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Economic Effects of the Russian Ukraine War

It is quite evident that the global financial system has taken a turn for the worst the cost of living is rising day by day and one has to carefully check how to  spend each coin.
The war has caused economic downturn and rapid rising of food costs .The dollar crisis has also led to tightening up of the investment market.This in turn will  require the government to put up necessary systems in place to help  mitigate the disruptions.
Sharply growing commodity fees is one of the major effects of the war coupled with the recent covid 19 crisis.The war has left no country or enterprise untouched with  the current rising economic disruptions. The ability to afford a meal is becoming a  tedious task at a very alarming rate. Prices of wheat and other grains have already soared.
In 2019, Russia and Ukraine combined, accounted for 25 % of the global wheat exports and 14 % of corn shipments. The ongoing war  has strained the global delivery chains from semiconductors to automobile parts.
The war threatens important elements of the economy.This brings us to the current oil crisis. Russia is among the largest oil suppliers accounting for 14 % of crude oil and 9% of renewable energy globally .The 7 %  growth rate of crude oil, which in turn increases the cost of transportation and manufacturing all together thus affecting global exports
The war has caused an increase in renewable energy fees . The effect does not only highly affect farmers, as ammonia is a key ingredient in most fertilizers, this will cause a decrease in crop yields but also affect the current high cost of food produce.
The Ukraine war and the pandemic have once again shown that crises can cause widespread economic damage and set back years of per capita income and development gains
The war-triggered a spike in global oil prices also serves to underscore the need for energy security by boosting energy supply from renewable sources and stepping up the design and implementation of large-scale energy efficiency measures.
By Chartafai

 

 

The dwindling Kenyan Shilling

A currency exchange catastrophe can be predetermined at times and is more often sudden. The horrible factor of a foreign exchange catastrophe is the massive-scale economic damage and absence of funds. Such a crisis is often the  end result of a horrible  monetary  decision underlying the nation’s foreign exchange. In special words, a foreign exchange catastrophe is ordinarily taken into consideration a symptom in place of a disease of more economic restlessness.

The Kenyan foreign exchange has hit a modern-day report low rate in comparison to the dollar, after it weakened recently, indicating a persisted rally in costs of imported commodities like  cooking oil and  in addition the current dollar shortage  has seen the community foreign exchange decline to 3.5 percent this year .

Kenya spends billions importing goods, including petroleum products among many others.The costs  are  developing  due  to the fact the shilling is weakening against the dollar.The bottom line is that this kind of crisis can be in multiple forms but is mainly customary .

In addition the current investor sentiment and expectations do not move hand in hand with the economic outlook of the country. Although a properly organized monetary organization manipulation can help, foretelling the path fiscal gadget ultimately takes is hard to expect, as a result contributing to a sustained foreign exchange catastrophe.

In as much as  growing international locations as an example Kenya contributes in large part to the global economy, the bare truth is that the dollar charges which might be too high thus creates instability and will increase opportunities of capital flight and survives at the house foreign exchange.

Dollar Liquidity Constraints

 

The exchange rate has long been a sensitive issue, with most  choosing silence for fear of reprisals from the central bank.

The persistent US dollar shortages might be  triggering the emergence of a parallel exchange rate.This is common in developing countries. Some  governments respond to a balance of payments crisis by creating a dual foreign exchange market for financial transactions.

The objective of a parallel exchange rate is to avoid the  effects of a depreciation of the trading rate on domestic prices while conserving some level of control over money outflows and international reserves.

It should be noted that extensive controls on foreign exchange restrict access to official markets and thus leads to the emergence of an illegal parallel market.The illegal market then grows in importance as the authorities respond to a deteriorating balance of payments by tightening and extending exchange controls.

The risk here is that we are slowly creating a parallel shadow market with unwanted consequences.

The current shortage of dollars is triggering the emergence of parallel exchange rate that has seen lenders buying and selling well above the printed official rate, the biggest importers of goods, are  purchasing  the dollar at more than Sh120 compared to the central bank’s official exchange rate of 116.81

The volatility in the exchange rate market has slowed dollar trading among lenders or interbank deals, further worsening the scarcity of the  currency.

The scarcity has forced industrialists to start seeking dollars in advance, further increasing their working capital.

The shilling was exchanging at an average of Sh116.71 units to the dollar  based on CBK official rates, having depreciated from Sh113.13 at the start of the year and Sh104.44 at the end of March 2020.

Hest for dollars locally has gone up notably this year in line with streaming imports following the  reopening of the economy, which has unleashed repressed demand for both consumer and capital goods.

The lack of access to adequate hard currency is negatively affecting traders’ ability to settle obligations to overseas suppliers in a timely manner.

In conclusion the dollar  shortage is causing an increase in the cost of doing business as well as panic buying of forex.