How people are getting rich overnight as Russia fights Ukraine: Patrice Motsepe smiles to the bank

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When Russia invaded Ukraine, it set off a chain reaction of humanitarian, diplomatic and economic crises around the world. These exacerbated the existing crises that Covid-19 had, in turn, aggravated.

Among these chain reactions was a precipitous rise in the value of nickel. The precious metal, essential to the production of smartphones and electric vehicles, has doubled in price. That’s because Russia has the world’s third biggest supply and it is facing a barrage of economic sanctions from the Western world.

The London Metal Exchange suspended the nickel market last week, after the price of the metal, used in stainless steel and electric-vehicle batteries, nearly doubled in a few hours. It was the first time the exchange paused trade in a metal since 1985.

On the southern tip of Africa, the continent’s ninth-richest man will probably be watching these developments closely. South African billionaire Patrice Motsepe is probably smiling to the bank as he owns a major nickel mine with Norilsk Nickel (Nornickel), the Russian platinum group metals producer.

The mine — Nkomati Nickel in Mpumalanga — had been mothballed, because the price of nickel was not high enough to keep it going. Suddenly, this has changed and the company announced this week it was considering reopening the mine.

This is the nature of war: even as some people suffer, others will profit. The question is who profits and how — and what happens to everyone else?

IMPLICATIONS FOR AFRICA

It’s not just nickel: the war in Ukraine has made many other commodities more expensive.

Russia is a major producer of rare precious metals such as ttungsten, tantalum and palladium. Big American companies such as Apple, which can no longer purchase from Russia, need to find new suppliers of these metals.

Take tantalum, a blue-grey metal prized because it is almost completely resistant to corrosion. This quality makes it essential in smartphones, as well as nuclear reactors, aircraft and missile parts, and some surgical appliances.

Rwanda is the biggest exporter of tantalum in the world, with the Democratic Republic of the Congo not far behind. Ethiopia, too, is a major exporter.

These governments can expect to earn significantly more from their mining sector this year, while the companies that run the mining operations can expect bumper profits.

“Exporters of metal commodities like platinum, palladium and bauxite are also likely to see their current account balances improve under stronger prices,” said Yvonne Mhango, an economist for sub-Saharan Africa at Renaissance Capital.

She said the currencies of Africa’s commodity exporters are likely to strengthen.

It is in Nigeria, Africa’s most-populous country and its largest economy, that this commodities boom is likely to have the biggest effect. Specifically the boom in one particular commodity, oil.

The oil price has been fluctuating wildly in recent days, at one point hitting $139 a barrel — that’s 30% higher than when the invasion began. Nigeria’s federal budget is looking a lot healthier.

PAIN FOR EVERYONE

None of this is necessarily good news. In Rwanda and Ethiopia, mining operations are closely linked to the state, which have been strongly implicated in human rights abuses.

In Ethiopia, the state is involved in a civil war in which it has been implicated in multiple massacres of civilians and other major human rights abuses. Increased profits from mining will keep funding that war.

Besides, profits from individual commodities are unlikely to offset the general economic pain caused by a world in crisis. Even before the Ukraine war, the World Bank estimated that the Covid-19 pandemic had already wiped $165-billion off Africa’s total wealth.

The rising oil prices caused by President Vladimir Putin’s war will make petrol more expensive, even in Nigeria, which still imports all of its refined petroleum.

This may even offset the extra income Nigeria receives from selling its unrefined oil.

“Even for leading oil producers such as Nigeria, the picture is more complex,” said Michael Nderitu, head of trading at AZA Finance, a Nairobi-based forex trading firm.

“While revenue from crude exports may give some support to local currencies, the cost of importing refined petroleum is likely to put pressure on Africa’s forex markets in the near term, with the biggest net importers — such as Kenya — suffering the most.”

The picture is similar when it comes to wheat. Russia and Ukraine together export 29% of the world’s wheat, and all of that is under threat. That has led to a spike in the price of grain, amid fears of a global shortage.

Expect the cost of bread to rise substantially in African countries that import wheat — Egypt, Ghana and Kenya among them.

All of this will make the cost of living significantly more expensive — unless you happen to own your own nickel mine.  – Work In South Africa


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