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The Black Sea Grain Initiative: What it is, and why it’s important for the world

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Workmen at Dar Es Salaam harbour loading bags of wheat destined for Central Africa (file) © FAO/Giuseppe Bizzarri

Since Russia’s invasion of Ukraine began, exports of grain from Ukraine, as well as food and fertilizers from Russia, have been significantly hit. The disruption in supplies pushed soaring prices even higher and contributed to a global food crisis. The Black Sea Grain Initiative, brokered by the United Nations and Türkiye, was set up to reintroduce vital food and fertilizer exports from Ukraine to the rest of the world. Here are some key points to understand.

1) A deal to get vital supplies moving again

Ukraine, one of the world’s largest grain exporters, normally supplies around 45 million tonnes of grain to the global market every year but, following Russia’s invasion of the country, in late February 2022, mountains of grains built up in silos, with ships unable to secure safe passage to and from Ukrainian ports, and land routes unable to compensate.

This contributed to a jump in the price of staple foods around the world. Combined with increases in the cost of energy, developing countries were pushed to the brink of debt default and increasing numbers of people found themselves on the brink of famine.

On 22 July, the UN, the Russian Federation, Türkiye and Ukraine agreed the Black Sea Grain Initiative, at a signing ceremony in the Turkish capital, Istanbul.

The deal allowed exports from Ukraine of grain, other foodstuffs, and fertilizer, including ammonia, to resume through a safe maritime humanitarian corridor from three key Ukrainian ports: Chornomorsk, Odesa, and Yuzhny/Pivdennyi, to the rest of the world.

To implement the deal, a Joint Coordination Centre (JCC) was established in Istanbul, comprising senior representatives from the Russian Federation, Türkiye, Ukraine, and the United Nations.

According to procedures issued by the JCC, vessels wishing to participate in the Initiative will undergo inspection off Istanbul to ensure they are empty of cargo, then sail through the maritime humanitarian corridor to Ukrainian ports to load. The corridor is established by the JCC and monitored 24/7 to ensure the safe passage of vessels. Vessels on the return journey will also be inspected at the inspection area off Istanbul.

2) Millions of tonnes are leaving Ukraine

Shipments monitored by the Initiative began leaving from 1st August. By the end of the month, over 100 ships, laden with more than one million tonnes of grain and other foodstuffs, had left Ukraine. By mid-September the JCC reported that some three million tonnes had left Ukraine, signalling positive progress. It is hoped that, eventually, up to five million tonnes will be exported monthly.

According to UN figures, 51 per cent of the cargo so far (as of mid-September) has been corn, 25 per cent wheat, 11 per cent sunflower products, six per cent rapeseed, five per cent barley, one per cent soya beans, and one per cent other foodstuffs.

3) Around one third of shipments are going directly to lower income countries

A 25 per cent of the cargo has gone to low and lower-middle income countries. Egypt (8 per cent), India and Iran (4 per cent each), Bangladesh, Kenya and Sudan (2 per cent each), Lebanon, Yemen, Somalia, Djibouti (1 per cent each), and Tunisia (less than one per cent)

This includes UN-chartered vessels delivering humanitarian food assistance – World Food Programme (WFP) purchased wheat – to the Horn of Africa and Yemen. Two UN-chartered ships have already left Ukraine, while another two are expected soon. WFP had so far purchased 120,000 metric tonnes of wheat to support humanitarian relief in the Horn of Africa, Yemen and Afghanistan.

The first WFP-chartered vessel docked in Djibouti on 30 August to support the drought response in the Horn of Africa. A second UN-chartered vessel, loaded with 37,500 metric tons of wheat, sailed on 30 August and docked in Türkiye on 3 September, where the wheat will be milled to flour.

This flour will then be loaded onto a different ship that will head to Yemen to support the World Food Programme’s humanitarian response there. The third and fourth WFP-chartered vessels will also supply wheat to relief operations.

