Sep 08, 2021

South Africa at Risk?

Article by Andries Wiese

National Business Development Manager

Hollard Insure

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Risks must always be seen in context. For many people the riots we saw in KZN and parts of Gauteng in July were just a news item and did not affect them. The CEO of Sasria SOC LTD, Cedric Masondo, is quoted that they have never witnessed looting and public disorder on the scale we saw during July in their 42-year history. The economic fallout of what we saw in KZN and parts of Gauteng will be far reaching and this then begs the question: what other risks do we see and face in South Africa that, even though it may not be directly related to Agriculture, could have a real impact on all of us?

One would obviously start with an economic view, and it is interesting to note some important observations that the Bureau for economic research at University of Stellenbosch published in their review of the economy in July 2021 commenting on economic activity expected during the remainder of 2021 and 2022: “The SA economy continues to be supported by favourable external conditions. Indeed, we continue to benefit handsomely from multi-year, and in some cases, all-time highs in a range of commodity prices. This has several positive impacts, including increased local mining sector activity. Amongst others, this supports the local manufacturing sector. The high SA commodity prices are also contributing to very large surpluses on the external trade balance, which in turn support the rand exchange rate.” This may seem a bit too rose tinted and, indeed, we must look at the bigger context and understand that there are many more factors that could impact our economic wellbeing such as low employment rates, various lockdown levels, political risk, high levels of household debt and potential resource challenges (notably water and power).

Electricity supply and the challenges around our situation are well documented. This will be with us for the foreseeable future.

Prof. Anthony Turton from the University of the Free State and well-known water specialist recently commented that our problem around water is less that of a shortage of water and more a case of a shortage of critical thinking around water. Water should be seen as an enabler within a circular economy rather than just a resource within a linear economy. The reality is that South Africa is a water scarce country and this needs to be factored into the equation.

This brings us to another key risk: Climate Change. Whatever your personal beliefs are around climate change it is without a doubt a key risk. Just in the last few months we have seen an inordinate number of wildfires destroy large tracts of vegetation and communities around the world and it is common cause that these are exacerbated by climate change. Our farming practises and food supply will also be influenced by changes in the climate. We already see South Africa being affected and we have a responsibility to act. Insurers across the world are also starting to refuse cover to industries that are fossil fuel intensive such as coal mining and the petroleum industry. Yet, population growth is forcing more and more food to be produced, water to be used and the need for power increased.

Context is important and returning to the Bureau for economic Research at US, numbers alone do not answer the question: “However, beneath the surface, there is a lot going on. Aside from the level 4 lockdown extension, the severe COVID-19 third wave was already expected to lead to more cautious household and firm spending behaviour during 2021Q3. The KZN/Gauteng riots and the associated disruption to supply chains across many sectors will undoubtedly be a further blow. While the more long-term impacts of these events remain uncertain, there is no question that it is another setback to the SA economic recovery from the 2020 crash. The impact of the delayed recovery on the livelihoods of many will be profound. Not to mention that the country remains in the grips of a devastating pandemic. While public finances are tight, the rebuild process will most likely require some form of fiscal response. The SARB may need to hold off for longer before starting to raise the policy interest rate. Furthermore, if ever there was a need for speed in structural reform implementation, it is now. It cannot just be left to the private sector and communities to pick up the pieces.”

Corporates, small business, farmers, individuals, and government all have a role to play in understanding where we are at and what needs to be done to mitigate these risks. Perhaps our greatest risk lies not in a shortage of resources, but a shortage of critical thinking about these risks.

 

We would like to acknowledge Farmer's Weekly for the article.

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