Africa and the Russia-Ukraine conflict

You can focus on the details of contracts and modelling in risk management but it’s the big events – like Russia’s invasion of Ukraine – that can literally wipe out your balance sheet.”

These words of an Africa infrastructure investment professional who sits on several companies’ risk management committees ring true. At the time of writing, the world looked on as Ukraine entered its nineteenth day defending itself against Russia’s brutal military invasion, which was launched on February 24 and had killed 600 civilians and displaced 4.5-million. Like previous significant events – such as the Islamist extremist terrorist attack on New York’s World Trade Centre on September 11, 2001 – this will dramatically influence geopolitics for a generation. Like the outbreak of Covid-19 or the global banking crash of 2007 to 2008, the events have the result of fixing emerging geopolitical and economic trends.

First is our bipolar world: on the one side is liberal democracy, on the other antidemocratic, authoritarian illiberal regimes. Russia’s invasion, which arguably had as its precedent the US’s invasion of Iraq, is a direct attack on democracy and the sovereignty of nations. Russian President Vladimir Putin’s reported objective is to reclaim for Russia some of the former countries of the Union of Soviet Socialist Republics (USSR). This neo-imperialist, even colonialist, objective clearly has the support of China’s Xi Jinping. China’s State-controlled media take Putin’s line that he has a right to be the overlord of Ukraine – regardless of what the people want. Ukrainians voted overwhelmingly (73%) to elect Volodymyr Zelensky as their President in 2019. China’s Xi, crushing democracy in Hong Kong and challenging Taiwan’s sovereignty, aligns with Putin’s claims of a right to suppress the autonomy of small State neighbours.

But Putin miscalculated and Xi may have miscalculated in backing China’s old ally. The invasion undid eight years of Putin’s best work: he almost succeeded in fatally undermining the European Union (EU). All his efforts, through his loyal oligarchs and their offshore funds, to secure in the UK an illogical and damaging ‘hard Brexit’, as well as the successful infiltration of the UK Parliament, its ruling Conservative Party and its financial establishment in The City, funding France and Italy’s extreme rightwing politicians, almost succeeded in splitting apart the EU. In the US, Putin’s misinformation machine clearly influenced the 2016 election of President Donald Trump and intensified ‘culture war’ divisions that culminated in the January 6, 2021, invasion of Capitol Hill. A former North Atlantic Treaty Organisation (Nato) Russia-Ukraine analyst, who is now a pundit on French TV, put it succinctly: Putin has been at war with the West since 2014 – the invasion of Ukraine is just the military part. The scale of Putin’s miscalculation is considerable: he achieved what no-one else has been able to do for generations. He has united the EU, including the dissenters in Poland and Hungary, as well as both US houses of Congress – and has united Nato, including bringing Turkey back into the fold. He has also established afresh the ‘us and them’ dividing line that will define the next generation.

Secondly, the immediacy and scale of the EU and US imposition of sanctions marks a fundamental shift in the global economy, notably in the curbing of globalisation and renewed pragmatist intervention around the global supply chain. The sanctions on Russia, particularly the seizure of central bank assets, has had an immediate effect on the rouble and inflation, and prompted massive disinvestment from the country, which is likely to cripple the Russian economy for at least the next decade.

Countries and companies are also re-assessing the risks of outsourcing the production of goods considered essential to their functioning to the other side of the world. Arguably, this started with Covid-19 with the severance of the global supply chain that began with international lockdowns in March 2020. For companies, a significant feature in assessing country risk is the future risk of political leaders doing things sufficiently unhinged that will provoke international sanctions on this scale. The question of the future will be whether one can invest in a regime like Putin’s, Rodrigo Duterte’s, Jair Bolsonaro’s or indeed like Xi’s, which either manifest little regard for people or are so corrupt or likely to do something unhinged as to increase the risk of international sanctions on a grand, coordinated scale.

So, what does this mean for Africa? Putin’s string pulling was global in ambition. He reached out to old USSR allies, extolled the benefits of creating oligarchies by inverting the economy to extract all value from it to the benefit of a small clique. Zimbabwe – with its primary foreign policy relationship in Russian ally, Belarus – proved a model student of the oligarchy model, according to recent reports. Russia has extended its influence among former Soviet-bloc allies, including the Central African Republic, Guinea, Mali, Burkina Faso, Libya and Sudan, either supporting recent military coups and then providing security support through Putin-allied military company Wagner, or brutal militia groups transported from war-torn Syria. In Sudan, Russia has sought to derail popular progress towards democracy by co-opting the recalcitrant military and supplying wheat.

There will be winners and losers, too. Companies with Russia’s investments across Africa will face tough times as sanctions bite. Russian oligarch-owned Alrosa is a major diamond miner in Angola, which faces sanctions at a time when diamond sales are picking up as well as competition from De Beers and Rio Tinto for the first time in 30 years. Luanda is home to two sanctioned banks, BVT Bank and Sebo Bank. For oil producers in Angola and Algeria, the spike in oil prices will be welcome and may offset the cost of the hike in food import prices. In Nigeria’s case, where oil theft, production problems and election-based theft of State funds will obscure any benefits, high costs and shortages of wheat could push yet more of the country’s vast population into poverty – all as Presidential elections approach in 2023. Egypt is the world’s largest wheat importer and the largest consumer of Ukrainian wheat. A war-driven chronic shortage and increase in cost could spark unrest in the country of 100-million people.

If the conflict continues for any length of time, the continent will once again have to pick sides – punting either for liberal democracy or becoming one of the client States of an authoritarian or military-backed dictatorship. However, if it is short-lived and Russia is forced to save face and retreat, it will mark the culmination of the resurgence of the ‘political big man’ and will see multilateralism and a rules-based order restored.