From Kyiv to the Karoo: Exploring the butterfly effect of the Russia-Ukraine war
RisCura investment strategist Glenn Silverman highlights five major issues affecting the global economy, and their implications for SA
As Russia continues its attack on Ukraine, the world is once again on the precipice of another significant crisis. This comes at a time when consumers around the world are already under pressure from rising inflation and declining global capital markets.
A recent Business Day Dialogue online event, hosted in partnership with global investment firm RisCura, put the spotlight on how the Russia-Ukraine war has caused a butterfly effect from Kyiv to the Karoo. It also looked at other key issues affecting Africa and the rest of the world.
RisCura investment strategist Glenn Silverman explained that the butterfly effect is part of the chaos theory and describes how a minute localised change in a system can have large effects elsewhere. In an interwoven, highly connected global system such as ours, many of the crises afflicting the world at present are having ripple effects and an outsize impact on the global economy and markets, even far from the source.
Moderated by business news anchor Nastassia Arendse, this event — watch the recording below — focused on five themes with the largest impact on the global economy: the Covid-19 pandemic; the war; global supply chains; inflation woes; and central bank rate tightening.
Covid-19 cases globally, both infections and deaths, have reduced sharply of late. Most countries have now decided to live with the disease. It is those countries still attempting a zero-Covid-19 policy who are discovering the huge associated economic and social costs, and the ones now most negatively affected.
As far as the war is concerned, Silverman believed the master strategist himself, Russian President Vladimir Putin, has made a huge and costly error. He misread not only the determined fightback from the Ukranians, but more importantly, the immediate, strong and co-ordinated response from the West and Nato.
While the outcome of the war remains uncertain, it is clear the global geopolitical landscape has now been altered forever. In addition, the war has also worsened the pre-existing, Covid-19 driven, global supply chain challenges, resulting in further shortages of critical commodities such as oil, gas, fertiliser and food. Countries are increasingly looking at how they can be more self-sufficient: a sensible move, yet one that further compounds the constraints.
Inflation expectations in the West are increasingly embedded and up-anchored. Debt levels are at record highs in many places, at a time when interest rates are rising — a combustible situation. As rates rise, and economic activity slows, capital markets have fallen sharply in 2022 across most asset classes, unsurprisingly.
Silverman said the above events have had several unintended consequences. For example, Germany’s decision to close its nuclear plants for commendable, green reasons, means it is more dependent, intentionally, on Russian oil and gas. However, continuing to buy oil and gas from Russia is effectively supporting Russia’s war efforts, even if unintentionally.
China may unexpectedly be a net gainer from the war as it buys discounted oil and gas from Russia, has huge food reserves and some policy flexibility. It's property and stock markets have also already corrected fairly severely.
Another unintended consequence of the intense focus on environmental and social governance, has been much higher fossil fuel prices, as access to capital in the sector has largely collapsed, limiting competition and driving both the commodity and share prices much higher.
For Africa, these events may mean less investment as the eyes of the world are now focused elsewhere
For Africa, these events may mean less investment as the eyes of the world are now focused elsewhere. The continent faces increasing food inflation and insecurity, and hence a rising risk of a repeat of the Arab Spring.
For SA the risks revolve primarily around its Brics involvement; food inflation (though thankfully, it's largely self-sufficient); a repeat of last year’s civil unrest; power insecurity and reduced capital flows.
At the same time, there are opportunities for SA. It is physically far from the war zone and could thus provide a safer option for tourists, for example, than some others. In addition, the opportunities offered in renewable energy, agriculture and the real economy loom large — provided crime, corruption and red tape are reduced, property rights are enshrined, and the “ease of doing business” is improved.
Periods of extreme volatility and sell-offs provide buying opportunities, said Silverman. Once the dust settles, this one is unlikely to be an exception.
This article was paid for by RisCura.