The significant impact on our region due to the war in Ukraine

Below, is an abbreviated version of a talk held by Dr. Scott B. MacDonald on June 23, 2022, at a panel discussion hosted by the University of the West Indies. Dr. MacDonald and I currently work with other experts for Global Americans/High-Level Group on Climate Change in the Caribbean.

Introduction

The Russian invasion has continued to shift geopolitics and geoeconomics. The tsunami of economic sanctions leveled against Russia by the West clearly underscores the tearing apart of the global economy, with Russia’s economy increasingly tied to China’s as well as other non-Western countries, like India (a major buyer of discounted Russian crude oil), Iran other non-democratic states, such as Venezuela, Cuba, and Myanmar. 

Though the battlefields of Europe are far removed from the Caribbean, there is an impact, on a region seeking to recover from the harsh economic downturn caused by the COVID pandemic. There are direct and indirect implications, the latter being more profound.

The CARICOM-Russian trade relationship is not significant

According to the International Monetary Fund’s Direction of Trade Statistics (DOTS), trade between the Caribbean is under USD billion; among CARICOM members it’s probably below USD 500 million. In terms of imports, Russia ranks 87thwith Jamaica and 99thwith Barbados. Regarding Caribbean country exports to Russia, Russia ranks 98thfor Barbados and 33rdfor Trinidad&Tobago. Ukraine’s trade presence in the Caribbean is even smaller. In terms of foreign direct investments, Russia is a minor player in the Caribbean, with a few exceptions in mining and energy. Rusal (the world’s second-largest aluminum company by output) has holdings in Jamaica and Guyana. Russia’s main economic focus in the Caribbean is Cuba and Venezuela, the former consistently in need of Russian help, and the latter, a play on oil.  

CARICOM’s response to the Russian invasion

CARICOM countries were part of the 141 countries at the United Nations that condemned the Russian invasion in March. Cuba and Nicaragua joined China and India in abstaining. A majority of Caribbean countries also voted to suspend Russia’s membership in the UN Human Rights Council, which passed with 93 in favor, 58 abstentions, and 24 against (including Cuba).

A number of Caribbean countries (mainly in the Eastern Caribbean) decided to restrict economic transactions on the part of sanctioned Russian entities or individuals including the suspension of Citizen by Investment programs vis-à-vis Russian and Belarusian applicants. 

The Bahamian Central Bank issued a directive to financial institutions “against doing business with sanctioned persons and entities of Russia and Belarus.”Also, efforts are being taken to help freeze Russian assets. Such efforts are likely to have a negative impact on those sectors in the Caribbean that are involved in offshore financial business activities. 

The indirect impact of the Russo-Ukrainian war in the Caribbean

Whilst the direct impact is minimal, the indirect consequences of the Russo-Ukrainian war are significant. One major area is food security. Prices for food are on the rise, which can be traced back to the role played by Russia, and Ukraine in world food production.

It is not only food. The key to food production is the products that go into making fertilizer. In this, Russia, Ukraine, and Belarus all play a role. Russia and Ukraine together export 28% of fertilizers made from nitrogen and phosphorous. This puts pressure on food supplies and on food production costs – all of which are inflationary and becoming a problem around the world (consider the June 2022 food price riots in Ecuador).

What it means for the Caribbean

Food security is increasingly a concern. This is particularly worrisome considering the high level of dependence on food imports through the Caribbean. That’s just for food. Oil prices are another major concern. This war has helped push up international oil and natural gas prices. While this benefits fossil-fuel producers, in Guyana, Suriname, and Trinidad&Tobago, it is a blow to the rest of the region. According to Goldman Sachs, oil prices are expected to average $140 a barrel between July – September 2022, and remain around the $135 a barrel through the second half of 2022 and into 2023.

The economic landscape for Caribbean policymakers is not encouraging

Economic growth has returned for 2022, but will it last? The Russo-Ukrainian War is likely to push Europe into a recession. Considering that Europeans are one of the major markets for Caribbean tourism, this hurts. The inflationary dimensions have prompted the U.S. Federal Reserve, to raise interest rates. For the Caribbean, this means that the U.S. will either experience an economic slowdown or recession, both of which could put a dent into regional tourism. 

Rising interest rates in the U.S. are going to make borrowing more expensive. This constrains the ability of governments to protect the most vulnerable of their populations from food insecurity, building up resilience from the ill effects of climate change, and diversifying their economies away from heavy dependence on tourism to broader blue and orange economy strategies. The Russo-Ukrainian War is one more reason to continue to push in creating an economically more self-reliant Caribbean.

With that in mind, it is worthwhile to conclude with a quote from 19th-century Russian writer Anton Chekhov, “Knowledge is of no value unless you put it into practice.”

Willemstad, Curaçao

Author: alexdavidrosaria

Alex Rosaria is from Curaçao. He has a MBA from University of Iowa. He was Member of Parliament, Minister of Economic Affairs, State Secretary of Finance and United Nations Development Programme Officer in Africa and Central America. He is an independent consultant active in Asia and the Pacific.

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