Street bakery in Siwa, Egypt. (Photo: Shutterstock.com/Sun_Shine)
Ukraine and Russia supply key goods to the world economy: food products such as wheat, corn, and seed oils, and energy products and fertilisers for agriculture. Among other effects on the global economy, the war in Ukraine has exacerbated existing inflationary pressures in the Middle East and North Africa (MENA) region related to drought, conflict, and other issues. The war is crippling essential food imports in some economies and causing overall price spikes, especially for food.
Inflation in the MENA region reached 14.8% in 2021, significantly higher than the average 7.3% inflation between 2000-2018, according to IMF reports in 2022 , with a few countries experiencing concerningly high inflation, such as Iran (43%), Lebanon (154%), and Yemen (30%), according to recent data.
Nearly 50 nations depend on Ukraine and Russia for at least 30% of wheat imports, according to the FAO, and this includes the MENA economies of Egypt, Libya, Djibouti, Yemen, Lebanon, and Tunisia. As evident in Figure 1, food constitutes more than 30% of the budget share in Djibouti, Algeria, Morocco, and the Egypt. This is especially true for the budgets of the poorest households across MENA economies. There could also be indirect consumption effects brought about by the rise in prices of goods or commodities, such as the energy and fuel that is used for final goods consumed by households.
According to World Bank simulations, the concerning trends of increased food prices and effects in supply will push as many as 23 million more people in MENA into poverty, reducing a number of years of poverty reduction progress. In other words, for every 1% increase in MENA food prices, nearly half a million additional people could be living in poverty in the region.
Other ongoing World Bank simulations in MENA countries have found the following trends regarding food price increases and poverty:
1) Djibouti: a 10% increase in food prices and a 3.4% increase in non-food prices could increase the poverty rate in Djibouti to 17.6% in 2022, threatening to reverse several years of poverty reduction.
2) Tunisia: A surge in international prices is estimated to have increased the poverty rate by 1.1 percentage points, as the impact on households is cushioned by food and energy subsidies. If prices continue to increase for the rest of 2022 at the same pace as in the first months of the year, and subsidies remain in place, the poverty rate would increase by 2.2 percentage points while inequality would be only slightly worsening, with the Gini index rising from 32.82 to 32.9.
3) Egypt: Analysis of inflation repercussions between February and March 2022 found that rising inflation, driven by soaring prices of bread and cereal, is likely to cause a short-term increase in poverty ranging between 2 and 3.8 percentage points. Importantly, an analysis of the role of compensatory measures announced by the government in March 2022 found that the measures would partially mitigate the increase in poverty by about 0.4 percentage points.
4) Morocco: Higher inflation is likely to increase poverty by between 1.1 and 1.7 percentage points, mostly due to price increases of non-subsidized items, such as fuel. Regressive subsidies, which tend to benefit the better-off, will worsen the fiscal situation. In addition, inequality would widen, with the Gini index rising from 39.5 to 39.7.
Additionally, in order to monitor real-time impacts of such price increases overtime, web surveys are also being administered across countries in MENA. One such country is Morocco, where we were able to reach 2,031 respondents on Facebook, 879 who completed our survey fully. These were some of the findings:
- Respondents in Morocco said goods and services most affected by price rises are cereals, fuel, transport, and fresh vegetables.
- The rise in prices, especially fuel and transport, is affecting more households in the middle part of the asset index distribution from the collected sample.
- The increase of prices is felt more in urban area than rural ones (with the exception of cereals).
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