As a result of business slowdowns and occasional closures during the pandemic period, a serious cost increase turbulence has emerged on a global basis.
However, the regularly increasing raw material, energy and transportation costs have unfortunately caused a serious increase in product-based unit prices. So what is the leading event among the recent crises? Of course, it is an unfortunate event that took place between Russia and Ukraine and reached the level of war.
Unfortunately, recently it has become very difficult to find raw materials at affordable prices and to produce them as inputs at reasonable prices and turn them into final products. One of the most important reasons for this is that major raw material and energy traders, such as China, the European Union, Russia and the United States, have entered a serious economic recession after the pandemic, and naturally, they are trying to market these resources at higher prices in order to close the current trade deficit.
If we look at the effects of Russia’s entry into Ukraine on the import and commercial situation of the African continent; Unfortunately, we can think that African countries will be adversely affected by this move. One of the two most important reasons for this is Russia, one of the world’s largest natural gas and fuel exporters. Every difficulty Russia experiences on the global platform automatically causes the prices of these two vital elements to increase.
Natural Gas, Coal;
Russia is one of the world’s leading producers of energy elements. Thanks to the energy resources imported from Russia, many countries produce in their factories and market them to other end-user countries. With the energy prices that have increased regularly since the second half of the last 2021, there has been an exorbitant increase in the unit prices of many products, and the countries that import the products have been searching for the prices of the previous years. When we consider the number of import items, especially for the African continent, we can see how the increase in energy prices mostly affects the purchasing power in the Sub-Saharan region.
Considering that natural gas or coal purchased from Russia is used in the manufacturing process of even the smallest part produced, we can see how difficulties arise if the selling price of this valuable resource from Russia enters an upward trend. In other words, we can understand how vital and critical the energy source is in every aspect of each product produced from A to Z. Unfortunately, energy prices have jumped by more than 100% in the last 1 year around the world. This had a very negative impact on the producer and the consumer and played a very important role in accelerating the inflation data.
Oil Prices :
In today’s trade, there is an even more important phase than producing the product: Transportation. Unfortunately, the logistic of the product in hand from one country to another has become a serious crisis issue today. The recent fluctuation in oil prices has unfortunately increased the unit prices of the product very seriously. The negative political developments in Russia, which is the 8th largest oil producer in the world, unfortunately caused the prices of this element to increase significantly. When we look at the last three-month period, we can easily see that the price of brent oil has increased from $ 68 to $ 110. This directly affects the freight costs of both land, sea and air transportation.
Let’s proceed with a concrete example;
You are a business person in Botswana. You are purchasing food products from Turkey. Let’s zoom out a bit and look at the production phase of the product. The main raw material of this edible product comes to Turkey from the Ivory Coast. In Turkey, it processes the raw material which is from the Ivory Coast, with the energy it receives from Russia and turns it into a final product. Then puts this product on a ship running on oil from Russia and sells it to Botswana.
I think now you can understand more clearly how the effect of the unbalanced increase in energy and oil prices in the world affects the unit price of the product. Of course, at the end of the day, this naturally causes the labels on the supermarket shelves to change more frequently. As a result, it causes a serious inflation situation in African countries as well as all over the world. America and many European countries announce the highest inflation figures of the last 20-30 years. The most important reason for this is that the world’s energy resources become more valuable. As energy prices skyrocket, they take the inflation figures with them and unfortunately make the local people poorer. As a result, many central banks increase interest rates and try to keep the economy in balance. However, we all know that these moves are not a permanent solution.
In conclusion, I believe that with the increasing polarization between East and West, the difficulties in the commercial and financial fields will increase further throughout 2022-2023, putting individuals in even more difficult situations on an economic basis. Even if the tension between Russia and Ukraine ends in the near future, I am sure that different and opposite issues will come up again and trading conditions will be much harder than this.
That’s why we should take care to make more vigilant and more stable moves than ever before while making our commercial transactions. We must systematically focus on more permanent, longer-term projections, rather than short-term businesses.