SA must brace for rising commodity prices – Silke

While no simplistic conclusions can be drawn from what looks like a complex issue, South Africa should brace for rising commodity prices and supply shortages due to the ongoing Russia-Ukraine conflict.

This was one of the views expressed by political analyst Daniel Silke during a PSG Think Big webinar held on Friday.

Silke points out that much of South Africa’s fate will rest upon a decision to be made by Chinese President Xi Jinping that will be a turning point for the conflict and the global economy, as developing nations increasingly come under pressure.

Following a Friday morning phone call between US President Joe Biden and Xi to discuss Russia’s invasion of Ukraine, it remains unclear whether China will turn down Russia’s requests for military and economic assistance.

“While the world’s eye is fixed on Western Europe, we need to bear in mind that a possible encroachment on Taiwan is bubbling under the surface,” says Silke.

“China will be watching the geopolitical landscape carefully, ascertaining what the medium- to long-term effect of global sanctions will be on the Russian economy.

“Ultimately, it is not in China’s best interests to subscribe to Russia’s isolationist political philosophy. I therefore believe that it will be prudent in its direct involvement with the conflict – but again, its future designs on Taiwan will be a key deciding factor.”

Impact on SA

Commenting on the impact the war will have on South Africa, Silke says: “As a nation, we are faced with a double whammy. The post-Covid period has been characterised by supply shortages.

Currently, this is compounded by the ban on Russian oil imports and sanctions on its supply chain to South Africa.

“In the long term, the most significant effect that South Africa will feel is related to rising fuel and transportation costs,” he says.

“Fortunately, we are relatively more food secure than other countries. As such we are in a marginally better position than countries like Tunisia and Turkey, for example. This reality, however, certainly does not [protect] us from the long-term effects of the conflict on our fragile economy and the added pressures that come with those effects.”

‘Powder keg’

Silke also predicts that the cost of borrowing will surge due to the war, adding to existing pressures. He notes that South Africa’s plans to stabilise itself economically are hanging in the balance, given that budget deficits will inevitably rise.

“Our projections for the year ahead, which we saw in the most recent Budget Speech, will be greatly affected by the impact of the war,” he says.

“Given the effect of our fragile political environment, and the fragility of the disposable income of the majority of South Africans, what we have is a powder keg that can be set off by rising poverty levels, exacerbated by record-high unemployment.

“The state’s decisions over the next few months will play a crucial role in determining South Africa’s long-term economic future.”

Thoughts for investors

As to the impact of the war on investing, PSG Wealth chief investment officer Adriaan Pask says: “We advise investors to prioritise diversification and to partner with specialists who are able to share valuable insights and have experience in navigating the risks that emerge during political crises.”

Pask notes that while the impact will be inevitable, the current geopolitical climate serves as a rude awakening that planning for the long-term while navigating the risks that exist within the present is crucial.

Palesa Mofokeng is a Moneyweb intern.