Businesses fear ripple effect of Russian invasion of Ukraine

With oil prices hitting above $100 in the wake of Russia’s invasion of Ukraine, local businesses yesterday feared that the war would have a ripple effect on their domestic and international operations as both countries are major suppliers of agricultural commodities.

Entrepreneurs said the cost of doing business will go up substantially because of the increase in freight rates after oil prices crossed a 14-year high in international markets, according to Reuters.

Besides, the global supply chain has already been impacted by the coronavirus fallout for the past two years but this war will only exacerbate the situation.

The shipment of products by both air and sea will also likely be affected because of the war in Europe, Bangladesh’s biggest export market.

The conflict may also badly impact the prices of some basic commodities, industrial raw materials and industrial machinery as both Russia and Ukraine are major sources for these items.

Some bankers said the crisis may also affect the banking sector as major international trading partners have already banned some banks from conducting transactions with Russia.

Bilateral trade between Bangladesh and Russia is worth nearly $1 billion while two-way trade with Ukraine amounts to about $350 million.

Interestingly, Bangladesh’s trade balance with both countries is tilted towards the country due to the heavy concentration of apparel items.

On the other hand, Russia and Ukraine are major sources of Bangladesh’s wheat, cotton, and industrial materials and machinery.

“Our business, especially the export of apparel, will be affected. However, the magnitude of the impact on exports depends on how long the war continues,” said Faruque Hassan, president of the Bangladesh Garment Manufacturers and Exporters Association.

Mohammad Ali Khokon, president of the Bangladesh Textile Mills Association, echoed the same.

“Primarily, we will lose the Ukraine market as it is a war-hit country. There is a possibility of losing business in its neighbouring countries as well,” Khokon told The Daily Star.

He said local businesses will enter another unstable era because this new global crisis comes amid their recovery from the severe fallouts of Covid-19.

Importers said nearly one-third of the global wheat supply comes from Russia and Ukraine.

The two countries also supply a good amount of maize, rapeseed, canola, sunflower oil and pulses, and Bangladesh depends on imports to meet its domestic requirement for such commodities.

Already, oil prices broke above $100 per barrel while the prices of wheat, soybean seeds, crude soybean and palm oil for future delivery also surged in global markets.

Local importers said they reduced the number of shipments from Ukraine and Russia in recent years and increased purchases from India because of convenience in transport.

Still, though, Bangladesh will likely face higher prices for grains as prices have shot up amid rising tensions.

“Suppliers are not taking orders for delivery from the region while pending supplies have also become uncertain,” said a commodity importer preferring anonymity.

Exporters in India are also quoting higher prices, he added.

Abdul Bashar Chowdhury, chairman of Chattogram-based BSM Group, said not only Bangladesh, but the impact of the war between Russia and Ukraine would fall on the whole world as both countries are major suppliers of food grains and other commodities.

He suggested all, including the government and private businesses, play a responsible role in this time of crisis.

“Definitely, there will be an impact on commodity markets and costs as suppliers in other countries have already increased prices,” he said, adding that the crisis has made commodity markets other than that of food grains volatile as well.

“All have increased prices,” said Mostafa Kamal, chairman and managing director of Meghna Group of Industries, citing that an Indian supplier hiked wheat prices by $10 to $305 per tonne.

“It appears that there is no respite from high prices of edible oil,” he said.

Palm oil prices are now between $1,600 and $1,700 per tonne while the cost of soybean oil has skyrocketed to nearly $1,800 per tonne from $700 to $800 earlier.

“No one has witnessed such high prices of edible oil. I do not understand. I have been in business since our independence, but I have never seen such high prices in my life,” Kamal added.

Meghna Group of Industries is one of the leading commodity importers and processors in Bangladesh.

Rizwan Rahman, president of the Dhaka Chamber of Commerce and Industry, said more than 15 per cent of Bangladesh’s exported goods are going to Germany. However, Germany is also in a tense position due to its geographical proximity to the war.

Similarly, many North Atlantic Treaty Organisation (NATO) members import goods from Bangladesh and so, those exports may be affected.

Rahman went on to say that Russia is one of the country’s largest foreign investors in various sectors.

AK Azad, chairman and chief executive officer of Ha-Meem Group and former president of the Federation of Bangladesh Chambers of Commerce and Industry, said Russia’s military operation in Ukraine will disrupt global gas and oil supplies.

Because of the rise in oil and gas prices, the cost of sales will increase and there will be a big impact on business, said Md Saiful Islam, president of the Metropolitan Chamber of Commerce and Industry.

About 47 per cent of Bangladesh’s exports go to EU member countries. If all of Europe is considered, the amount of shipments makes up about 55 per cent of the country’s total exports.

“If the war escalates, movement of ships and air flights will be shut and there will be a major impact on global food security,” Islam added.

The US, alongside Britain and EU countries, has already imposed sanctions on several Russian banks, which will have a negative impact on Bangladesh’s financial sector as well.

Emranul Huq, managing director of Dhaka Bank, said the country’s banking sector might not able to do business with corresponding banks in Russia due to the latest embargoes imposed.

With this backdrop, both local banks and businesses should explore alternative ways to resolve the setback.

“The government should give emphasis to this end so that local exporters and importers can sidestep any problem emanating from this latest tension in Europe,” Huq said.

Syed Mahbubur Rahman, managing director of Mutual Trust Bank, said the financial sector would not face any major problems since Bangladesh’s bilateral trade with the two warring nations is not significant.