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Russia-Ukraine conflict could see steep fuel and food prices increases, SA economists warn

Several protesters took to the streets in Cape Town to protest President Vladimir Putin’s decision to invade Ukraine. Picture: Armand Hough/African News Agency (ANA)

Several protesters took to the streets in Cape Town to protest President Vladimir Putin’s decision to invade Ukraine. Picture: Armand Hough/African News Agency (ANA)

Published Feb 28, 2022

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Cape Town - The escalating crisis between Russia and Ukraine could result in steep increases in fuel and food prices, especially wheat, economists have warned.

The invasion had shattered hopes of a strong economic recovery from the coronavirus because Russia and Ukraine are two of the world’s top wheat exporters they said.

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When Russian forces invaded Ukraine on Thursday, global grain supply was put in jeopardy, and the price of wheat jumped to its highest levels since 2012.

Wandile Sihlobo, chief economist at Agricultural Business Chamber of SA (Agbiz) and member of the Presidential Economic Advisory Council (PEAC), said wheat and other grains were back at the heart of geopolitics following Russia’s invasion of Ukraine.

Sihlobo said both countries played a major role in the global agricultural market.

“African countries imported agricultural products worth $4 billion (about R60.5 billion) from Russia in 2020. About 90% of this was wheat, and 6% was sunflower oil,” he said.

Sihlobo said major importing countries were Egypt, which accounted for nearly half of the imports, followed by Sudan, Nigeria, Tanzania, Algeria, Kenya and South Africa.

“Similarly, Ukraine exported $2.9 billion worth of agricultural products to the African continent in 2020. About 48% of this was wheat, 31% maize, and the rest included sunflower oil, barley, and soya beans.”

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Economic growth and tourism Mayco member James Vos said cities exist in a global village and rely on each other for travel and trade.

He said commodities and products from different countries make the world go round, and wars and conflicts harm economies and cost jobs.

“Trade deficits will negatively impact the socio-economic landscape, and the steep rise in fuel price will make it even more difficult for economic recovery and readiness,” Vos said.

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Consumers are now set to dig deeper into their pockets this week as the Department of Mineral Resources and Energy (DMRE) announced steep increases in the fuel price at the weekend.

Both 93 and 95 petrol are expected to increase by R1.46 a litre. Diesel will increase by R1.48 per litre and illuminating paraffin increase by R1.28 a litre on Wednesday.

The department said the escalating crisis between Russia and Ukraine also led to a surge in crude oil prices amid supply fears.

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Further sanctions on Russia by the US and UK have also contributed to the increase in crude oil prices.

The Automobile Association (AA) said for the first time in history 95 octane petrol inland will rise above R21 a litre, and by a significant margin.

The fuel will cost R21.60/l while at the coast it will cost R20.88/l, the first time it has breached the R20/l level.

The AA said that, significantly, the price of illuminating paraffin will also rise to new highs with the fuel costing R13.18/l inland and R12.36/l at the coast.

“The increases for March are mainly attributable to rising international petroleum prices as a result of Russia’s invasion of Ukraine and would have been more severe had the rand not stabilised against the US Dollar in the last few weeks,” the AA said.

It said the outlook for April remained unclear but Russia’s military action in Ukraine could push international oil prices higher, which will again impact locally.

Economist and senior analyst at the Centre for Risk Analysis, Bheki Mahlobo, said although the Russian invasion was less than a week old, some effects on markets could already be anticipated.

Mahlobo said three key factors to track are energy prices, global supply chain pressures, and food prices.

He said Russia was the world’s third-largest oil producer, contributing around 10m barrels per day or around 10% of global production, and the world’s second-largest producer of natural gas.

“Any disruption of Russian exports, will lead to rising prices. The price of petrol is going up by R1.46/litre on Wednesday, and could pass the R25/l mark in coming months,” he said.

Dawie Roodt, founder, director and chief economist of the Efficient Group, said many more countries could be sucked into the conflict “and then who knows, anything could happen”.

“But for now, the impact is mostly via the import products for South Africa and especially the price of grain, which has gone up,” he said.

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