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Picture: REUTERS/RICK WILKING
Picture: REUTERS/RICK WILKING

The global geopolitical situation involving Russia and Ukraine has solidified the Brics (Brazil, Russia, India, China and SA) bloc and exposed some of its weaknesses.

While some Brics members, India in particular, are taking full advantage of discounted commodity prices on offer from Russia, SA has done little to shield itself from the war’s global fallout, let alone benefit from its Brics status.

Why are South Africans not spared high commodity prices that are driven up essentially by Western sanctions? As sanctions on Moscow tighten, commodity prices soar. This has negative global fallout, particularly on European nations reliant on Russian gas.

SA has not been spared. Consumers in particular are feeling the pinch. According to a recent UN Development Programme policy brief, which looks directly at the Ukraine war’s effect on SA, the situation presents “a new multifaceted risk to the SA economy”.

The situation “exacerbates supply chain bottlenecks and inflationary pressures via higher energy and food prices, which would result in a more rapid tightening of monetary policy. Mounting inflationary pressures and rising interest rates will hurt discretionary income and could negatively impact consumer spending, economic growth, employment, poverty and food security.”

Disruption of shipping, shortages of fertiliser and increases in fuel prices doubled primary agricultural input costs since January 2021. SA food inflation peaked at about 10% in July and is expected to stabilise at about 7% for the year. This is a full 1.2 points higher than the 5.8% average inflation estimate and 2.1 points higher than the Reserve Bank’s original forecast of 4.9% for 2022.

High price inflation for basic necessities such as food can have catastrophic effects on a country with a 34.5% unemployment rate and 55% of the population living under the poverty line. This, coupled with load-shedding, is a recipe for disaster. It could lead to riots worse than those seen in July 2021.

So again, why has SA not used its Brics membership to shield itself, or at least minimise fallout from geopolitical warfare? According to Reuters India’s imports from Russia jumped nearly 80% in the year to end-March. Before February 24 Russia supplied only 0.2% of India’s total oil imports, but by May this had leapt to 10%, at heavily discounted prices.

In addition, the Indian Reserve Bank announced last month that it is putting in place a mechanism for international trade settlements to take place in rupees. This will enable India to avoid Western sanctions that prevent the use of the dollar for trade with Russia. Advantages of such a mechanism are well understood for the sanctions-hit Russian Federation, but national currency-based trade is huge for India too.

Trade in rupees also provides the opportunity for India to grow its exports to Russia. Historically, trade between India and Russia was skewed heavily in Russia’s favour. In financial 2021/2022, India had a trade deficit of $6.61bn from total bilateral trade of $13.1bn. To balance the books the Indian government is now boosting exports of products such as pharmaceuticals, plastic and chemicals to Russia. Russia’s imports of pharma products now stand at about $8.9bn, of which India supplies about $600m, so the prospects for the Indian pharmaceutical industry look exceptionally good.

Graphic: KAREN MOOLMAN
Graphic: KAREN MOOLMAN

Another advantage is the positive effect on India’s foreign currency reserve. As an import dependent country India has to maintain and manage huge reserves of foreign currency to settle its bills. It imports almost 80% of its hydrocarbon needs, and most of these transactions are settled in dollars. Being able to pay for its trade with Russia using its own currency is therefore a huge relief for the economy.

The bulk of SA’s exports to Russia are agricultural, mainly citrus. Imports are dominated by copper, wheat and agrochemicals such as fertiliser. The SA citrus industry exports 7%-10% of its total annual production to Russia. Even so, direct trade between SA and Russia amounts to less than 1% of total trade. There is now an opportunity to bolster not only trade relations between SA and Russia but with the wider Brics community.

Unfortunately, unlike the dollar the rouble is not accepted as a direct trading currency by commercial banks in SA. Why then is SA not working on a similar mechanism to India, where Russian fuel, fertilisers and other greatly needed commodities whose prices are now inflated could be bought directly from Russia using rand rather than dollars or euros?

In addition to discounted imports from Russia, the country has the opportunity to vastly increase its exports to Russia. As a friendly nation SA can export value added goods that are produced in the country, where they create much-needed jobs, and support small and medium-sized enterprises producing goods such as automotive parts, filtration media, processed foodstuffs and wine, to name but a few. 

Another consideration is the potential of attracting large numbers of Russian tourists to SA, who are restricted from travelling internationally to the extent that they did in the past. This makes friendly destinations such as SA more attractive than ever. However, the fact that Russian tourists cannot make card payments in SA due to global sanctions makes the country less attractive than it could be. Carrying large amounts of cash anywhere in the world is not ideal, and we can all appreciate the increased risk of doing so in SA.

The acceptance of the Russian MIR system (the national payment card of the Russian Federation) in SA would open the door for direct Russian trade and  go a long way towards bolstering Russian tourism in the country. Couple that with a direct SAA flight between Cape Town and Moscow and you would have a winning recipe to assist in rejuvenating SA’s Covid-affected tourism industry.

According to the Bank of Russia, MIR cards are accepted in 11 countries: Turkey, Vietnam, South Korea, Armenia, Uzbekistan, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, South Ossetia and Abkhazia. The possibility of accepting MIR cards is being discussed with Iran, Cuba, Egypt and Venezuela. According to the recent Visa Global Travel Intentions report, Russian tourists spend on average $1,676 per person per foreign holiday, more than their European counterparts, who spend $1,174 on average. The report also noted that Russian travellers make 4.3 trips a year on average and tend to stay 10 nights, two nights longer than the global average.

Again, we need to ask ourselves why SA is not taking advantage of this large and affluent market. To answer these pertinent questions I believe one needs to look at SA’s banking sector and understand its true ownership, control and allegiances, as the banks essentially dictate our foreign trade opportunities. 

• Mdekazi is adviser to tourism minister Lindiwe Sisulu. He writes in his personal capacity.

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