Commercial dynamism between Ecuador and Russia is in decline due to that country’s conflict with Ukraine, bananas are one of the main export products affected

Russia was the destination of almost 20% of the boxes of bananas that Ecuador exported during 2021 . It is a significant market for the country, the main one among the independent countries without bringing them together in commercial blocs, even above the United States (USA).

The war between Russia and Ukraine affected Ecuadorian bananas. Exports of this product fell 10.8% between January and October of this year compared to 2021.

One of the main repercussions of the Russian invasion of Ukraine is the reduction of Ecuador’s commercial dynamism with that part of the planet, says Cristian Carpio, an analyst and professor at the University of the Americas (UDLA).

The volume exported to Russia fell 2.19% between January and October of this year compared to the same period in 2021, while what was sent to Eastern Europe fell 53.5% (especially through Ukraine).

The conflict, which began on February 24, 2022, forced more than 7.8 million people to leave Ukraine. And there are another 6.5 million internally displaced persons and more than 7,000 civilian deaths.

The elimination of the 4% tariff that Russia imposes on Ecuadorian bananas prevented the fall from being even greater.

What are the consequences in Ecuador of the Russian invasion of Ukraine that began on February 24?

The increase in the price of certain products that were imported from Russia and Ukraine such as fertilizers and wheat (with which bread is made). The increase in logistics costs caused prices to rise significantly. Before the demonstration in June this year (indigenous strike), one of the main complaints was the value of oil (which doubled). That is one of the repercussions of this war. We also obviously had an increase in the price of oil, that benefited us because our fiscal coffers were nourished with more resources, but also increased state spending to cover subsidies. On the subject of inflation, in Ecuador the figures are much lower (compared to the rest of the countries in the region) thanks to dollarization. However, a price escalation was seen, especially in May, June, July and August.

Last November, negative inflation was already reported in the country.

In fact, Ecuador has one of the lowest inflation figures in the entire region due to dollarization. The main element that we have to consider is whether the world is going to enter an economic recession, this mainly due to the increase in energy costs, such as gas and oil. That added to a potential new wave of COVID-19 that can put restrictions, at least in China, would affect commercial and economic dynamism. If we enter a recession, Ecuador will have significant impacts.

Will there be an impact on Ecuadorian exports?

Our main export products are to the US, European and Chinese markets. If these countries enter an economic recession, the demand will actually drop, therefore fewer products will be consumed. There are several economic fronts. Much is said about the war, but little about the commercial dynamism that existed with Russia. Much of the demand for Ecuadorian products such as bananas and roses, among others, had the Russian market as a recipient. Currently these exports have dropped significantly. In the event that the conflict worsens and the recession in Russia is greater, well, we are going to lose those commercial spaces, at least for the traditional products that are exported. But Ecuador has also gained ground in other markets, which has helped to boost its economy.

Despite the war, the country continues with a positive trade balance.

Traditional exports increased 24.6% from January to October of this year compared to 2021. And non-traditional exports 17.7%, both in amounts. This is explained because there is an increase in the cost of products. Many of these were associated with the effects of the war, such as the increase, for example, in energy, the cost of freight and raw materials. What did decrease was the amount obtained from banana and plantain exports, which fell 6.5% this year compared to 2021. The price of bananas fell for a few months at the international level, especially due to the war, this was also what encouraged the national strike (from last June), in some banana companies the product was even thrown away. Russia is an important and significant market for Ecuadorian banana exports.

What would be the greatest danger if the war between Russia and Ukraine continues?

The prices of freight, raw materials and energy increased production costs and all this if it impacts inflation. In the Ecuadorian case, the effect was moderate, but globally it is one of the main problems, as in the United States and Europe, which is leading to economic recession. The world economies are trying to prevent it. If an economic recession occurs, Ecuadorian exports would be affected since demand in these markets could be reduced.

How is the oil price estimated to evolve during 2023?

The developed economies are thinking about how to moderate their price precisely to avoid a recession. Most developed countries are oil importers. The fact is that there is a lot of uncertainty, which does not necessarily lead to clarity about what will happen. I think that the price of oil will moderate, but extremely low prices will not exist either due to the global economic and geopolitical dynamics due to the war, there are outbreaks of COVID-19, which may lower demand from China.

What will it mean for ordinary citizens if the world enters an economic recession and there is less demand for Ecuadorian products?

A large part of the events that energized the protests last June in Ecuador were due to the increase in the prices of imported products that arrive from Russia and Ukraine, such as the cost of fertilizers (used in the crops) and the increase in the price of oil, added to the shortage, such as flour, all this triggered the protests. The banana growers found themselves in a significant crisis, all of which added to and deepened the political problems. The ordinary citizen went to the markets and found the most expensive products, the inflationary spiral was beginning to be seen, moderate, but it was already visible. There was an overproduction of bananas without being able to take it out, so the costs decreased. An economic recession represents a lot for the citizen, less business dynamism which means fewer jobs and the possibility of more discontent. If there is an impact on the pocket and that triggers social discontent. (YO)