Yaneek Page | Entrepreneurial impact of Russian invasion of Ukraine

Last week, Russia launched a full-scale invasion of Ukraine in what has been described as an unprovoked and unnecessary assault harkening back to the early 20th century battle periods.

The conflict has thrust Europe into the haunted grips of its greatest security threat since World War II, and will certainly have grim implications for Jamaican entrepreneurs and businesses, despite a distance of almost 7,000 miles and a time zone that’s eight hours ahead.

The immediate implication for Jamaican businesses will be skyrocketing oil and gas prices that will affect the price of petrol at the pumps, transportation costs, travel and freight costs and also the cost of electricity.

In the third week of February, crude oil was trading at US$95 per barrel on the global market. The price jumped 10 per cent last week to US$105 per barrel, amid the growing tensions in Europe and prior to the Russian invasion of Ukraine. Already, there are predictions that oil could reach upwards of US$130 a barrel in March.

It is important to note that Russia is one of the most resource-rich countries in the world, occupying 10 per cent of the world’s inhabitable land and producing almost 11 per cent of the world’s oil. Russia also supplies the majority of the natural gas throughout Europe. The instability and disruption of oil supply in Europe will throw the global oil markets into disarray.

Last week, President of the United States Joe Biden warned Americans to expect increased gas prices in the short term even as he announced severe economic sanctions the US and its allies had agreed to impose against Russia. In fact, in a pre-emptive move to minimise the disruption in the supply and price volatility of oil, the US president announced that he would be authorising the release of some of the country’s oil reserves in the coming weeks.

BRACE FOR INCREASED INFLATION

Entrepreneurs should also brace for increased inflation, which will be driven significantly by increased oil prices. In a practical sense, this could mean that expense budgets that were decided just a few weeks ago, may need to be completely overhauled to make the requisite adjustments for increased costs of doing business.

Business owners and managers would be wise to also produce new projections for the income side of the budget. Demand for their goods and services may be significantly impacted by the fact that Jamaican consumers are already struggling with high inflation and will likely adjust their spending to manage increases in basic food items, petrol, and electricity, among others.

HEIGHTENED GEOPOLITICAL TENSIONS

Another implication of the Russia-Ukraine war is heightened geopolitical tensions, and volatility that will translate into major instability in the global markets. It is also likely that the economic growth forecast for many parts of the world will be adjusted downwards.

Governments may also have to direct focus and resources toward managing and mitigating the anticipated pressures in diplomatic relations and resulting fallout in global markets, which will shift their attention away from economic recovery efforts following the great shutdown of 2020 and the current global pandemic.

The timing of these European tensions also coincides with two significant policy announcements in the Jamaican landscape.

The first is the Bank of Jamaica’s decision to increase, as of February 21, 2022, the rate offered on overnight balances on the current accounts of deposit-taking institutions, known as the policy rate, from 2.5 per cent per annum to 4 per cent. This is a significant increase aimed in part at controlling inflation, which had increased outside of the central bank’s projection for 2021, and which continued to trend upwards in January 2022. It is expected that this rate increase will contract the money supply, including the supply and cost of credit to businesses and consumers, which will also have an impact on the bottom line for many businesses.

The other announcement was made by the Minister of Labour & Social Security in relation to the increase in the minimum wage from $7,000 to $9,000 per 40-hour workweek. This is the first increase in the minimum wage since 2018.

All things considered, Jamaicans must brace for challenging times in the upcoming weeks and months, as the turmoil in international markets and relations is expected to cause considerable pain in the pockets and coffers of most.

War is revolting, and imposes a severe human, social and economic toll. Sadly, although we play no part in its start, duration or ending, in a globalised world, we all pay a price for its trepidation.

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Yaneek Page is the programme lead for Market Entry USA, a certified trainer in entrepreneurship, and creator and executive producer of The Innovators and Let’s Make Peace TV series. yaneek.page@gmail.com