Global Crisis, Local Impact: How Côte d’Ivoire Copes with Fallout from the War in Ukraine

Since 2012, with the return of peace after a period of civil conflict that lasted from 2002 to 2011, Côte d'Ivoire has been one of the fastest-growing economies in sub-Saharan Africa with real GDP growth averaging 8.2%. But the economic fallout from the war in Ukraine has dealt a blow to developing countries already reeling from the COVID-19 pandemic and the global rise in food prices. However, Côte d'Ivoire has shown remarkable resilience in the face of successive shocks.

Shielded by a Strong Economy

Thanks to economic growth and sound macroeconomic policies, Côte d'Ivoire entered the COVID-19 crisis in a strong position. The government's swift action in response to the pandemic protected the country from its worst impacts. But the war in Ukraine and its consequences are disrupting the country's fragile economic recovery. The war has accelerated inflation and significant movements of the major currencies, with the Euro and West African CFA franc (FCFA) depreciating sharply against the United States (US) dollar.

The Soaring Costs of Agri Inputs

Prices of commodities exported by Russia and Ukraine, particularly oil and gas, wheat, and fertilizer, have surged. Internationally, fertilizer prices have increased more than 90% between January and August 2022, compared to the same period in 2021. Consequently, Cote d'Ivoire's imports of fertilizer decreased by 55% from January to August, compared to the same period in 2021. This drove domestic fertilizer prices higher. Without government subsidies on petrol and diesel, fuel prices also would have gone up 50%.

The soaring costs of agricultural inputs, together with the disruptions in global trade, are driving up domestic food prices. From January to August 2021, the Food and Non-Alcoholic Beverage Price Index went up 6%. Similarly, the index increased by 7% from January to August 2022 compared to 1% for the same period in 2019 and 2020.

The Poorest Population Will Bear the Brunt

As long as the current inflation and trade disruptions do not amplify, the fallout from the war is not likely to cause a downturn in Côte d'Ivoire overall, because of the strength of the country's pre-pandemic and pre-war economy. However, it will affect the country's poorest population. More than 10 million of the country's 27 million population (39.5%) live below the national poverty line, and around 4.3% are severely food insecure (in Phase 3-5 of the Cadre Harmonisé)¹. The impact of the price increases, driven by high food prices on the international market and high domestic transport costs, will depend on households' food baskets. It should be relatively low on domestically produced starch like yams and cassava but higher on imported commodities like rice and wheat, a key ingredient for bread, a staple food for urbanites. Increased transport costs, energy (electricity) prices, and inflation - more than 5% in 2022 and 2.3% in 2023, according to government estimates - will further strain households' already stretched budgets.

High Prices and Weak Currency's Impact on Agri-Food

Although the increase in food prices has a negative impact for consumers, the impact on farmers, who are often among the poorest of the population, might be positive. The weakening of the FCFA makes the country's exports more competitive. If farm-gate prices align with international prices, this could boost farmers' incomes significantly while also helping economic growth. The agriculture sector represents 23% of GDP and is the main source of foreign exchange earnings. Agriculture provides employment to around 45% of the working population in Côte d'Ivoire.

As the weak domestic currency increases the price of imported products, this situation could lead consumers towards local alternatives and spur innovations - for instance, using domestically produced cassava flour instead of imported, more expensive wheat flour. It could help revitalize the government's support for the food crop sub sector.

Government Mitigation Measures

To mitigate the economic impacts of the war, the government has set up several measures: fuel and staple food prices regulation, temporary reduction and exemption from value-added taxes, levies, and import duties on basic food products, as well as input subsidies for farmers. Wheat imports are exempt from customs duties, and the government plans to boost production of cassava and corn.

A Call to The future

These multiple shocks are a call to continue to increase domestic agricultural production in a sustainable way, to promote local production of organic fertilizers, and to increase food processing domestically. These actions could strengthen the resilience of Ivorian smallholder farmers and consumers.

¹_{4.3 percent of sampled population of 7,076,154 people.}