The dark clouds of economic hardship are gathering as the US/Israel war on Iran continues unabated, with the resultant oil price increase about to impact almost everything in the SA economy. Finance Minister Enoch Godongwana announced that the Cabinet had formed a committee to assess the effects of the ongoing Middle East conflict, especially with regard to growing fuel prices.
Another sign of headwinds looming for the economy is the South African Reserve Bank’s Monetary Policy Committee (MPC) decision to leave the interest rate unchanged, following other Central Banks. The petrol price is expected to rise by R5 a litre on Wednesday and the diesel price, because of laxer regulations, is expected to rise by R10 earlier in the week.
Fuel Price Increase Impact
This will result in increases in taxi fares, bus fares and other transport costs, especially in the freight and logistics sectors which will be passed on to the consumers. Economist Dawie Roodt said the full impact is still uncertain, but early signs point to a difficult few months ahead. According to the South African Reserve Bank, while inflation has remained relatively contained so far, the effects of rising fuel, electricity and input costs will begin to show from April, with inflation likely climbing sharply and placing pressure on interest rates and economic growth.
Effects on Exporters
South African exporters are worried, not only about getting their produce and products to their destinations because of the closing of the Strait of Hormuz, but also about the rising costs brought on by rising fuel costs and tariffs. In a recent interview with Xinhua, Ralph Mathekga, a senior expert at the Liechtenstein-based Geopolitical Intelligence Services, said that while the immediate impact on exports remains limited, some perishable products could face challenges.
- Citrus food products might experience difficulties reaching markets such as Saudi Arabia and the Gulf states
- Beef products could also face challenges due to the conflict
- Most other agricultural commodities are not currently at significant risk
However, he warned that indirect effects of the conflict, particularly through energy markets, are likely to place considerable pressure on farmers. The price of diesel, a key cost for agricultural operations, is expected to rise sharply from April, as noted by the Wikipedia page on the oil price.
