Russian-Ukrainian war a blow to Colombo's economy

by Arundathie Abeysinghe

Impact on tea exports, tourism and foreign currency crisis. A prolonged clash risks stopping exports altogether, not least because of rising energy prices in Europe. At the moment no wheat, sunflower oil, iron and steel products are arriving from Russia and Ukraine.



Colombo (AsiaNews) - The Russian invasion of Ukraine threatens Sri Lanka's tea exports, the national tourism industry (which was recovering after the pandemic) and will push up inflation. The energy sector, as elsewhere in the world, is also at risk. According to analysts, the economic consequences of the war risk bankrupting the country.

The invasion ordered by Putin has also aggravated the dollar crisis and stopped the arrival of Russian and Ukrainian tourists, the most numerous to visit the island. The Sri Lanka Tourism Development Authority told AsiaNews that about 20,000 Ukrainians and Russians had arrived in Sri Lanka by January 2022, accounting for more than a quarter of the total number of visitors.

The Ukrainian tourists were the first post-Covid travellers to Sri Lanka to bring in much-needed foreign currency, a report that had bounced around various media outlets last year, accompanied by allegations that the travellers had also brought a new strain of coronavirus to the island. Thousands of Ukrainian and Russian tourists are currently stranded in Sri Lanka, unable to use their credit cards because international banks have suspended transactions with Russia.

Economists report that Sri Lankan tea exports to Russia have fallen from 46 million kg in 2013 to 27 million kg in 2021. Despite this negative trend, demand for 'Ceylon Tea' played a significant role for the Sri Lankan economy until January this year, before the start of the Russian-Ukrainian conflict.

In 2021, Sri Lanka exported 4.2 million kg of tea to Ukraine, in line with exports over the past seven years. According to sources at the Colombo Tea Traders Association, it is possible that "everything will come to a standstill", that there will be a complete halt to tea exports as "we may not be able to ship goods to Russia, Ukraine,or other Eastern European states such as Lithuania".

According to Sri Lankan tea planters, a prolonged conflict would have a "severe" impact on trade in their products, while the loss of value of the ruble and the exclusion of Russian banks from the Swift international payments system will be a major "blow to the Sri Lankan economy".

Several exporters told AsiaNews that because of the sanctions imposed by Western countries, the tea market is also likely to be affected, to the point that "there may be a possibility of not trading with Russia".

Russia and Ukraine buy about 18% of the black tea produced in Sri Lanka. Similarly, 45% of the island's wheat imports come from the two parties to the conflict. More than 50% of imports of soya, sunflower oil and pulses also come from Ukraine. Moscow and Kyiv are also important suppliers of semi-finished products of iron and steel, asbestos, copper (cathodes) and potassium chloride for fertilisers.

If the crisis between Ukraine and Russia continues for much longer, the prices of fuel and raw materials in Sri Lanka are likely to rise further, putting pressure on consumers' pockets. At the same time, inflationary pressures in Western markets, especially in Europe, caused by high energy prices and delays in supply chains, threaten to depress consumer purchasing power, reducing demand for Sri Lankan exports. Currently, Europe is an important destination for Sri Lankan exports of garments, tea, spices and seafood.