Practise what we preach

The Reserve Bank’s warning that the country could face dire consequences such as censure and secondary sanctions due to its stance on Russia’s invasion of Ukraine must be heeded with urgency in government, business and civil society.

It is one thing for a government to speak of “nonalignment” on foreign policy issues. It is a decidedly different matter when that government doesn’t at least practice nonalignment, and indeed engages in actions that undermine its words.

The Bank’s report points to the possibility of, and accompanying risks to, SA’s “neutral” stance on the Russian invasion of Ukraine being “perceived as unconvincing”.

The latest Financial Stability Review says “SA’s nonaligned stance in the war between Russia and Ukraine is increasingly being questioned, which may pose a future threat to the participation of SA financial institutions in the global financial system and increases the likelihood of secondary sanctions being imposed on SA.”

According to the Reserve Bank’s report, secondary sanctions “would constrain or even completely close off access to international capital markets for SA banks, other financial institutions and corporates.” The rest of the financial sector, and most concerning the wider economy, would suffer devastating harm as a consequence.

Foreigners held as much as 42% of local government bonds in 2018; as of late this figure has been down to around the 25% mark. The debt of the country’s state-owned entities weighs all the heavier, threatening the wider fiscal framework. It could become exponentially more difficult for government to function and retain credibility should foreign policy tensions increase and rupture. The Society for Worldwide Interbank Financial Telecommunication system (Swift) is the channel that currently processes more than 90% of the country’s international payments. Being frozen out of this system would have dire consequences for SA businesses.

The Bank has forecast GDP growth of 0.2% for 2023. With more consistent, and higher, stages of load-shedding likely through the end of the year, along with a myriad other government policy constraints on growth, the government’s stance and actions on and around the Russian invasion of and continued aggression in Ukraine could well deter the increased investment, capital flows, economic activity and job creation the country so desperately needs.

Chris Hattingh

Centre for Risk Analysis