The unrelenting Israel-Hamas war in the Gaza Strip, which threatens to destabilize the entire Middle East, is expected to have devastating consequences on East African economies. Oil prices are expected to soar even as local currencies dip to historical lows against the dollar. Intercontinental investors are now choosing to ditch local currencies in favor of ‘safer options’ including the US Dollar, The Euro, and the British Pound.
Since the turn of the century, the Middle East has been a key trade partner for East African countries. Key traded commodities include oil from the Middle East and agricultural products in the opposite direction. The total traded commodities have in many ways helped the respective countries achieve various set targets of their balance-of-trade and payments balances.
The Israel-Hamas war is expected to hit East African economies harder than Russia’s war on Ukraine – now into its second year since the beginning of the assault in February 2022.
After widespread reports of Hamas’s initial assault on Israel, Kenya’s president William Ruto called on the international community and involved parties to ’embark on a path toward a peaceful resolution of the conflict.’ The war has since elicited mixed reactions from heads of state in the East Africa region as well as the continent at large.
“We are profoundly disturbed that civilians continue to be intentionally targeted in this conflict, as a consequence of which the number of casualties continues to rise. We therefore call on all parties to respect the rights of civilians and honour their obligations under international law. Finally, we take this opportunity to reiterate our firm stand in solidarity with all those calling on the parties to desist from further attacks, promptly effect a cease-fire, and embark on a path toward a peaceful resolution of the conflict,” Dr. William Ruto said in a post on X (formerly Twitter) in October
The escalation of hostilities and the conflict has seen a 10.4% jump in the cost of a barrel of Brent Crude oil while Murban oil has appreciated by more than 8% within two weeks of the start of the conflict. Most East African economies draw their oil imports from Murban Oil – a standard export from the Middle East.
In Kenya, a recent review of oil prices has seen a Ksh 5.4 increase in Super Petrol Prices for the period between 15th October and 14th November. More pain is expected as escalations reach devastating proportions. Oil prices in Tanzania and Uganda have been higher among East African Economies. The discontinuation of subsidies by Dr. Ruto’s government has led to a steady rise in oil prices in Kenya.
The availability and demand of oil on the global market have previously had staggering inflationary consequences for East African economies. Even though Kenya and Uganda have confirmed unexplored oil fields, none has been able to produce oil on an industrial scale to meet local demand or export to the global market.
Kenya, Uganda, and Tanzania are net importers (the value of imports is significantly higher than the value of exports). This places the countries at a great disadvantage and is widely exposed to inflationary reactions within the respective economies.
The value of exports from the East African Economies was to the tune of $1.9 billion in 2022. The war and instability will make it impossible to freely trade and exchange goods meaning the value will take a big hit thus further weakening the respective economies’ balance of trade and payments.
The pain of sourcing for other markets will hurt East African economies, as the international community continues to censor Russian Oil and energy products from the international market.
The average interest rates in the region are also expected to go higher. This was significantly revised upwards after the Russian Invasion of Ukraine. The Israel-Hamas war will most definitely worsen the already delicate situation.
The securities exchange in all three countries has been under constant pressure as investors continue struggling with speculative pressures exerted by the market.
It is likely that all of Kenya, Uganda, and Tanzania will go in search of international loans from the West and the East to fund various key projects. Kenya is still reeling from the aftershocks of a prolonged electioneering period that has sucked morale out of its public institutions and development agencies. Uganda and Tanzania do not hold elections until after 2025 – this has enabled both countries to benefit greatly from Kenya’s instabilities. Uganda has also had its own problems with its tough stance on LGBTQ rights in the country. The World Bank and the IMF have vowed to cut development funding until the repeal of the ‘discriminatory laws’ against the LGBTQ community.
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