SA urged to act as conflict risks ‘war on the economy’

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JEREMY MAGGS: The war in the Middle East is no longer just a geopolitical story, I would contend, it’s fast becoming an economic one, with oil surging, supply routes under increasing pressure and inflation risk rising once again.

Now business is warning that any global recovery could be derailed and South Africa is particularly exposed.

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The South African Chamber of Commerce and Industry (Sacci) is worried. It says it could hit everything from interest rates to growth prospects. It’s now calling for urgent diplomatic intervention.

Sacci chief executive Alan Mukoki is with me now. Alan, welcome, thank you. How serious is this moment? Are we looking at a temporary shock, or do you think the start of a prolonged economic setback?

ALAN MUKOKI: Well, it is a very serious issue indeed. We’ve said in a statement in the four areas that we’re covering that number one, the impact is global. Sometimes you can localise a conflict and make it to be only in that particular area.

Both the protagonist and the antagonist to this particular conflict need to be able to appreciate the fact that this is a war that then affects logistics, it affects waterways, it affects shipping lines, it affects the whole area around supply chain movements.

It’s very, very concerning.

The commodity part is just one part, what’s happening with the oil price, which is one of the largest inputs to any expense line on anyone’s income statement, whether it’s business or personal. It’s a very, very, very serious issue and the escalation is really one of great concern.

JEREMY MAGGS: In fact, you talk about, and I quote, a war on the economy. What does that actually mean in practical terms then, for South Africans?

ALAN MUKOKI: Well, in practical terms, as you can imagine, what’s going to happen is that you start seeing the oil price go (1:54 … ) inflation and interest rates.

Listen/read: How SA will feel the Iranian conflict

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If inflation goes up, the monetary authorities, generally what they would do, they would go out of their way and they would try and fix the hit in the money supply by making sure that we don’t end up in a much worse situation and the only instrument they have at their disposal is interest rates.

So they will increase interest rates. As soon as interest rates actually go up, what it does to many people who are actually in business, we now know that there is going to be less disposable income in people’s wallets.

Read: The week ahead: Sarb interest rate decision as geopolitical tensions bring out the hawks

What then happens is that your car payments are up, your bond payments are up, your credit card payments are up.

There isn’t much left in terms of disposable income for you to go out to dinner every week. So now you start to skimp. You start to go out only once a month.

JEREMY MAGGS: Now, oil, as you rightly point out, Alan, is the obvious pressure point here. How high do you think prices need to go before this becomes a full-blown economic crisis locally?

ALAN MUKOKI: We are very vulnerable in any event. Even with the previous oil price where it was, we’re vulnerable because we’re in an energy deficit.

In other words, we are now importing most of the refined products that we’re actually consuming, we’re not actually relying a lot on any other alternative energy forms, such as natural gas, that might actually be cheaper and greener.

We were vulnerable in any event. Now you add this compounding effect of 20%, 30%, 40% increases in (gold … 3:29). We don’t have reserves that are very high.

I heard the minister the other day talking about we will release the reserves. They are not necessarily that high to sustain us at least over a period of six months.

I think we can survive maybe a month, maybe two, and then you are going to start (seeing) businesses beginning to really suffer.

Liquidations start to come up. Remember, they don’t come up immediately, but it’s 18 months down the road. It’s six months down the road. It’s nine months down the road.

As you know, most of us, when you run your business, the first line of expenses that’s very easy to deal with is actually people. So people start to lose their jobs, unemployment worsens.

With many people not working, the businesses that are supposed to be sustained are supposed to be sustained by people who’ve got income and cash flow, and then it’s a major impact on the overall economy.

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JEREMY MAGGS: How worried, then, are your members right now? What kind of conversations have started?

ALAN MUKOKI: Well, a lot of the conversations that they intend to start is that, number one, if you had any expansionary plans, you start to withdraw. You start to worry a lot about that because you are trying to preserve whatever it is that you have.

We always say, for instance, when we give people advice is that the first objective of any business is that, number one, can you sustain an environment where you can pay for all your expenses for a period of six months without any income coming in?

But when you face a major crisis like this one, your timeline is now less than six months. It’s like one month, two months, three months.

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You start to worry about a whole range of things regarding your relationship with the landlord. You worry about your own staff members because staff members are going to start being unhappy because they are not actually going to be paid.

You start worrying about whether any of the people who owe you money are actually going to be in a position to pay you because you’ve issued all these long-term credit terms, 60 days, sometimes even 90 days, and you start seeing people asking for rearrangements in terms of what they can actually pay you.

And the more worrying aspect is that the sales actually go down because people are now not buying, because everyone is withdrawing.

We are all very worried, we don’t know what it means. So the uncertainty is actually the killer of confidence.

JEREMY MAGGS: You’re calling now for South Africa to step up diplomatically. What specifically are you asking government to do?

ALAN MUKOKI: South Africa has a very, very perfect stance in international relationships. In other words, South Africa is highly respected. We tend to punch way above our weight.

You saw what happened during the Russia/Ukraine, at the height of that war, our president (Cyril Ramaphosa) left South Africa. He went all the way to Ukraine. He went to Poland. He took a train. He went to speak to President Volodymyr Zelenskyy.

He left there and he went to speak to President Vladimir Putin. We’ve done this. I think that I recall President Zelensky with President Ramaphosa outside of the United Nations General Assembly, and he was very complimentary of the role that Cyril Ramaphosa had actually played.

Read: Everything should be done to end the fighting in Ukraine: Ramaphosa [Jun 2023]

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Remember, at that time there was an issue relating to the kids who were actually kidnapped out of Ukraine, and he had said, well, the children have actually now started to come back. There are developments around the opening up of the Black Sea.

So we must not underestimate the power that we have. Yes, we may not have a relationship that is strong with America at this particular point in time, or maybe Israel.

But we have global partners who do listen to South Africa, and South Africa should take it upon [itself], as it has done in other conflicts in the world before, to aggressively move forward.

JEREMY MAGGS: You don’t think this is too big? Is there not a risk that we’re just simply too small to influence outcomes?

ALAN MUKOKI: Nothing was bigger than Russia/Ukraine. This is also exactly at the same level.

I think that there is no conflict that is too big because it’s exactly the same players.

It’s exactly the same protagonists and the same antagonists that you are talking to. You have a relationship.

You saw what happened in South Africa as soon as President Donald Trump was attacking South Africa, saying he’s going to load these tariffs and so on, the first person who came here internationally was Ursula von der Leyen, the president of the European Union.

She was here, she met with our president, and she even made a $5 billion investment promise. So we have friends.

I think that it’s very important that even if Europe is sitting back and not doing anything because they themselves are upset with Donald Trump, to say, guys, we need to talk to him.

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We all need to meet together. We need to really, really try and do something about this. Because if no one is going to stand up, someone must actually be willing to stand up.

JEREMY MAGGS: Well, whichever way you look at it, it is a very worrying scenario. The chief executive officer of the South African Chamber of Commerce and Industry, Alan Mukoki, thank you very much.

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