Giraffe & Co

The last three Insights focused on the war in Ukraine and the immediate effects thereof. Today we consider the further effects of war now post the 2-month mark together with the resurgence of Covid cases in China.

Commodity prices have shielded the Rand in the first two months of the war but as stated in the first of the MD’s Insights, it would not be able to overcome the further effects. And so the past few working days have confirmed, the significant reversal in the Rand’s fortunes. Compare the graph below with the previous one in MD’s Insights. The rate from 12 April 2022 (15.73) to today’s 16.85 represents a change of over 7%. This might seem insignificant but it is not – it represents an annualised slide of well over 150%!

The following summarises the risk factors now weighing on emerging markets such as South Africa over the next few months:


  • With inflation and the reactive tightening of monetary policy around the world – money becomes more expensive. Inflation weakens economic growth and depreciates currencies, particularly the currencies of countries with poor fiscal discipline such as South Africa. Putin’s war in Ukraine continues to increase the prices of fossil fuels with material impacts on inflation. High-interest rates are synonymous with recessions.


  • The resurgence of Covid outbreaks in Shanghai and potentially Beijing. This will have a corrosive effect on the supply chain with corresponding price hikes following. China’s economy suffers from weaker growth as a result and the knock-on effect is lower chines demand for South African commodities, the very commodity demand that has sheltered South Africa from the currency fallout of all the risk factors covered thus far. The property bubble in certain sectors in China exacerbates this risk.
  • Specific to South Africa is the flood issues and the political climate. The re-election of Gumede in KZN is a portent of the ructions that will more than likely define the forthcoming elective conference of the ANC.

To our partners, it must be repeated at the risk of being accused of monotonous repetition: the Rand is giving up its recent strengths, as are all emerging markets (see IMF graph below of EM’s relative to the advanced economies), but amongst the emerging markets it is still one of the top performers (see graph below).

The message to our Partners remains familiar: The Rand still offers relative strength and stock will soon become more difficult to obtain without extensive supply chain constraints – we believe the time frame in this regard is less than two months. Order now to avoid these challenges

Peter Gees
Chartered Accountant (SA)
An advocate of the High Court of South Africa

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