We’re worried about fuel prices – BLSA

The war in the Middle East is likely to harm the global economy, with the magnitude depending on how long it goes on. South African businesses are already working to contain the damage, and we need our politicians to work with us.

Everyone is worried about the impact on the fuel price, from small businesses to large corporations.

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The mining sector will be significantly affected, with costs going up for diesel-dependent road and rail transport, as well as higher operating costs at mines. Consumers will also be directly affected, constraining spending and confidence.

Rising electricity costs

I was troubled to see news last week that Glencore, which runs one of the two biggest ferrochrome units in South Africa through a joint venture with Merafe, might abandon talks with government aimed at saving its smelters.

As many as 1 500 jobs could be lost if these discussions collapse.

The tenfold increase in electricity prices since 2008 has already forced many smelters out of business, and the last two large plants are now at risk.

The other, Samancor Chrome, is already going ahead with layoffs affecting up to 2 400 workers. The smelters play an important part in the industrial value chain.

Over the past two decades, South Africa has already lost roughly half of its share of global ferrochrome production as rising electricity costs have driven a shift towards raw ore exports in place of local beneficiation.

Put that in the context of a more fragile global environment, with rising risks to growth and climbing energy costs, and the risks to our industrial base, which is already facing multiple threats, grow further.

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Glencore’s predicament, in which it cannot continue losing money because of massively higher costs, is faced by many businesses across our country.

Energy prices and the fuel levy

Higher diesel prices also raise the cost of keeping the lights on, as both Eskom and businesses rely on diesel-powered backup generation. Businesses that have only just been hanging on will find the latest shock devastating.

This war is, of course, not of our making. But it is a reality we must face. We must be deliberate about putting the economy first, protecting it in every way we can.

Energy prices are the most obvious threat, and government should consider the levers at its disposal, including a temporary variation of the fuel levy as was done at the start of the Ukraine war to cushion the economy.

South Africa imports the majority of its fuel and pays for it in dollars, so a global oil shock is amplified locally by currency weakness and passed quickly into inflation.

Fuel costs feed quickly into food prices through transport and fertiliser inputs, making this shock particularly regressive for households.

The fuel taxes announced in the February budget can be delayed.

Unfortunately, our strategic oil reserves are not in a state to support any solutions.

South Africa’s strategic stocks are limited – about two to three weeks’ worth against the global 90-day benchmark – and the country’s reduced refining capacity further limits how much relief they could realistically provide.

We have never recovered stocks since the appalling decision by the Zuma presidency to sell down 10 million barrels of reserves, which was later ruled to have been illegal.

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The tax lever is therefore the most immediate option to pursue, but it can only be temporary so as not to damage our fiscal position.

Longer term, we must deliver supply diversification, better stock management and refinery logistics.

Turning threats into opportunities

However, managing threats alone will not see us through this crisis. We must also grasp what opportunities it presents.

The Cape sea route will see sharply increased traffic as shipping avoids both the Red Sea and the Strait of Hormuz.

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Our ports have shown meaningful improvement over the past year – handling times at Durban have gone down from 21 days to two days. That progress must accelerate now. Every ship we can service efficiently is revenue and jobs we desperately need.

Attracting talent and business

Beyond shipping, we have a window to position ourselves as a stable alternative in an unstable region.

Dubai and Qatar have established themselves as major financial and business hubs, but right now expatriate workers and their families are evacuating and firms are scrambling to relocate staff.

We share their time zone and have the necessary infrastructure. Cape Town and Johannesburg must move aggressively to attract this displaced talent and the associated operations.

The global conference and events industry is in the same position, as organisers seek destinations unaffected by air travel disruptions and security concerns.

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We can be that destination – but only if we act decisively.

Tourism faces similar displacement. Travellers who would have gone to the Middle East are looking elsewhere.

Our industry must be ready to absorb that demand with targeted marketing and capacity. These opportunities won’t wait for us – other destinations are already positioning themselves.

Building resilience …

Our diplomatic focus must be pragmatic: securing alternative oil supplies and the industrial chemicals on which our manufacturers depend. Foskor needs sulphur and ammonia, while our plastics sector needs polyethylene.

Supply constraints will drive prices up across our entire industrial base. We cannot wait for global markets to settle.

The short-term pain is real and businesses are already feeling it. But this crisis will pass. What matters is whether we use it to build resilience or simply endure it.

Government must move quickly on fuel levy relief. Business must accelerate contingency planning and supply diversification. And together, we must seize the opportunities this moment presents.

When global markets stabilise, South Africa must emerge stronger, not weaker, from this disruption.

Busi Mavuso is CEO of Business Leadership South Africa.

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