Some 25 per cent of grain has gone to upper-middle income countries – including Türkiye, China and Bulgaria; and 50 per cent to high-income countries like Spain, Netherlands, Italy, Republic of Korea, Romania, Germany, France, Greece, Ireland, and Israel.

The UN points out that all of the grain coming out of the Ukrainian ports thanks to the Initiative benefits people in need, as it helps to calm markets, and limit food price inflation.

All ship movements can be found on the Black Sea Grain Initiative website, which also contains useful facts and figures.

4) Food prices are coming down

There are strong signs that the Initiative is succeeding in one of its key aims, getting food prices down.

At a press briefing in mid-September, Rebeca Grynspan, the Secretary-General of the UN trade agency, known as UNCTAD, and Amir Abdulla, the UN Coordinator for the Black Sea Grain Initiative welcomed the fact prices have come down five months in a row: the Food Price Index has decreased nearly 14 per cent from its peak in March of this year.

Mr. Abdulla explained that falling prices meant that those who had been hoarding grain, in the hope of selling at a greater profit, were now selling, which meant that there is now more food supply in the markets, leading to further price drops. Ms. Grynspan, who is also coordinator of the UN global Task Team set up to help support countries deal with the triple economic shocks worsened by the effects of the war in Ukraine, pointed out that this is making a huge difference in a global cost of living crisis.  

Globally, a record 345 million people in more than 80 countries are currently facing acute food insecurity, while up to 50 million people in 45 countries are at risk of being pushed into famine without humanitarian support.

In August, WFP Executive Director David Beasley declared getting the Black Sea Ports open to be “the single most important thing we can do right now to help the world’s hungry”. He warned that, whilst this would not, on its own, stop world hunger, bringing Ukrainian grain back on global markets would improve the chance of preventing the global food crisis from spiralling even further

5) Ongoing collaboration is necessary for continued success

The UN is acutely aware that keeping shipments sailing smoothly out of Ukrainian ports will require the continued collaboration of Ukraine and Russia. Mr. Abdulla has praised the “collaborative spirit” between the parties to the Initiative. He also noted the special role that Türkiye and the UN are playing in keeping the process moving.

However, with no clear end in sight to the war, the future is uncertain.

The current Initiative may extend beyond its initial 120 days after the signing date of 22 July, if parties so choose. Thoughts at the JCC team in Istanbul are already turning to the extension of the deal. Mr. Abdulla remains positive, expressing his hope that “with the UN’s mediation efforts, it won’t really be a matter for discussion”.

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Economy

Baltic reality: High inflation and declining of living standards

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The Baltic States’ economy is in bad condition. The latest estimate from the EU’s statistics body shows that Eurozone inflation is continuing to soar to record highs.

The Baltic countries continue to be the hardest hit. These states in particular are experiencing the highest levels of inflation in the Eurozone. Thus, inflation in Latvia and Lithuania hit 22.4 per cent and 22.5 per cent respectively. Estonia also has seen inflation rise year on year from 6.4 per cent in September 2021 to 24.2 per cent in September 2022. The more so, the Baltic States continue to see soaring energy and food prices which lead to declining standard of living.

The Bank of Lithuania has published its latest economic forecast and revised gross domestic product (GDP) growth projections for 2023 from 3.4% to 0.9%.

Statistics Lithuania also reports that in September 2022, the consumer confidence indicator stood at minus 16 and, compared to August, decreased by 5 percentage points. The decrease in the consumer confidence indicator in September was determined by negative changes in all of its components.

According to SEB bank economist Tadas Povilauskas, the number of poor people in Lithuania will increase. Living standards will be affected by rising food and energy prices. The current price of natural gas is too high and the economy cannot “go” with it. It is evidently that energy prices shocks have far-reaching effects on Lithuanian economy and population.

The main cause of such state of affairs is deteriorated relations with Russia. Russia has lately been the EU’s top supplier of oil, natural gas, and coal, accounting for around a quarter of its energy.

The conflict in Ukraine and political confrontation between Russia and the West has exacerbated the energy crisis by fuelling global worries it may lead to an interruption of oil or natural gas supplies from Russia. Moscow said in September it would not fully resume its gas supplies to Europe until the West lifts its sanctions.

