Africa-Press – Eswatini. Notwithstanding that the ongoing Russia-Ukraine war’s impact has not yet been fully felt by the Eswatini’s economy, macroeconomic indicators analysis show that the war could have a devastating impact on one of the kingdom’s most critical industries – sugar. The war in Ukraine has resulted in trade flows interruption, shipment disruption, higher commodity and energy prices.
Industry experts have observed that any shipment disruptions that may originate from the continuing war will threaten Eswatini sugar intended for the export market.
Though shipment routes utilised by Eswatini are currently not affected, Eswatini Sugar Association (ESA) Chief Executive (CE) Dr Phil Mnisi, conceded that given the wider impact of the war, “we expect a risk to the Eastern Europe supplies where the association has certain scheduled deliveries of raw bulk sugar.”
Dr Mnisi acknowledged that about 30 per cent of Eswatini sugar is destined for export markets and these are the volumes that would be affected by the expected shipment disruptions.
Boasts
The sage who boasts over 20 years in the banking industry, went deeper and explained that the shipment interruptions would automatically hamper the economy, highlighting that the impact would come from more than just the loss of foreign exchange realised from export sales.
“The revenues generated from these sales cascade not just to millers and cane growers, but have a huge multiplier effect right through the value chain,” Dr Mnisi elucidated.
Asked if there are any other markets the ESA is looking at to divert Eswatini sugar under better terms should the war eventually destabilise exports, Dr Mnisi said a continuous evaluation is undertaken to identify alternative markets that can absorb the sugar unless it (sugar) is contracted (a case when the ESA has to fulfil its contractual obligations).
“In the case of bagged sugar, it can be redirected to regional markets where ESA has preferential access.
Concerning bulk sugar, alternative markets in Europe could be identified. Whether the diversions will result in the same, better or worse returns, it is difficult to predict at this stage because there are a lot of factors that influence that,” Dr Mnisi stated.
Over and above the looming shipment disruptions, the sugar industry would soon be hit hard by an expected steep rise in shipping and freight costs triggered by the increase in fuel products.
On the sharp increase of freight and shipment costs that were prompted by the spike in fuel costs in the last two weeks, ESA could start bearing the brunt from May. Dr Mnisi disclosed that ESA has secured freight rates until the end of April, but was cognisant that they (freight rates) will significantly increase as a result of the high oil prices.
With the imminent increase of the freight costs, Dr Mnisi highlighted: “Unless the sugar prices at destination also increase in response to the high shipping costs, it means our sugar will be less competitive in the exports markets.
These developments will reduce the net return for Eswatini sugar from export sales.” What could further hurt the sugar industry is the volatility of the Rand/Lilangeni against major currencies – the US Dollar and Euro.
The invasion of Ukraine by Russia saw the Rand/Lilangeni weakening against the world’s major currencies. Under normal circumstances, the weakening of the Rand/Lilangeni against major currencies results in revenue sales surge, but regarding the ongoing war, the same cannot be expected. Equivalent According to Dr Mnisi, sales equivalent to E1.5 billion are generated in hard currency – US Dollar and the Euro.
With the weak Rand/Lilangeni, the sugar industry was supposed to benefit. “Any movement in any of these currencies results in either a benefit or loss of value to the industry. If the Rand/Lilangeni weakens against the two currencies, the industry will realise a benefit.
That benefit though is reduced by the fact that some of the inputs used by the sugarcane growers and millers such as machines, spares and fertilisers are procured in hard currency,” Dr Mnisi explained.
Lastly, Dr Mnisi detailed how in his view, the increase in fertiliser prices brought about by Russia’s invasion of Ukraine will hurt the sugar industry. He admitted that it would be difficult to state exactly how the war would impact fertiliser imports from Russia or the European Union as a whole.
He clarified that the impact on Eswatini would be determined by how South Africa would be affected as the former relies fully on the latter for fertiliser imports. “Globally, if the supply of fertilising material would be affected, it would certainly destabilise the fertiliser market.
Continents with greater demand such as South America would shift to other sources they were not importing from previously since they were mostly supplied by Russia, ” Dr Mnisi stated. He went on to say South Africa imports large quantities of Limestone Ammonium Nitrate (LAN), Mono- Ammonium Phosphate (MAP), Potassium Chloride (KCI) and Potassium Sulphate from Russia and the EU.
Dr Mnisi noted that of these fertilisers, MAP and KCI are the most used in the sugar industry and if the war persists, “these might become scarce or if they become available, it would be sold at inflated prices.” He added: “In fact, the low fertiliser demand by the African continent may exacerbate the situation, making the market ignorable.” On a positive note, Dr Mnisi said another fertiliser mostly used in the sugar industry is Urea which is largely imported from Asia, therefore, its supply may not be as much affected as the other fertilisers.
“It is worth noting that the fertiliser prices are already unsustainable as most of them are two-times higher than they were pre Covid-19. A range of factors have been behind these sharp increases which include supply constraints in critical fertiliser-producing countries (China, India, US, Russia, Canada), rising shipping costs and increasing oil and gas prices,” he clarified.
In Dr Mnisi’s view, the effects of the war are presently not directly felt as far as fertiliser prices are concerned, but this would change as the war continues. In Eswatini, the latest estimates show that fertiliser constitutes about 11 per cent of sugarcane production per hectare. Overall, statistics show that sugar remains Eswatini’s main export commodity.
The country is the fourth-largest sugar producer in Africa and the 25th largest producer in the world. Sugar production accounts for over half of Eswatini’s agricultural output and contributes about E6.1 billion to the country’s gross domestic product.
It employs over 20 000 Emaswati, making it the second-largest employer after government.
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