Prolonged conflict in the Middle East could drive higher inflation, elevated fuel prices and slower economic growth in South Africa, National Treasury director-general Duncan Pieterse warned on Thursday.
Addressing the South African National Editors’ Forum (Sanef) in an online briefing on March 19, Pieterse emphasised the uncertainty over the war’s duration.
Pieterse said during a post-budget invest engagement in London a few weeks ago, that major bond investors – who have access to senior leadership in the American military and elsewhere – said feedback received from generals was that they anticipated that the war would not last more than three to four weeks.
“No one really knows how long this is going to carry on. We can't take the guidance from generals as the absolute truth, because there may be certain aspects of this that they haven't considered or that they haven't properly thought through. So, whether this is going to last for three weeks or six months, nobody knows,” he said.
Pieterse added that South Africa had very little it could do to absorb the shock of rising oil prices as a result of the conflict.
“An elevated oil price means higher prices across the economy. So, high inflation; it means higher food prices because of the link to agriculture and, in particular, the fertilizer that flows through the Strait of Hormuz,” he said.
“We import about 64% of our liquid fuel needs, and about 85% of that comes from the Middle East. So a lot companies are already looking at new sources of supply. I spoke to one large energy user yesterday who said they had already pivoted from the Middle East to Brazil and Nigeria for their oil needs in order to make sure they don’t have any challenges,” Pieterse said.
Higher fuel costs would also pressure the cost of living and delay expected SA Reserve Bank interest-rate cuts, constraining household consumption and broader activity.
Pieterse also outlined growth risks if the conflict dragged on.
He said if growth went from 1.8% to 1.6% it would affect revenue and, in turn, impact the fiscal framework.
Additional impacts include the rand, which has “already just crept above R17 to the dollar” and “contributes to imported inflation” while worsening debt dynamics. Slower global growth would compound the impact.
Pieterse said Treasury was “watching the data” and planning for extended scenarios in the midst of uncertainty.
