(File photo: Orkhan Farmanli/Unsplash)
The war in the Middle East casts a dark shadow over the global economy, and South Africa will not escape the crisis. Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), warns that the country will have to act quickly and calculatedly to soften the economic blow and at the same time seize the opportunities it offers.
According to Mavuso, the extent of the economic damage is directly linked to how long the conflict continues.
“South African businesses are already working to limit the damage, and it is essential that politicians work with us. There is widespread concern about the impact of fuel prices – from small businesses to large companies,” says Mavuso.
She points out that the mining industry in particular will be hit hard due to higher costs for road and rail transport that rely on diesel, as well as rising operating costs at the mines themselves. Consumers will also feel it directly in their pockets, which will put further pressure on spending and business confidence.
Job losses in mining industry
The South African industrial sector, which is already under pressure, now faces even greater challenges. Mavuso expressed her concern about Glencore, which together with Merafe operates one of the country’s two largest ferrochrome units, and warned that talks with the government to save these plants are failing.
“It is worrying that Glencore may abandon talks with the government to save its smelters. It is estimated that up to 1,500 jobs could be lost if this happens. The tenfold increase in electricity prices since 2008 has already forced many smelters to close their doors, and the last two large plants are now at risk,” warns Mavuso.
The other major player, Samancor Chrome, is already engaged in layoffs that could affect up to 2,400 workers. This is a huge setback, as these smelters play a crucial role in the industrial value chain.
“Over the past two decades, South Africa has already lost almost half of its share in global ferrochrome production. Rising power costs mean that raw ore is increasingly being exported, rather than being processed locally and adding value.”
Mavuso says South Africa’s industries are being put under further pressure as the global economy remains fragile and energy prices continue to rise.
“This sector is already faced with several challenges. Glencore’s situation – where the company can no longer afford to keep losing money due to sharply rising costs – is something that many companies across the country are currently struggling with,” says Mavuso.
Furthermore, higher diesel prices are exacerbating the power crisis, as Eskom and private companies rely on diesel generators to keep the lights on. Businesses that are already reeling could be knocked down by this latest shock.
Energy prices and fuel levy
Mavuso emphasizes that South Africa must face the reality of the war squarely in the eyes, even if it is not a self-created crisis. The government must deliberately put the economy first.
“Because South Africa imports most of its fuel and pays for it in US dollars, any global oil shock is exacerbated locally by a weak exchange rate, which quickly leads to higher inflation. Households bear the brunt, as it also increases food and transport costs.”
To absorb this shock, Mavuso suggests that the government use its available levers. “Energy prices are the most obvious threat, and the government should consider the levers at its disposal, including a temporary adjustment of the fuel levy, as was done at the beginning of the Ukraine war to protect the economy.”
Does South Africa have enough fuel reserves?
The fuel levy announced in the February budget may be delayed, according to Mavuso. However, she is extremely critical of the state of South Africa’s strategic oil reserves. Where the global benchmark requires 90 days of stock, South Africa barely has two to three weeks of reserves.
According to Mavuso, the blame for this lies squarely at the door of the previous dispensation:
“Unfortunately, our strategic oil reserves do not have the capacity to provide meaningful relief – the stockpile is small and South Africa’s reduced refining capacity limits what help it can actually provide. We have never restored supplies since the controversial decision by the Zuma presidency to sell 10 million barrels from the reserves, which was later found to be illegal.”
Since the tax lever can only be used temporarily so as not to harm the fiscal position, Mavuso warns that long-term solutions are needed, such as the diversification of fuel supply, better management of stocks and improved logistics at refineries.
Busisiwe Mavuso, head of BLSA. (Photo: Business Leadership South Africa)
More than crisis management needed
Amid the challenges, there are also unique opportunities for South Africa. With shipping lines trying to avoid the Red Sea and the Strait of Hormuz, the Cape sea route is going to get a lot busier. Mavuso refers to the remarkable progress at South African ports – where cargo handling times in Durban have been reduced from 21 days to just two days. She believes that South Africa can establish itself as a stable haven in a turbulent period.
“In addition to shipping, there is a unique opportunity for South Africa to prove itself as a stable alternative in an unstable region. Dubai and Qatar have established themselves as financial and business centers, but currently foreign workers and their families are evacuating the region, while companies are hastily looking for new places to house staff.
“South Africa shares their time zone and already has the infrastructure; Cape Town and Johannesburg must act purposefully to attract this displaced talent and operations.”
The same is true for the global conference and tourism industry. Tourists and organizers are looking for destinations unaffected by aviation disruption and security concerns. However, Mavuso warns that other countries are already positioning themselves and that South Africa cannot rest on its laurels.
Pragmatic diplomatic steps
According to Mavuso, South Africa needs to think practically at the diplomatic level to protect its own manufacturing industry. Factories and manufacturers depend on imported chemicals. Foskor needs sulfur and ammonia, while the plastics sector needs polyethylene. Shortages will drive up prices across the industry spectrum.
“The short-term pain is real and business is experiencing it. But this crisis will pass. What matters is whether we use it to build resilience or whether we simply endure it.
“The government must act quickly with relief on the fuel levy. Businesses must accelerate their contingency planning and supply diversification. And together we must actively seize the opportunities that this moment offers. When global markets stabilize, South Africa must emerge from this disruption stronger, not weaker,” emphasizes Mavuso.