Global trends that affect South Africa

Our farmers are so involved in coping with load-shedding, crime and a government that fails to provide essential services that they often lose sight of crucial global trends, says Dr Koos Coetzee.

The World Economic Forum’s Global Risks Report 2023 lists 10 major risks that will influence the global economy over the next two years. Amongst these are: the cost of living crisis; natural disasters and extreme weather events; geo-economic confrontation; failure to mitigate climate change; and erosion of social cohesion and societal polarisation.

A number of these will have a more direct effect on South Africa and our farmers. Some aspects are discussed in this column.

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The Russia-Ukraine war disrupted the flow of energy and food from these major exporters, but global supply chains have largely adapted to the situation. The Black Sea Grain Initiative, which has ensured the safe transportation of grain and foodstuffs from Ukrainian ports, has helped to increase supplies. Nonetheless, with Russia continually threatening to withdraw from the deal, grain prices remain highly volatile.

The expected recovery of China’s economy will put further pressure on supply chains and result in prices remaining high.

Monetary authorities attempted to limit inflationary pressure with higher interest rates. While this had a limited effect on local prices, it had no effect on imported inflation. It did, however, result in limiting economic growth, particularly in developing countries. Most of these countries face very high debt levels and are unable to use fiscal measures to promote economic growth. This has resulted in slower economic growth and possible recession.

South Africa will face lower growth and high imported inflation during the next couple of years.

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The world enjoyed a period of rapid trade liberalisation from 1990 until 1999. Late in 1999, the World Trade Organization’s (WTO) Third Ministerial Conference, held in Seattle, US, ended in chaos as protesters took to the streets to complain about the effect of trade liberalisation on developing coutries.

The 2008 global financial crisis led to a further decrease in liberalisation as countries took steps to protect their markets.

The Russia-Ukraine war has resulted in countries once again implementing trade-limiting measures to protect markets. According to the WTO, more than 30 countries have implemented protective measures.

Currently, the world is becoming less open, a process that can be described as ‘deglobalisation’.

Exporting countries such as South Africa may find their access to specific markets severely restricted.

Starting from 1994, South Africa tried to go beyond the measures demanded by the Marrakesh Agreement, which sought to create a unified multilateral trading system. Consequently, South African agriculture ended up with a set of tariff measures that failed to afford full protection against unfair trade. The current trend towards deglobalisation may just force that change.

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It is clear that countries will not reach the goals of the Paris Agreement in the near future. According to the UN’s Intergovernmental Panel on Climate Change, there is a 50% chance of reaching the 1,5°C target by 2030.

Countries will face more pressure to move to renewable energy. While this may be cheaper in the long run, it requires major capital investment.

In September 2021, South Africa reaffirmed and upscaled its commitments to the Paris Agreement. In addition to lower carbon emissions, it has committed to net zero emissions by 2050.

Agriculture, particularly the livestock industry, already finds itself in the spotlight for carbon sequestration. The real polluters, namely the transport, mining and manufacturing sectors, are pushing for plant-based diets. Concerns about climate change are used to entice consumers away from animal products to artificial factory-produced foods.

As adverse climatic events occur, the pressure on livestock farmers will grow.

SA WILL EXPERIENCE LOWER GROWTH AND HIGH IMPORTED INFLATION OVER THE NEXT FEW YEARS

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Deglobilisation may hold some opportunities to protect South African farmers against unfair market practices. However, for exporting industries it holds the threat of being excluded from some markets.

In these uncertain times, the prudent investor will play it safe. Source: The Global Risks Report 2023 – 19th Edition. World Economic Forum. bit.ly/3Jq18tB.