Although no simplistic conclusions can be drawn from what appears to be a complex issue, South Africa should prepare for rising commodity prices and supply shortages due to the ongoing conflict between Russia and Ukraine.
That 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 depend on a decision by Chinese President Xi Jinping that will be a turning point for the conflict and the global economy, as developing countries are increasingly under pressure. pressure.
After 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 refuse Russia’s requests for military and economic assistance.
“As the eyes of the world are fixed on Western Europe, we must keep in mind that a possible encroachment on Taiwan is bubbling below the surface,” says Silke.
“China will carefully monitor the geopolitical landscape, checking what the medium and long-term effect of global sanctions will be on the Russian economy.
“Ultimately, it is not in China’s interest to subscribe to Russia’s isolationist political philosophy. So I think he will be careful about his direct involvement in the conflict – but again, his future plans on Taiwan will be a deciding factor.
Impact on SA
Commenting on the impact the war will have on South Africa, Silke said: “As a nation we face a double whammy. The post-Covid period has been characterized 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 South Africa will feel is related to rising fuel and transport costs,” he says.
“Fortunately, we are relatively more food secure than other countries. As such, we are in a slightly better position than countries like Tunisia and Turkey, for example. This reality, however, certainly does not mean [protect] us of the long-term effects of the conflict on our fragile economy and the additional pressures that come with these effects.
Silke also predicts that the cost of borrowing will rise due to the war, adding to existing pressures. He notes that South Africa’s plans to stabilize economically are at stake, as budget deficits will inevitably rise.
“Our projections for the coming year, which we saw in the last budget speech, will be greatly affected by the impact of the war,” he says.
“Given the effect of our fragile political environment and the fragile disposable income of the majority of South Africans, we have a powder keg that can be triggered by rising levels of poverty, exacerbated by record high unemployment.
“State decisions over the next few months will play a crucial role in determining South Africa’s long-term economic future.”
Thoughts for Investors
Regarding the impact of the war on investing, Adriaan Pask, Chief Investment Officer of PSG Wealth, said: “We advise investors to prioritize diversification and partner with specialists who can share valuable insights. and experienced in managing the risks that emerge during political crises.”
Pask notes that while the impact will be inevitable, the current geopolitical climate serves as a stark wake-up call that long-term planning while navigating the risks that exist in the present is crucial.
Palesa Mofokeng is an intern at Moneyweb.