Although the US/Israel-Iran conflict has so far had devastating effects in many countries, including SA, a prolonged war there might bring some slight positives for the economy of the Eastern Cape.
This is according to premier Oscar Mabuyane, who told the Bhisho legislature that he believes that a prolonged war between these warring countries, “might enhance the strategic importance of the Eastern Cape’s coastline, attracting investment in logistics”.
Responding to written parliamentary questions posed by DA MPL, Dr Vicky Knoetze, regarding effects of that war, and mitigation measures the province has in place to counter escalating fuel and food prices, Mabuyane said the disruptions in the Strait of Hormuz, which handles about 20% of global oil flows, could come with some positives for the province.
Mabuyane said increased global shipping reroutes around the Cape of Good Hope, “could drive more vessel traffic to Eastern Cape ports for refueling, repairs and cargo handling, potentially boosting local jobs and revenue”.
The 167km long Strait of Hormuz is a waterway between the Persian Gulf and the Gulf of Oman, provides the only sea passage from the Persian Gulf to the open ocean and is one of the world’s most strategically important choke points.
It has now become a focal point of the US-Israel war with Iran.
A two-week US-Iran ceasefire agreed on Tuesday included a condition that “safe passage” through the narrow waterway would be guaranteed.
However, according to BBC, vessels in the area have received messages that they would be “targeted and destroyed” if they attempted to cross the strait without permission, thus only a few ships have made the journey over the past few days.
The disruption since the conflict began five weeks ago has sent shock waves across the global economy, destabilising energy prices and exposing just how reliant international supply chains are on the strait.
The channel is also vital for transporting chemicals needed to process products like microchips, pharmaceuticals and fertiliser, especially for Europe and Asian countries.
Its disruption, due to the conflict, has now led to some vessels having to divert and use a longer sea route to the Western countries, passing around SA, a move Mabuyane said has some positives for SA and the province’s ports and maritime economy.
The Eastern Cape boosts key ports such as Gqeberha, Ngqura, and Port of East London.
“Shipping companies are rerouting vessels around the Cape of Good Hope to avoid the Persian Gulf and Red Sea, adding 10-15 days and up to R20m in fuel costs per voyage.
“This could benefit SA ports through increased re-fueling and re-supply stops, but only if infrastructure inefficiencies are addressed ...
“The Port of Ngqura, a deep-water facility, is well-positioned for container and bulk cargo from Asia-Europe routes.
“However, existing infrastructure bottlenecks might limit gains.
“If the conflict prolongs, insurance premiums for shipping could rise, indirectly affecting export-oriented industries like automotive manufacturing in the region, affecting plants such as those of Volkswagen and Mercedes-Benz,” Mabuyane said.
A prolonged war, Mabuyane said, might “enhance the strategic importance” of the Eastern Cape’s vast coastline, attracting investment in logistics.
“However, broader economic slowdowns could exacerbate unemployment and delay infrastructure projects, he said.
Mabuyane however warned that a prolonged war, will have devastating effects on the province’s agricultural sector, one of the bedrock sectors for the province’s rather shaky economy.
“Higher fuel and transport costs will raise expenses for farmers, impacting key sectors like citrus, wool, and dairy exports.
“Food price inflation could strain rural households, where poverty rates are high.
“Tourism, reliant on-air travel, may suffer from global disruptions, reducing visitor numbers to attractions like Addo Elephant National Park,” he said.
Mabuyane added that the US/Israel-Iran conflict has driven up global oil prices.
“The supply disruption and rising oil prices will lead to cost-led inflation, affecting fuel, transport, and food costs in SA, pushing inflation higher and threatening the country’s economic stability.
“This, combined with a perception of rising prices and the country’s inflation target, will lead to the rate being maintained at current levels or increased further to manage inflation.
“The secondary effect might lead to weaker demand for goods and services in the province, depressing the provincial government’s efforts to grow the economy and create jobs.”
Such war in that part of the world, Mabuyane said, also has some effects on expats from the province working in that area.
The province, Mabuyane said, will activate and utilise existing instruments “to sustain and mitigate the impact of this shock to our provincial economy.”
He said such instruments includes the activation of the provincial economic recovery workstream under the disaster management framework, to monitor the situation, adopt lessons learnt from previous shocks such as Covid-19 co-ordinated economic recovery response.
The province will also utilise existing support programmes such as job stimulus fund and manufacturing companies in distress programme, to increase accessibility and reach to companies affected by the shock
Knoetze was on Friday however, not impressed by Mabuyane’s sentiments.
“The premier saying that the war in the Middle East can be good for the Eastern Cape is absolutely outrageous.
“In a province where our economy is extremely fragile, where we have the highest unemployment rate in the country and a cost-of-living crisis, the effects on factors like the cost of fuel, will have a knock-on effect on other elements like transport, food and services.
“This will only conspire to devastate the lives of the people of our province even further,” Knoetze said.
Daily Dispatch
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