Director: Corporate-911
When the conflict between Russia and the Ukraine started, many people labelled it as a European problem. South Africa has its own challenges that it needs to address. This is not our problem.
We live in an increasingly interconnected world. What then is the likely impact of the Russian invasion of the Ukraine for the average South African Business Owner and manager.
Important economic drivers
Some surprising industries seem to be caught up in the likely chaos in the Ukraine.
The South African wine industry is an important industry driving the Western Cape economy and is a lifeblood for many South Africans. Many of the wine farms in the Western Cape have been owned by families for generations.
News24 reports that wine makers are now anxious about the economic sanctions imposed on Russia and the developing situation in the Ukraine as both of these countries are important export markets for South African wines.
The article points out that while Russia represented about 1.8% of South African wine exports in 2021 – the pandemic had already caused a drop in exports to the region – the year nonetheless saw a total of 6.9 million litres of wine leaving South Africa for Russian shores. The total value of exports to Russia in 2021 was R207 million.
Photo By: Canva
On the lighter side, given the impact of everything going on in South Africa at the moment, we could have more and cheaper wine to see us through!
Payments via the SWIFT system will not be available. How will these payments be made? Any exporter will tell you that dealing with foreign banks is a headache. More wine please!
A local producer, whose estate exported three to four containers of wine to Russia per year – worth about R1.5 million to R2 million in total – told News24 that the impact of the conflict could mean local producers would have to “start all over again” to market wines in the region at a later stage.
Fruit exports to the region are also a major concern. Anton Rabe, Executive Director of Hortgro, told Farmers Weekly that the conflict in Ukraine could not have come at a worse time, and stressed that the fruit industry hoped that a diplomatic solution would be found.
The current situation was developing against the backdrop of global increases in production input costs, the rising cost of logistics, and international pressure on shipping, including the availability of cargo containers, along with other Covid-19-related challenges.
According to Rabe, Hortgro was particularly concerned about a possible knock-on effect for international markets, if exporters were to divert fruit that was meant for Russia to other markets.
Shipments could not simply be redirected from one country to another due to the great difference in phytosanitary and quality requirements between countries.
“Diverting shipments to another country could also lead to an oversupply that would negatively affect prices,” Hugo said.
Supply chain under pressure
The current situation in the Ukraine will have a significant impact on the current supply chain crisis.
An article by News24 points out that German car giants Volkswagen and BMW said (on 1 March) that they would temporarily halt production at some plants as the crisis in Ukraine led to shortages of key components.
The Russian invasion of Ukraine had made the situation more difficult for our Ukraine-based suppliers, leading to shortages, a VW group spokesman said in a statement. In the following week, vehicles at the plant will not be able to be finished as it stands, the group said, leading to a complete stop.
Production at Volkswagen’s plants in Zwickau, the group’s biggest electric car production site in eastern Germany, had already been suspended between Monday and Thursday this week.
Volkswagen’s factory in Hanover and its component production sites would also be affected by shortages, the group said, adding that further adjustments to production cannot be ruled out.
Photo By: Canva
Impact on South Africa
Again, you may be tempted to ask: how does this impact South Africa?
The fact that the SWIFT payment system is disallowing payments to and from Russia and the Ukraine puts pressure on cashflow. Delays in collections from Russia will impact your cash flows. Ask your banker what they can do to secure the banking relationship. They will gear up to help you find a new way to get paid.
Finally, the conflict in the Ukraine has seen the price of oil rise above $100/barrel. This has had a negative impact on the petrol price with record prices being recorded in South Africa.
Companies will need to plan for the immediate impact on cash flow and the logistical issues caused by the conflict in the Ukraine.
Turnaround professionals are here to help clients sit down and make sense of the adjustments that need to be made to address these challenges.
Step 1: Do a basic impact assessment of your specific supply chain and as with Covid, check your safety stocks and lead time. Plan your production and sales accordingly.
Step 2: Do an impact assessment on your clients. If you clients fall within these affected areas, put additional measures in place. You may not get debtor financing for this transaction, and this could add greater stress to absorb pressured cash flows.
Step 3: Plan for the knock on affects of higher fuel prices in your supply chain and shortages if supplies come from the Ukraine or Russia. Everything from vehicle parts and spares to wheat could be affected.
Step 4: What new opportunities are there for our economy to benefit from the sudden and significant withdrawal of Russia and the Ukraine from global markets? For example, Russia is a major exporter of fertiliser. Do we gear up our dormant plants or find it elsewhere?
While the root cause is not Covid-19, apply the same lessons you have already learned to your business and you should be able to navigate this increasingly complex and confusing change in the global business environment.
Robin Nicholson is the Director of Corporate-911 and is a Senior Business Rescue Practitioner.
