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Russia's invasion of Ukraine: the potential impact on SA's economy

Published Mar 1, 2022


THE COLD WINTER winds blowing in Russia’s direction could spell a potential economic downturn for South Africa as one of its major trading partners has been isolated from global trade.

This comes at a time when South Africa needs increased foreign direct investment as its drive to raise more than R1.2 trillion worth of investments over a five-year period currently stands at about R774 billion in three years.

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The war in Ukraine started taking its toll on the Russian economy yesterday amid the broadening fallout of the EU and the US’s crippling sanctions.

G7 nations have agreed to exclude major Russian banks from the Society for Worldwide Interbank Financial Telecommunication (Swift) system.

However, South Africa maintains good trade relations with Russia as both countries are part of the BRICS bloc.

Russia exported goods valued at approximately R458 million to South Africa and imported products valued at R1.3bn from South Africa in September 2021.

Top Russian exports to South Africa included nitrogenous fertiliser, mixed minerals or chemical fertilisers, petroleum, coal briquettes and medicines.

Russia’s most important imports from South Africa included citrus fruit, cars, manganese ore, platinum, and apples and pears. South Africa exports 5.5 million cartons of apples and pears to Russia annually.

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However, in the year to September 2021, exports from Russia to South Africa declined by 28.2% from R628m to R458.4m, largely due to a decline in wheat exports.

Imports, on the other hand, increased by 24.1%, from R1bn to R1.3bn, due to an increase in car, manganese ore and stone-processing machine imports.

UBS Global Wealth Management chief economist Paul Donovan yesterday said that sanctions on Russia will directly affect its trading partners.

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“If Russia is plunged into economic recession (or worse), demand for imports falls,” Donovan said.

“Excluding Russia from the Swift system does not stop international transactions; it makes them more bureaucratic and expensive. That hits international companies trading with Russia.”

The Russian rouble collapsed more than 40% to a fresh record low of 118.6 to the dollar yesterday after the central bank banned brokers from selling Russian government securities.

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In response, the Central Bank of Russia raised its benchmark policy rate from 9.5% to 20%, the highest rate hike in almost 20 years, to defend the currency.

Trading on the Russian Stock Exchange was suspended, with the central bank and the finance ministry ordering companies to sell 80 percent of their foreign currency revenues.

The bank also banned foreigners from selling local securities to prevent what was likely to be a day of carnage for Russian stock markets.

The Bank of Russia said that external conditions for the Russian economy had drastically changed as Western countries implemented widespread sanctions in retaliation against Moscow’s invasion of Ukraine. As the Russia-Ukraine war intensified over the weekend, Ukraine’s output and export of sunflower seed and oil hangs in the balance.

Over the past five years, South Africa has sourced around 30 %, on average, of its wheat imports from Russia and Ukraine.

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