The start of a ‘military operation’ in Ukraine by Russia, announced by President Vladimir Putin in the early hours of Thursday and which Kiev claims is a “large-scale invasion”, occurs at a time when governments of around the world are struggling to contain inflation, fueled by rising demand for inputs as the global economy reopens following COVID-19 lockdowns. This situation is already having an impact on the world economy and it may soon begin to be felt in Ecuador.
Russia is the fourth destination for Ecuador’s exports, with bananas, shrimp, flowers, fresh fish and coffee being the main products that arrive in that country.
There have been closures and stoppages of ports and customs in Ukraine in recent hours. One of them is the port of Odessa, which is inoperative, which will complicate the distribution of products, says Richard Salazar, executive director of the Association of Banana Exporters (Acorbanec), who mentions that different shipping companies they have announced that they will no longer transport bananas to Ukraine; however, he says that the real effects will begin to be seen from next week.
In the case of the flower sector, Ines Ortiz, CEO of Inorflowers, also mentions that the current situation for this export product is complicated.
“As far as Ukraine is concerned, shipments have stopped, what was scheduled to be released this weekend and next week, are cancelled, including dispatches that had already been sent and arrived between Wednesday and Thursday in the Netherlands with which customers are trying to deny them due to the situation”, he refers and adds that, along with the tension, there has been an increase in transport costs in that region, which further darkens the outlook.
Ortiz says that the atmosphere is one of uncertainty and that it is necessary to wait to see if the markets can be stabilized and that it must also be taken into account that flowers at this time are not a staple product, which can complicate this union and create an imbalance.
According to figures from the National Association of Producers and Exporters of Flowers of Ecuador (Expoflores) during the months of February and May, for festivities such as Valentine’s Day, Women’s Day (March 8) and Victory Day (May 9) On average, the flower sector allocates $70 million to Eurasian countries, equivalent to 40% of its annual sales in these markets.
The Ecuadorian Federation of Exporters (Fedexpor) issued a statement on the situation in which it mentions that there is a possibility that, if Ukraine receives greater support from Turkey, the passage of the Dardanelles and Bosphorus straits will be closed to Russian vessels, which that the port of Saint Petersburg would return to the most open way to trade with Russia.
Given the total closure of trade with Ukraine, $ 2.4 million will no longer be exported weekly, according to the union.
However, Salazar says that the situation is not new and that the same thing could happen when Russia annexed the Crimean peninsula in 2014 and economic sanctions were established.
Among the effects that are going to be recorded, Salazar comments that the monetary devaluation can already be seen and that it will generate a rise in the price of bananas that will reduce the volume of purchases, at the same time controls the outflow of foreign currency from Russia. and therefore payment problems.
The Russian ruble reached its historical low against the dollar (down 9%), before the intervention of the Central Bank of Russia.
“As we already experienced it at the time, we are going to have collection problems, in 2014 there were between 30 to 35 days of delay,” says Salazar and stresses that they also experienced cancellation of contracts due to the low demand that Ecuadorian bananas began to have.
Fausto Ortiz, economic expert and former Minister of Finance, agrees that it is necessary to wait and see the size that the conflict reaches and its duration.
“As the size grows and more actors get involved, this will take on other dimensions,” he says.
The expert states that the situation between the two countries and the escalation of tension has also been reflected in the prices of commodities such as oil, gold, copper and other raw materials that Ecuador is also exporting, which could make imports of derivatives more expensive.
The price of a barrel of oil exceeded $ 100 for the first time in more than seven years on Thursday and world stock markets sank after the launch of the military offensive and gold rose 2.43%, to $ 1,955.47 a ounce.
Meanwhile, Acorbanec issued a statement and says that “it is urgent and important that the National Government implement compensatory measures for the banana sector, which at the end of 2021 reduced its exports by around 4% in monetary terms and 3% in MT according to figures from the Central Bank of Ecuador”. Among these measures, they suggest the implementation of the unified simplified return of taxes for the banana sector, contemplated in article 43 of the Organic Law of Tax Simplification and Progressivity, which awaits its regulation.
Salazar also says that other alternative measures could be the one that can be paid at a bunch price to the producer for the fruit that does not come out.
The Corporation of Exporting Unions of Ecuador (Cordex) indicated that it has sent a letter to Foreign Minister Juan Carlos Holguín, in which he requested the creation of a public-private work commission to operate as an early warning system.
This commission, through coordination between Cordex and the diplomatic missions to the European Union, the United States, Russia and China, would provide timely information on the measures taken in the different countries in order to anticipate any inconvenience that may affect the normal performance of the exports.
Currently, Ecuador exports to Russia an average of 83 products that come from 504 companies dedicated to the agricultural, agro-industrial, aquaculture and fishing and manufacturing sectors. Some billion dollars were exported to this destination between 2020 and 2021 and export growth went from 7% to 9%, according to Fedexpor figures.
International impact
In its first package of sanctions against Russia, the United States included “total blockades” of two large Russian financial institutions, the Russian military bank and the VEB, the state bank that is responsible for supporting the development of the economy, managing the state debt and pension funds and announced additional sanctions to hit Russia’s sovereign debt
At the same time, the threat of a war has unleashed fears in recent weeks about the supply of basic products, such as wheat and metals, in full reopening of the economies.
This Thursday, the price of cereals broke a record for operations in Europe and wheat rose to a maximum of 344 euros per tonne on the Euronext platform.
The price of wheat and corn – of which Ukraine is the world’s fourth largest producer – rose sharply at the open, a few hours after the offensive.
“Russian-Ukrainian tensions cause a possible shock demand [en Europa] and a greater one in the supply for the rest of the world, given the importance of Russia and Ukraine in energy”, highlighted Tamas Strickland, of the National Australia Bank.
For a Swissquote analyst, “the rise in energy prices is a major headache for Europe, because 40% of its natural gas and 30% of its oil come from Russia.”
As for natural gas, the reference market in Europe increased by 50% compared to the day before. (I)
Source: Eluniverso
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