Russia-Ukraine crisis has stunted South Africa’s economic recovery – but there’s a possible silver lining
Russia’s invasion of Ukraine will have an impact on South Africa’s economic recovery and is likely to slow down growth in what was expected to be a post-pandemic recovery year.
This was flagged by the Financial and Fiscal Commission (FFC) in a presentation to parliament on Tuesday (1 March), with the group warning that the conflict presents a global economic threat that has destabilised the trajectory and pattern of recovery and general trade.
The FFC is an independent constitutional advisory institution. Its role is to advise and make recommendations to Parliament, provincial legislatures, organised local government, and other state organs on financial and fiscal matters.
“Military action interruptions and sanctions add one more challenge to global supply chains already under strain. Countries that depend on the region’s rich supply of energy, wheat, and other staples will feel the pain of price spikes transmitted throughout the global economy,” it said.
With these emerging risks, it is now improbable that the country will return to pre-pandemic levels this year. Forecasts show that the country is unlikely to be able to stage a recovery to pre-pandemic levels in the near future.
These concerns were echoed in a separate presentation by the Parliamentary Budget Office (PBO) which said that South Africa’s recently tabled budget does not take into account a possible global conflict.
The PBO provides independent, objective and professional advice and analysis to Parliament on matters related to the budget and other money bills.
“It is unclear whether the 2022 Budget’s macroeconomic and fiscal policy assumptions took into account the tensions between Russia and Ukraine. This situation has deteriorated into armed conflict since the Budget announcements. This conflict could affect the economic outlook and pose significant risks to the fiscal framework,” it said.
However, there could be a silver lining for South Africa in the conflict.
South Africa, Zimbabwe and Russia are major global producers of platinum group metals (PGMs), the PBO noted.
“Economic sanctions on Russia – including supply of PGMs – may lead to increased demand for South Africa PGMs at higher prices. Such a scenario could lead to higher than expected tax revenue collection from the mining sector.”
In 2021, the increase in commodity prices improved the in‐year revenue outlook for South Africa resulting in higher-than-expected revenue collection. This means gross tax revenue for 2021/22 is currently sitting at R61.7 billion above projections.
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