How the Russian invasion of Ukraine will affect South Africa

According to economists from the Bureau for Economic Research (BER), the Russian invasion of Ukraine has caused turmoil in global markets, but is unlikely to have a major impact on the wider impact on growth in South Africa.

In a research note on Monday (Feb.28), the group noted that South Africa’s trade ties with Russia are relatively limited, with the country accounting for less than 0.4% of total commodity exports in 2021. South Africa imported goods worth Rs. 9.2 billion from Russia in 2021, less than 1% (0.7%) of total imports.

“However, some listed companies have greater exposure to the country and specific sectors, such as citrus producers and fruit exporters in general, are more susceptible to downside risk if trade with Russia comes under pressure from the impact. sanctions and / or a probable sharp decline in the Russian economy. South Africa’s trade links with Ukraine are much less “.

A more indirect, but potentially greater, impact on South African exports will be if a prolonged conflict and the cancellation of Nord Stream 2 lead to a sustained increase in gas prices in Europe, which will weigh on real GDP growth in the region, the BER said. .

Nord Stream 2 is a 1,200 km pipeline under the Baltic Sea, which will carry gas from the Russian coast near St Petersburg to Lubmin in Germany.

“While the rise in oil prices will also have inflationary consequences here, the ongoing geopolitical tension has pushed up the prices of some of South Africa’s major export commodities, including PGMs and gold. Russia is the world’s largest producer of palladium, with South Africa second.

Inflation and energy

Outside of direct losses from an escalating war, the most direct impact on the global economy may be to sustain the current high inflation for even longer, BER said.

“In addition to the rise in global grain prices, the price of Brent crude exceeded $ 100 per barrel for the first time since 2014 towards the end of the week. Brent crude oil reached an average of $ 96 a barrel in February, almost 10% higher than in January. “

The result is that the domestic price of gasoline will increase significantly R1.46 / liter Wednesday, with diesel rising by a similar amount.

“An environment of persistent supply shocks that could begin to hold back demand complicates the future path of interest rates for many central banks. While central banks are generally not responsive to one-off cost-boosting pressures, multiple supply shocks mean a greater risk of secondary price effects emerging, ”BER said.

The Frog

Despite the turmoil, the rand has done quite well so far, losing “only” 0.5% week-over-week against the US dollar last week, BER said.

“The local currency could be negatively impacted if sentiment towards emerging markets (EM) generally tightens. The rise in global geopolitical tension is generally bad for the rand, although it could be argued that the SA currency is now considered safer than some of its usual EM counterparts.

“In addition to Russia, this includes Turkey, which has addressed its own issues relating to monetary policy in particular.”

Read: Major price hikes affecting South Africa since March