BY Chief Obosu Mohammed, LL.M MA ACIArb LL.B DPA
THE INTERNATIONAL Maritime Organisation (IMO) estimates that approximately 2000 seafarers were stranded aboard 94 vessels in Ukrainian ports during the early stages of the conflict. However, since April 20th, 2022, about 1500 seafarers have been evacuated, with nearly 500 remaining onboard the 84 merchant vessels that are still stranded. In the end, these vessels may struggle to service their capital repayments, causing them to declare bankruptcy.
Impact on Ghanaian Maritime Trade and Economy
The African Development Bank (AfDB) reports that wheat prices have increased by 62% since the war began, fertiliser prices have increased by 300%, and maize prices have increased by 36%. Also, Ukraine accounts for roughly 60% of total iron ore and steel imports into Ghana; Russia accounts for roughly 30% of imported grains, 50% of flour, and 39% of fertiliser. Since the eruption of the Ukraine-Russia conflict, the price of a barrel of crude oil has risen to over $100.
Ghana is largely an import-dependent economy, so this situation has a direct impact on its shipping industry and economy in terms of freight charges, revenue generation, and commodity prices, including the prices of finished petroleum products, particularly due to the trade volumes emanating from Russia and Ukraine. The operational and voyage costs of vessels navigating through parts of the Black Sea have risen due to high insurance premiums on war risks, the high cost of bunkering, and the fact that these vessels may have to discover alternative shipping routes and will likely experience longer voyages than before. These increased expenditures will result in higher freight rates, which will eventually be passed on to the consumer, which will raise inflation rates. High freight rates, according to studies, account for 40% of the total cost of goods to the consumer. It is trite that countries that import more of their consumption will face higher inflation as shipping prices rise. Based on the economy’s structure, this has led to Ghana’s high inflation rates. Moreover, the disruption caused by the conflict has increased demand for these goods and has contributed to an increase in inflation rates as well. If the Russian-Ukrainian conflict lingers, Ghanaian consumers will bear the brunt of the consequences.
It will also have a negative impact on the Ghanaian currency since importers would have to spend more in foreign currency to import the same quantity of products due to the significant increase in freight rates. As a result, unless Ghana finds an innovative solution to this predicament, its currency would stay under pressure against the major international currencies.
Vessels that would have called at Ghanaian ports to supply finished petroleum products, grains, fertilisers, iron ore, steel, and other commodities sourced from both Russia and Ukraine are likely to be considerably curtailed. Customs tariffs and other port-related taxes will be reduced, as expected. Revenue streams that may accrue to state agencies such as the Ghana Ports and Harbours Authority (GPHA), the Ghana Maritime Authority (GMA), and the Ghana Shippers Authority (GSA), as well as the private sector performing other auxiliary services within the supply chain, such as warehousing, freight forwarding, stevedoring, and so on, are also expected to decline. This will primarily have an impact on Ghana’s already stifled revenue mobilisation efforts to achieve the necessary fiscal consolidation and growth. Ghana is currently seeking International Monetary Fund (IMF) assistance due to its inability to generate sufficient revenue to meet its growing fiscal commitments.
Conclusion
The covid-19 pandemic, combined with the Russian-Ukrainian war, has wreaked havoc on the shipping industry and national economies. The International Maritime Organization (IMO) and the United Nations (UN), in collaboration with other stakeholders, must find a resolution to this growing concern and become more responsive to comparable future occurrences.
However, in Ghana, the strategic emphasis must be on long-term sustainable solutions rather than short-term fixes. This may be accomplished systematically by transitioning the country from a consumption to a production paradigm, with the private sector serving as the primary anchor. Because all the primary production factors are available, the country should be able to produce more than it consumes. While at it, it is critical to determine which products the country has a competitive advantage to produce for the international markets. This effort can achieve four primary goals: reducing over-reliance on imported products to limit external shocks and control inflation, increasing the country’s revenue-generating capacity, exporting some of the products to earn foreign exchange, and finally addressing the nation’s balance of payment deficits to strengthen the Ghanaian Cedi.
More significantly, transitioning Ghana to a production model should be aligned with the country’s educational strategy by expanding Science, Technology, Engineering, Mathematics (STEM) and Agribusiness at the foundation level. Ultimately, the goal is to transform the structural features of the Ghanaian economy to lessen any emerging external vulnerabilities.
The writer is the Executive Director of the Institute for African Maritime Development
Email: obosu.mohammed@gmail.com