Putin’s war in Ukraine passes the 5th month since it began on 24th February 2022 and its effects on the world’s economies remains pervasively severe.

Inflation in Euroland is now at 8.9% compared with South Africa’s 7.4%. Interest rates increase as a response, a relatively ineffective tool given that inflation is being supply- rather than demand led. But there is a hidden blessing here provided SA rates do not climb much further – the effect on the Rand of the interest rate hikes and the continued strength of commodity prices means relative Rand strength and a reduction in imported inflation. It is for this reason that fuel prices at the pump will be declining this week!

The graphs bear this out: The CRB graph below tracks the top commodity indices and during June it hit a peak, falling rapidly thereafter as the threat of recession loomed in the EU and in the USA.

But this trend has reversed and the index is back where it was in May 2022 prior to its steep climb to the June 2022 high.

This trend is reflected in the €:ZAR rate of exchange over the past week or so as the ZAR strengthens (U$ apart), and it is once again below the R17 mark to the Euro. South Africa also benefits from being a net exporter of Maize, with an export volume of 2,585,157 metric ton in 2021, and having a robust Wheat producing sector. The future of the grain industry has been strengthened by a 10-year state subsidy scheme where commercial grain and oilseed farmers will have 25% of their MPCI (Multi-peril Crop Insurance) premiums subsidized. Smallholders in grain, oilseed, or livestock would be offered a type of cover called weather index insurance and have the state pay 75% of their premiums (This per a Mordor Intelligence report).

Given the impact of the war in Ukraine, Maize prices have increased 32% y-on-y and wheat prices have increased 47% y-on-y (these figures courtesy of Standard Banks July Field Crops Report). This is significant for SA, in that it is not reliant on grain imports to the extent of most countries and as such it enjoys less pressure on its currency rates, quite apart from ensuring food security.

So yet again the message to our partners is this: recessionary factors induce cost-cutting measures and Giraffe can assist you in filling these gaps. And insofar as Unify products are concerned, it is fortunate that these are traded in Euros and not U$ and the Rand continues to assist in keeping prices relatively stable. Utilize this period of opportunity!

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