15/05/2021

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Egypt: Counting the cost of Suez Canal blockade on industries [Business Africa]

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A stranded ship finally freed after nearly a week of blockade. Christened as ‘’Ever Given,’’ the blockage on the Suez Canal in Egypt kept companies on their toes. With daily costs piling up, some had to reroute ships. Meaning several more days of travel time, fuel and other costs for the over 360 vessels aboard the ship. An estimated 9.6 billion dollars’ worth of goods are held up. Egypt alone lost between 12 to 15 million dollars a day. About 12 percent of global trade transit through the Suez Canal.

It has been an unexpected collateral impact of the Suez Canal blockade. With the “Ever Given” container ship coming to a stop, close to 400 carrier vessels, including supertankers, had to halt their journey, resulting in oil prices going on a roller coaster ride.

On Thursday March 25, the price of the black gold lost about 4%, before starting again and closing higher the next day. As the ”Ever Given” was freed on Monday, world oil prices eased. For analysts, the fluctuation of the figures is far from worrying.

Despite delays in deliverying crude oil, stocks are still large enough to absorb the impact according to Toril Bosoni, head of the oil market division at the International Energy Agency.

“The disruption comes at a time when the oil market is still recovering from the pandemic. Oil inventories have declined, but they are still relatively abundant. In all OECD regions, oil inventories are above year-ago levels. So I think the market is fairly confident in its ability to absorb the disruption for some time to come”, she said.

Efforts to free the ”Ever Given” took almost a week, leading to costly delays on shipping companies already dealing with the repercussions of the Covid- 19 pandemic.

The price of sea transport for petroleum products had already nearly doubled.

“As I said, we’re not losing oil supply, but oil ships will be tied up longer if they have to go around – it takes about two weeks longer to go around Cape Point, so oil tankers will be tie d up longer to get the oil from point A to point B, which increases freight rates, etc., Bosoni added.

According to data from Refinitiv, a global provider of financial market dtata and infrastructure, Egypt, which considers the canal a crucial source of revenue, lost over $95 million in tolls.

In a matter of days, prices of natural gas shot up, and there are concerns that food supply chains will also be affected becuase of the backlog.

Dr. Kofi Mbiah, a Trade and Transport law consultant told our Ignatius Annor that: ”A lot of these are also on the basis of just in time deliveries that must come for goods to be manufactured in Europe and sent to various parts in Africa. While consumers wait for this, there would be delays. Remember that the shipowners in situations like this may declare general average and consequently they will call upon consumers to make contributions towards the general average. It is not certain yet whether general average has been declared, but there will also be issues of insurance costs which have to be paid out by insurance companies because of what has happened. There will also be issues of salvage, and salvors would make claims”, the former chief executive of the Ghana Shippers’ Authority said.

In 2020, Africa recorded its worst economic recession in half a century due to the health crisis. But, there’s some relief ahead in 2021, as the African Development Bank forecasts a positive economic outlook for all African economies. A rebound in tourism, commodity prices and a rollback of covid-19 related restrictions are expected to lead to this projected recovery. In its economic outlook 2021 report, the AFDB says Libya’s economy which suffered a contraction of -60.3% last year, will lead the continent with an economic growth rate of 37.5% this year.

The continental financial body says African economies should slowly see a recovery from the shocks of the coronavirus.

This year, the AfDB hopes to see an average growth to recover to 3.4 % Gross Domestic Product. Last year, there was a contraction of -2.1%.

10 African economies will see a growth rate of more than 5 percent. Djibouti comes second at 9.9%, followed by Botswana and Mauritius at 7.5% each. Niger 6.9%, Ivory Coast 6.2%, Eritrea 5.7%, Guinea 5.6%, Burkina Faso and Senegal round up the top ten at 5.1% each.

Regionally, North Africa will lead in African growth with an average rate of 4%. Southern and central region at 3.2% each. East Africa at 3% while West Africa will close the gap with 2.8%.

And in Central Kenya, climate change is taking its toll on coffee farmers. Unpredictable rainfall patterns, and rising temperatures have left farmers harvesting poor yields. The local farmers have devised ways to avoid being shortchanged by nature. Applying nutrients onto crops, installing irrigation systems and hiring extra hands to pick berries for extended periods. But this is costing more money and eating into the profits the farmers make. As the 5th largest producer of Arabica coffee on the continent, the current situation is deeply concerning for stakeholders.

Coffee plantations occupy a total of 110,000 hectares across Kenya. Farmers say these areas have been severely impacted by climate change. Because of stresses related to this impact, Some farmers are now uprooting their coffee plants in favour of other crops, such as avocados.

“Farmers are uprooting coffee trees. I depend on coffee farms, and I earn 400 shillings per day. If the farmers continue to uproot coffee trees, I do not know where I would get the 400 shillings or what I would do”, said Rael Njeru, a 36-year-old mother of two and worker at coffee farm.

According to the Coffee Research Institute, due to climate change, there are now fewer, but heavier storms.

A comparison between the 1970’s and the 2000’s also suggests there’s been an increase in the daily average temperature by about one degree Celsius.

This is accompanied by extreme changes in daily temperature – from cold nights to hot days.

Elijah Gichuru is Director of Research and Plant Pathology at Coffee Research Institute.

“In Kenya, we produce arabica coffee, which requires cool and wet conditions. Because of the increase in temperature caused by climate change and depressed rains, then we have poorer quality of the yields and poorer amounts of the yields”, Gichuru said.

Coffee ideally thrives within a temperature range of 19-25 degrees Celsius, an increase in temperature disrupts the process and causes some trees to wilt.

Kenya’s coffee production was projected to decline to 40,000 tonnes in 2020, down from about 47,000 tonnes in 2016.