How SA could benefit from exploring trade with Russia
The global geopolitical situation between Russia and Ukraine has both solidified Brics and exposed a number of its weaknesses.
While some Brics members, in particular India, are taking advantage of discounted commodities prices offered by Russia, SA has done little to shield itself from the global fallout, let alone benefit from its status within Brics.
Why are South Africans not being spared from high commodity prices which are essentially being driven up by Western sanctions?
As sanctions on Moscow tighten, commodity prices globally are soaring. This is having a negative global impact, particularly on European nations dependent on Russian gas.
SA has not been spared. According to a recent policy brief by the UN Development Programme (UNDP), which looks at the impact of the military action in Ukraine on SA, the situation presents “a new multifaceted risk to the SA economy”.
It states it “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 in shipping, shortages of fertiliser and increases in fuel have increased primary agricultural inputs by more than 100%.
Food inflation peaked at about 10% in July and is now expected to stabilise at about a 7% average for the year. This is 1.2% higher than the now anticipated 5.8% inflation estimates and 2.1% higher than the SA Reserve Bank’s original forecast of 4.9% for 2022.
High inflation for basic necessities like food can have a catastrophic effect on a country with an unemployment rate of 34.5% and with 55% of the population living under the poverty line.
Again, why has SA not used its Brics membership to shield itself, or at least minimise the impact of the warfare?
According to Reuters, India has seen a five-fold increase in imports from Russia to more than $15bn (R65bn) since the invasion began on February 24. India’s imports from Russia jumped nearly 80% in the last fiscal year ending March 31.
Before March, Russia made up just 0.2% of the total oil imported by India; by May, this had jumped to 10%. India imported 25-million barrels of Russian oil in May alone, at heavily discounted prices.
The Reserve Bank of India announced in August it was putting into place a mechanism for international trade settlements in rupees. Rupee settlement would allow India to bypass orders preventing the use of the dollar for trade, as in the case of sanctions imposed by western countries.
The importance of national currencies-based trade relations is significant for India. The current situation allows for the opportunity to grow Russiabound Indian exports.
Another advantage is the positive impact on its Foreign Currency Reserve (FCR). India maintains and manages a huge FCR; however, this reserve is used to settle import bills.
India imports almost 80% of its hydrocarbon needs, most of them settled in dollars. Once India is able to pay for its trade with the Russian Federation in its own currency, this would represent big economic relief.
The bulk of SA’S exports to Russia are agricultural. Imports are dominated by copper, wheat and agrochemicals. The citrus industry exports 7-10% of total SA production to Russia.
There is opportunity to bolster trade relations between SA and Russia, and the growing Brics community. Unfortunately the ruble, unlike the dollar, is not accepted as a direct trading currency by SA’S commercial banks.
Why is SA not working on a similar mechanism as India, where Russian fuel, fertilisers and other commodities could be bought directly from Russia in rand?
SA also has the opportunity to vastly increase exports to the Russian Federation. SA could export value-added goods such as automotive parts, filtration media, processed foodstuffs and wine.
Also consider the potential of attracting Russian tourists to SA. Global borders are not as freely accessible to Russian tourists as they once were, making friendly destinations such as SA attractive. However, that Russian tourists cannot make card payments here due to global sanctions on Russian cards makes SA less attractive.
Acceptance of the Russian MIR payment card system in SA would open the door for direct Russian trade and bolster Russian tourism here. Couple that with a direct SAA flight from Cape Town to Moscow and
I believe one needs to look at the SA banking sector, understand its ownership, control and allegiances, as banks essentially dictate our foreign trade opportunities
you’d 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 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 (R29,637) per person per foreign holiday, more than their European counterparts ($1,174 or R20,760). Russian travellers make 4.3 trips a year on average and tend to stay 10 nights — two nights longer than the global average.
Why is SA not taking advantage of this large, affluent market? I believe one needs to look at the SA banking sector, understand its ownership, control and allegiances, as banks essentially dictate our foreign trade opportunities.