Egypt turmoil may ignite South Africa’s inflation

2011-02-05 14:58

Economists have warned that the ­turmoil in Egypt may have a negative effect on South Africa if oil prices ­remained high due to the unrest gripping the North African country.

While trade between South Africa and Egypt was tiny, there are concerns that high oil prices could lead to a spike in inflation, causing interest rates to go up at a time when the economy was still in the doldrums and yet to recover from the recession.

Eskom economist Mandla Maleka said: “Although Egypt is not a big trading partner of South Africa, it may be affected indirectly by the crisis in Egypt, seeing that oil is trading at more than $100 (about R730) per barrel due to the crisis.

He added: “This price is inflation­igniting.”

Maleka said the rand could be in the ­firing line if investors decided to pull their funds out of the emerging markets, which have been beneficiaries of massive foreign capital inflows from developed countries.

According to the Washington-based Institute of International Finance, as much as $825 billion flowed from rich nations last year – where interest rates are near zero – to emerging markets in search of higher yields.

This sparked appreciation of currencies of developing countries. About $581 billion in 2009 flowed into developing countries.

Maleka cautioned that currencies of emerging markets could take a beating if investors felt that it was too risky to put money in those markets as a result of the political crisis in Egypt.

“We will be in a fix if we get a cocktail of a depreciating rand and high crude oil prices,” Maleka warned.

He said Reserve Bank Governor Gill Marcus could be forced to hike interest rates if inflation spiralled out of control due to a weak currency and high oil prices.

But inflation has been relatively subdued, thanks to sluggish spending and a strong rand, which reduces the cost of imports, including crude oil.

According to figures released by Stats SA last month, consumer inflation slowed to 3.5% year-on-year in December from 3.6% in November.

On the trade front, South Africa is not expected to suffer as a result of the anti-government protests in Egypt, which aim to end President Hosni Mubarak’s 30-year rule. He is blamed for worsening poverty, unemployment and corruption in the North African nation.

“The crisis won’t affect South Africa that much because Egypt does not produce many products that we ­import,” said Paul Kruger, a researcher at Trade Law Centre for Southern Africa.

The value of trade between the two countries totalled R1.2 billion last year with South Africa enjoying a trade surplus of R683 million.

According to Steven Ntambi, an economist at the Industrial Development Corporation, trade between South Africa and Egypt has been growing at an average rate of 28% a year over the last 15 years.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Comments have been closed for this article.

Inside News24

 
/News

Book flights

Compare, Book, Fly

Traffic Alerts
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.