This is what Russian invasion of the Ukraine will cost South Africa

The Russian invasion of the Ukraine may be half a world away, but its global consequences mean that South Africans will be paying more for almost everything, very soon.

According to economist Dawie Roodt, the country will feel a dual impact of the conflict – both in financial markets and in the real economy. And it’s already started with the rand losing ground against major currencies over the past 24 hours and Brent crude oil shooting past $100 (about R1 500) a barrel.

Roodt predicted R22 a litre for fuel earlier this week, but should the rand continue to weaken on the back of a prolonged war and higher oil prices, worse may be in store for consumers.

Financial markets are impacted first, said Roodt: “Investors become nervous of higher risk investments like the rand, it loses value and the knock-on effect will be higher inflation, an upward trajectory in interest rates and slowed economic growth.”

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The impact will become more severe should nothing be resolved quickly, he said. According to a United Nations analysis on the US invasion and war in Iraq in 2003, emerging markets with fewer levers and tools at their disposal to aid recovery suffered the most and economic recovery did not happen overnight.

The conflict in Iraq, from invasion to withdrawal, lasted eight years and eight months. In the report it noted that a quick war, so to speak, could have launched an economic boom with increased military spending and demand growth during a rebuild phase.

SA’s inflation is currently projected at 4.8% for 2022. In 2003, when the US-led allies invaded Iraq, the consumer price inflation was at 5.68%. The price of a sliced bread was about R10 in 2020.

Two years later, it is 50% more expensive at a R15 per loaf. “That’s the real cost of living, and this may rise substantially. Jobs will ultimately also be a casualty of the new war and SA, with its high unemployment rate, could ill afford this,” Roodt said.

In the real economy, he said, a similar impact would be felt across the globe and consequently decelerate global trade.

“People stop buying. Exports are negatively affected. The global economy will lose pace.”

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Political commentator Russel Crystal said he hoped the United States would not intervene militarily in the conflict.

“This is a matter between Russia and Ukraine and should not be escalated to involve the livelihoods of the rest of the world.”

Crystal added the best political play for the US would be to project a measure of unpredictability which Putin would find perplexing. He did not expect a major global conflict as a consequence.

There is a glimmer of light for SA, though: the minerals market. The Ukraine fallout saw gold reach a 17-month high, rising more than 3% to almost $1 974 per ounce, the highest price since September 2020.

Prof Jannie Rossouw, visiting professor at Wits Business School, said it was likely investors would start speculating in gold as it is still freely available in SA. Gold and crude oil are both dollar-denominated assets and linked to inflation.

When the price of crude oil increases, inflation also increases, while gold is considered a good hedge against inflation.

– news@citizen.co.za