Letters in Economic Research Updates
Effects of the Russian-Ukrainian Conflict on the Economic Activity of CEMAC States: Prioritization of Transmission Channels
Abstract
Olivier Nguemjom and Ngambo Arnaud
The objective of this article is to analyze the effects of the Russo-Ukrainian Conflict on the economic activity of the CEMAC States by prioritizing the transmission channels. The two main channels of transmission of this war selected particularly for our study are, on the one hand, the dependence of the CEMAC States on the outside world for food and energy raw materials (wheat, fertilizer, gas, oil). ...), which causes prices to soar in general and particularly for food products. On the other hand, the depreciation of the FCFA against the American dollar, which occurred via the depreciation of the euro, the currency to which the FCFA is linked at a fixed parity. It causes, apart from the repercussions on the financial market, the drop in export earnings and the increase in the cost of imports made in US dollars. From a simultaneous equation model on the real sector of the economy, the results show that the effect of the conflict via the inflation of basic products (food and energy) would reduce growth prospects in the CEMAC zone by 0 .3% to place it at 2.5% on average between 2023 and 2025, while the effect of the conflict via the depreciation of the FCFA against the US dollar would reduce growth prospects by 0.1% on average in the CEMAC zone for place it at 2.7% on average between 2023 and 2025. CEMAC States could put in place import/substitution procedures in order to reduce imported inflation and economic fragility caused by external dependence, a particular emphasis being focused on the creation of fertilizer factories and on the production of wheat and the development of its substitutes. They could accentuate the process of structural transformation in order to diversify their source of income, which would make the evolution of their GDP more resilient to external shocks while seeking the optimum in the agricultural sector. Monetary authorities should consider measures to mitigate the shocks caused by the depreciation of the euro against currencies, being linked to a fixed parity with the euro.