Backing Russia will cost South Africa

Mining companies are making a killing out of Russia’s war against Ukraine which will leave us poorer because South Africa has chosen the wrong side.

While rising oil prices push up our fuel costs, those who mine certain metals rejoice. Sanctions prevent exports from Russia.

This creates shortages and inflates prices of platinum group metals such as palladium and rhodium, which SA has in relative abundance. In this way, the commodities boom which has boosted our revenue for several years is extended.

Yet there are doubts whether this windfall, the gift which keeps on giving, will be used to best effect. As Peter Attard Montalto writes in Business Day, South Africa has “sat out” previous commodity cycles.

While tax, dividends, and share prices have risen, this has not been accompanied by significantly greater production or numbers of people employed. Hyped spending on infrastructure seldom materialises. While there are benefits for commodity-producing countries when Russia is removed from trading, investors remain sceptical that South Africa will benefit in real terms.

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Montalto cites as an example Transnet’s difficulties in coping with existing mineral exports, never mind increased volumes. He doesn’t mention other ways in which SA’s infrastructure is not coping, such as unreliable electricity and a deteriorating road network.

There are also political uncertainties around security of ownership amid calls for expropriation without compensation. Our labour laws and industry “charters” specifying race-based quotas are not attractive to investors. Failure to deal with the causes and culprits of last July’s riots also adds to investor unease.

Noting how South Africa has “sat out” previous commodity booms, analyst Mark Barnes comments: “We’re harvesting, not planting – we all know how that ends!” The point is that South Africa is once again not using a windfall to enhance the country’s prospects by, for example, improving the climate for investment.

Quite the opposite, in fact. In his State of the Nation Address last month, President Cyril Ramaphosa said the government does not create jobs, businesses create jobs.

He added that the state “must create an environment in which the private sector can invest and unleash the dynamism of our economy”.

A few weeks later he could not join the dots. By failing to support a United Nations General Assembly vote condemning the Russian invasion of Ukraine, he has widened this country’s rift with our biggest trading partners – the European Union and the United States.

Before this conflict, Russia’s economy was ranked just 11th in the world. It has since slipped further. If measured by exchange rates on 10 March, “Russia’s economy would be the 22nd-largest in the world, with a gross domestic product not much larger than the state of Ohio’s,” according to Professor Eric Werker in The Conversation.

So, when this war is over, Russia’s shrinking economy will be in no position to rescue South Africa. Whatever pyrrhic victories President Vladimir Putin’s army scores against civilian targets, Ramaphosa has staked our country’s future on a losing side.

It’s time for him and his Cabinet, indeed his party, to make way for a team with better judgment.