SA-Russia trade links
- Following Russia’s attack on Ukraine 10 days ago, the US, UK, the European Union and Asian nations have imposed sanctions against Russia in an effort to isolate Russia.
- Moscow has retaliated by banning airlines from 36 nations from its airspace.
- It has also called for economic counter measures, including restrictions on residents transferring foreign currency abroad.
- The US has banned American people and companies from doing business with the Russian Central Bank. It has banned transactions with the Russian National Wealth Fund and the Ministry of Finance. The US has, however, issued a license allowing certain energy transactions with the central bank, an exemption aimed at minimizing the effects on energy markets in Europe. The US has also said that it would ban major Russian banks from SWIFT services in coordination with Europe.
- The UK announced an asset freeze against all major Russian banks and has instructed ports to block any Russian vessels. The UK has also called for a total SWIFT ban of Russia.
- The EU has added sanctions to Belarus for its involvement in Russia’s attack on Ukraine. The trade sanctions include a ban on imports from Belarus used for the production of tobacco products. The EU is expected to block exports of dual-use goods and technology which could be used by Belarus’s military.
- The conflict has thus far led to a mass exodus of companies from Russia, from car manufacturers to big oil companies.
SA’s trade links with Russia
- South Africa joined the important BRICS (Brazil, Russia, India, China and South Africa) bloc of emerging economies more than a decade ago in December 2010.
- The purpose was in line with SA’s foreign policy to strengthen South-South relations. SA’s trade relations with Russia, however, are relatively muted.
- While SA exports to Russia have increased over the past three decades, it has not increased meaningfully since joining BRICS. SA exports to Russia increased by an average of 5% per annum since joining BRICS. This compares with average export growth of 30% p.a. in the decade prior. Russia is SA’s 39rd biggest export destination (receiving only 0.3% of SA’s goods exports). SA exports mainly edible fruits and nuts, peel of citrus fruits and melons, ores, slag and ash, and nuclear reactors, boilers, machinery and mechanical appliances to Russia.
- SA imports from Russia increased by an average of 23% per annum since joining BRICS. This compares with average import growth of 38% p.a in the decade prior. SA imports mainly copper and articles thereof, fertilisers and mineral products from Russia; imports from Russia constitute around 0.7% of SA’s total goods imports.
- The most immediate and direct impact of the war has been to lift global oil prices, with Russia accounting for 11% of total production. WTI has increased 31% in a week, and is above $126/bbl, the highest since 2008. Brent crude oil is also the highest since 2008. The US and its allies have released emergency oil supplies but failed to ease shortage concerns. The IEA is expected to deploy 60 million barrels from reserves around the world.
- Grain prices have also surged in response to the war, with Russia and the Ukraine constituting nearly 25% of global wheat production. Wheat prices have increased to their highest level since 2008. Other prices that have been boosted by the war include PGMs (with platinum prices up 10% in a week, palladium up 25%, and rhodium up 12%). Russia accounts for 12% of global PGM production and 10% of annual global gold production.
- Higher oil prices are a likely to result in increased inflationary pressures, though central banks will balance the increased inflation pressure and risk with downside risk to growth from this war. The impact on the SA economy and currency is somewhat shielded from the estimated increase in SA’s terms of trade on the back of higher export commodity prices and notwithstanding higher oil prices.