JHE LAST When Egypt was raising bread prices, the Soviet Union was still intact. Since 1989, subsidized bakeries have offered 20 loaves of aish baladi, a sticky pita which is a staple, for one Egyptian pound. At the time, this sum was worth almost $1. Today it is worth about six cents, less than a tenth of what it costs to produce bread.
The state is spending £45bn ($2.9bn) a year to make up the difference, more than half of its total food subsidy bill. No government has dared to tinker with this expensive device. Bread is the main source of calories for millions of Arabs, and therefore an explosive political issue.
Vladimir Putin’s invasion of Ukraine, which drove up commodity prices, will cause widespread hardship. Expensive wheat will blow budgets in the Middle East, possibly forcing subsidy cuts that leave citizens starving. In sub-Saharan Africa, rising oil prices will put a strain on already creaking economies.
All of this can lead to trouble. President Anwar Sadat attempted to remove the Egyptian bread subsidy in 1977; he reconsidered his decision a few days after riots which had to be suppressed by the army. The 1974 Ethiopian revolution followed an oil shock. Rising food prices in 2008 and 2009 helped spark the Arab Spring revolts and protests that led to the overthrow of Omar al-Bashir in Sudan in 2019. In Rabat, the Moroccan capital, anti- riot is already in the streets. “Rising bread prices have long been a trigger for riots in North Africa,” says Amin Rboub, a Moroccan journalist. Many Arab and African governments have refused to express support for either side of the Russian-Ukrainian conflict, arguing that this is not their war. They will nevertheless feel its effects.
Let’s start with wheat, of which Russia and Ukraine are the world’s largest and fifth largest exporters, respectively. The war interrupted expeditions from the Black Sea. This is terrible news for Egypt, the world’s largest buyer of wheat. It needs 21 million tons a year to feed its 102 million people, but produces less than half of that. Russia and Ukraine supply 86% of its imports (see graph).
This year’s budget assumed imports would cost $255 a tonne. Prices in the futures markets are already flirting with $400. This could add at least $1.5 billion (0.4% of GDP) to Egypt’s import invoice. The price of unsubsidized bread has increased by 50% in some shops in recent days.
Abdel-Fattah al-Sisi, Egypt’s authoritarian president, never liked the bread subsidy. “It is unreasonable to sell 20 loaves of bread for the price of a cigarette,” he said last year. Soaring prices would give him an excuse to try to change it. But he may not like the reaction. Nearly a third of Egyptians live below the paltry official poverty line of 857 pounds a month.
Many of Egypt’s neighbors are in a similar situation. Fadhila Rabhi, Tunisia’s trade minister, says subsidized baguettes that sell for 190 millimes (six cents) already cost 420 millimes to produce. The country has a budget deficit of about 9% of GDP and annual debt service payments at about the same level. In Lebanon, mired since 2019 in a financial crisis, the price of a bag of flatbread had already increased by more than 400% in the two years before the war. Lebanon’s main grain silos were destroyed in an explosion at the port of Beirut in 2020, leaving the country able to store only a month’s worth of wheat.
A decline in corn shipments from Ukraine could hurt Egypt, which derives 26% of its imports from Ukraine. Because it is used for animal feed, rising maize prices will lead to more expensive meat in Egypt, as well as more expensive maize porridge in southern Africa, where it is a staple. Ukraine is also the largest exporter of sunflower oil. The price spike is spilling over to substitutes such as palm oil, which is popular in West Africa. In January the UNThe vegetable oil index reached its highest level ever recorded. The manager of a cannery in Western Sahara says the costs of the sunflower oil and aluminum he needs to preserve sardines have increased by 40% in one week.
Across sub-Saharan Africa, food accounts for about 40% of the consumer price basket. Food inflation, which was around 9% per year in 2019-2020, started to increase a year ago to reach 11% in October due to higher transport, oil and fertilizer prices and disruptions to agriculture due to the pandemic. The first to be affected by rising wheat prices will be countries like Ghana and Kenya, where it accounts for around a third of cereal consumption, or Nigeria, where the poorest urban families gobble up lots of instant noodles. .
Higher food prices mostly hurt the urban poor, as they tend not to farm themselves. It is important for political stability. Urban dwellers are denser and closer to the seat of government than their rural cousins. Thus, riots in cities can overthrow governments.
Rural populations could in theory benefit from higher food prices, as many of them sell food while consuming it. Subsistence farmers represent a higher share of the population in sub-Saharan Africa than in the Middle East and are not particularly dependent on food imports. Yet even they will be affected by rising fertilizer and transport prices. The cost of ammonia, a key input for fertilizers, had already soared by 260% between December 2020 and December 2021, says Wandile Sihlobo of the University of Stellenbosch in South Africa. Reduced shipments from Russia and Belarus, two big exporters, will drive prices up further.
More expensive crude oil is a mixed blessing for the Middle East. At current prices, all oil exporters in the region, with the exception of Algeria, should be able to record both fiscal and current account surpluses. Many Gulf governments have cut fuel subsidies in recent years – motorists in the UAE are paying 3.23 dirhams (88 cents) a liter this month, a record – which will cushion the blow to state budgets .
The situation is worse in sub-Saharan Africa, where 38 of the 45 countries are net oil importers. Rising prices will be a “very large” negative shock, warns Abebe Aemro Selassie, who heads the IMFof the Africa department. Even at the best of times, most African countries struggle to export enough to cover the cost of their imports. A sharp rise in the price of oil will cause balance of payments problems across the continent. Long before prices started to rise, oil already accounted for around 20% of imports in Kenya and Ghana.
Transport prices were already the main cause of headline inflation (which includes food and energy) in Kenya, Ghana and Rwanda last year. In Nigeria, where annual inflation hovers around 15%, transport and food costs account for around 57% of the inflation index.
The few African countries that produce oil, such as Nigeria and Angola, stand to benefit. However, even they can do worse than expected. Both countries subsidize gasoline for consumers. Fuel subsidies could now cost the governments of Angola and Nigeria the equivalent of around 2% of GDPagainst 1.4% expected in Angola and 0.8% last year in Nigeria.
Better news may only come in the medium term. Europe is desperate for non-Russian oil and gas. Algeria, which has pipelines to Spain and Italy, is seeking to take advantage of this. Other African producers hope to take advantage of this by shipping more liquefied natural gas. The grand prize would be European support for one of two pipelines that could link Nigeria to Morocco and continue to Europe, or Nigeria to Algeria across the Sahara.
For years, Arab autocrats have sought closer ties with Russia. As America lectured them on human rights, Mr Putin urged strong men to be strong. When he visited Cairo in 2015, for the first time in ten years, he presented a Kalashnikov to Mr Sisi, who in turn invited him to dinner at a restaurant overlooking the Nile (with lots of bread offered). Now those same autocrats face broken budgets and angry citizens, thanks to Mr. Putin. ■
Our recent coverage of the Ukraine crisis can be found here
This article appeared in the Middle East and Africa section of the print edition under the headline “Bread and Oil”