2 this year, an overwhelming 141 out of 193 member states supported the resolution, calling on Russia to withdraw from Ukraine.

But Zimbabwe was part of the 15 African nations that abstained and foreign minister Frederick Shava in a statement said that the situation in Ukraine was complicated.

“Zimbabwe’s vote in the UN General Assembly is not an anomaly, historical data shows since admission into the UN the country’s voting patterns are similar to China and Russia and very dissimilar to the United States,” Tatenda Mashanda, an academic at the University of Maryland College Park, told Al Jazeera.

Russia has over the past years also increased its investment in the country, particularly in the mining and energy sectors. Economists fear that the slew of sanctions on Russia could have a ripple effect on African nations like Zimbabwe that have bilateral investment protection and promotional agreements with Russia, particularly on energy and mining.

“Sanctions on Russia may affect some Russian investment in Zimbabwe,” warned Manzungu. Some of the investments that could be affected include one by fertiliser giant Uralchem, as well as a project to dig for platinum in what would be Zimbabwe’s biggest mine, 62km west of Harare and in which Russian tycoon Vitaliy Machitski has a 47.8 percent stake, he said. A 2019 agreement between state-owned Zimbabwe Consolidated Diamond Company and Russia’s Alrosa, the world’s largest producer of rough diamonds, to jointly explore for diamonds in Zimbabwe, will also be affected, Mangzungu said.

While the war continues in Ukraine and its ripple effects continue to be felt in smaller nations miles away, taxi driver Kambamura is waiting for the government to block the incessant fuel price increases.

“I just hope the government will intervene,” and cut back the fuel prices, he said.

Over the weekend the government did one round of cuts and brought petrol down to $1.59 per litre and diesel to $1.60, but that is nowhere close to making life more affordable for Kambamura.

– AlJazeera