It is obviously that the conflict in Ukraine dramatically worsened the situation on the markets, as Russia and Ukraine account for nearly a third of global wheat and barley, and two-thirds of the world’s exports of sunflower oil used for cooking. Ukraine is also the world’s fourth-biggest exporter of corn.

According to Euronews, the prices of many commodities – crucially including food – strained global supply chains, leaving crops to rot, caused panic in many European countries, including the Baltic States.

High inflation has become the direct consequence of sanctions imposed on Russia. As for the Baltic States, the lack of wisdom to find compromises and blindly following the European Union’s decisions have lead to declining standards of living. The desire to punish such huge state as Russia played a cruel joke on the Baltic States. It will be difficult to explain the population why they should turn down the heating in homes, schools and hospitals over the winter.

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Policy mistakes could trigger worse recession than 2007 crisis

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The world is headed towards a global recession and prolonged stagnation unless fiscal and monetary policies holding sway in some advanced economies are quickly changed, according to a new report released on Monday by the UN Conference on Trade and Development (UNCTAD).“There is still time to step back from the edge of recession,” said UNCTAD chief Rebeca Grynspan.

‘Political will’

“This is a matter of policy choices and political will,” she added, noting that the current course of action is hurting the most vulnerable.

UNCTAD is warning that the policy-induced global recession could be worse than the global financial crisis of 2007 to 2009.

Excessive monetary tightening and inadequate financial support could expose developing world economies further to cascading crises, the agency said.

The Development prospects in a fractured world report points out that supply-side shocks, waning consumer and investor confidence, and the war in Ukraine have provoked a global slowdown and triggered inflationary pressures.

And while all regions will be affected, alarm bells are ringing most for developing countries, many of which are edging closer to debt default.

As climate stress intensifies, so do losses and damage inside vulnerable economies that lack the fiscal space to deal with disasters.

Grim outlook

The report projects that world economic growth will slow to 2.5 per cent in 2022 and drop to 2.2 per cent in 2023 – a global slowdown that would leave GDP below its pre-COVID pandemic trend and cost the world more than $17 trillion in lost productivity.

Despite this, leading central banks are sharply raising interest rates, threatening to cut off growth and making life much harder for the heavily indebted.

The global slowdown will further expose developing countries to a cascade of debt, health, and climate crises.

Middle-income countries in Latin America and low-income countries in Africa could suffer some of the sharpest slowdowns this year, according to the report.

Debt crisis

With 60 per cent of low-income countries and 30 per cent of emerging market economies in or near debt distress, UNCTAD warns of a possible global debt crisis.

Countries that were showing signs of debt distress before the pandemic are being hit especially hard by the global slowdown.

And climate shocks are heightening the risk of economic instability in indebted developing countries, seemingly under-appreciated by the G20 major economies and other international financial bodies.

“Developing countries have already spent an estimated $379 billion of reserves to defend their currencies this year,” almost double the amount of the International Monetary Fund’s (IMF) recently allocated Special Drawing Rights to supplement their official reserves. 

The UN body is requesting that international financial institutions urgently provide increased liquidity and extend debt relief for developing countries. It’s calling on the IMF to allow fairer use of Special Drawing Rights; and for countries to prioritize a multilateral legal framework on debt restructuring.

Hiking interest rates

Meanwhile, interest rate hikes in advanced economies are hitting the most vulnerable hardest

Some 90 developing countries have seen their currencies weaken against the dollar this year – over a third of them by more than 10 per cent.

And as the prices of necessities like food and energy have soared in the wake of the Ukraine war, a stronger dollar worsens the situation by raising import prices in developing countries.

Moving forward, UNCTAD is calling for advanced economies to avoid austerity measures and international organizations to reform the multilateral architecture to give developing countries a fairer say.

Calm markets, dampen speculation

For much of the last two years, rising commodity prices – particularly food and energy – have posed significant challenges for households everywhere.

And while upward pressure on fertilizer prices threatens lasting damage to many small farmers around the world, commodity markets have been in a turbulent state for a decade.

Although the UN-brokered Black Sea Grain Initiative has significantly helped to lower global food prices, insufficient attention has been paid to the role of speculators and betting frenzies in futures contracts, commodity swaps and exchange traded funds (ETFs) the report said.

Also, large multinational corporations with considerable market power appear to have taken undue advantage of the current context to boost profits on the backs of some of the world’s poorest.

UNCTAD has asked governments to increase public spending and use price controls on energy, food and other vital areas; investors to channel more money into renewables; and called on the international community to extend more support to the UN-brokered Grain Initiative.

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Economy

‘Sanctions Storm’: Recovery After the Disaster

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After the start of the special operation in Ukraine, a “sanctions storm” hit Russia; more sanctions were imposed against Russia in a few months than against Iran in decades. But a catastrophe did not take place, and the stage of stabilization came.

Indeed, almost all the weapons in the sanctions arsenal were used one after another: commodities exchange was suspended in some sectors, export and import controls were put in place, restrictions on air and sea transportation were introduced. The sanctions have spread to the investment and financial sectors, paralyzing many transactions with the West and complicating them with the East. An image impact came from the mass withdrawal of foreign business from the Russian market—not directly caused by the sanctions, but demonstrating “over-compliance,” excessive submission to them.

In the public mind, the destabilizing wave created the impression of the end of the story of the market economy in Russia, an impending catastrophe. But the catastrophe did not happen. The stage of stabilization has come, and it is important to use it correctly.

What to do?

In the near future, the Russian authorities and business will have to solve three groups of interrelated tasks. First, they must provide the domestic market with necessary goods, and restore value chains by the use of alternative partners. Second, they need to establish reliable financial mechanisms for working with these partners. Third, it is necessary to look for new growth points for the future, industries in which dependence on the West was critical. It is important to work out the possibilities: for new partners entering the markets and for attracting investors from friendly countries, as well as trying to integrate into new value chains.

Partners, first of all, include China and India. The southern direction is also not unpromising—to begin with, this includes Iran and Turkey, as well as a search for investors in the Arab world and the development of logistics routes through the Middle East. Nevertheless, in all areas, the key obstacle is the threat of secondary sanctions by the United States and the EU—which means that the second task becomes the main one: building a safe infrastructure for financial cooperation.

China remains Russia’s first trading partner—but despite the strategic partnership on the political level, large Chinese companies and banks that are active in the international market are suspending cooperation with Russia, fearing secondary US sanctions. In these conditions, it is important to work on explaining the nuances of the sanctions policy for Chinese business, creating secure payment channels that do not depend on foreign banks or on the dollar and the euro, and developing profitable package offers. Beijing seeks to use the opportunities opening up in the Russian market to occupy the vacant niches and strengthen the yuan in international payments, which means that its interest in finding a common solution is high.

A similar situation is developing in the Indian market, with the difference that Indian business is more connected than Chinese business with America, and its awareness of doing business in Russia is lower. As a consequence, Indian companies and banks integrated into the global economy will comply even more closely with sanctions restrictions, despite their interest in developing ties with Russia. Accordingly, even more active informational work is needed to establish Russian-Indian business ties, as well as the creation of a secure settlement mechanism. India already has similar experience, from doing business with Iran. In particular, UCOBank was formed to trade with it in rupees. Similar structures can be created in the Russian direction.

If the necessary channels are laid, both China and India can not only replace some Western goods in Russian markets, and ensure purchases from the Russian energy, agricultural, and military-industrial sectors—preserving their prospects for business—but also become zones of qualitative economic growth. Chinese partners can become a support in the development of bilateral cooperation in the fields of electronics and digital technologies (including 5G), and Indian, in pharmacology and high-tech agriculture. It also makes sense for business to look at these countries from the point of view of the development of green technologies in energy and agriculture, and the introduction of ESG practices, since these countries are also interested in this.

From our partner RIAC

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