A challenging year ahead?

Whenever I have wished anyone a Happy New Year in January, I’ve added that I hope that it is a better year than 2021. That is my fervent wish! However, it appears as though we may have another challenging year ahead.

As we commence the year, there are just so many unknowns. The most relevant of course is Covid, which seems to control our daily lives. Will other variants arrive? Probably. Let us hope that they don’t cause widespread loss of life.

Even if those variants don’t arrive, we are now living with the daily consequences of Covid anyway. It has made planning very challenging and has also devastated the supply chain all over the world. China is pivotal to this situation; as the country imposes sweeping coronavirus restrictions in an attempt to keep the Omicron variant at bay, including confining millions of people to their homes, there are serious concerns of even greater supply chain disruptions. According to the New York Times, delivery times for products shipped from China to the United States already stretch to as many as 113 days, up from fewer than 50 in 2019.

“The combination of intermittent shutdowns at factories, ports and warehouses around the world and American consumers’ surging demand for foreign goods has thrown the global delivery system out of whack. Transportation costs have skyrocketed, and ports and warehouses have experienced pileups of products waiting to go out, while other parts of the supply chain are stymied by shortages,” the newspaper reports.

The two Cs in our life – Covid and China – have also had a devastating effect on truck production. While truck sales are picking up nicely (MAN just announced that its 2021 sales approached pre-pandemic levels), semiconductor shortages directly attributable to Covid and China are wreaking havoc on vehicle production. By all accounts, these shortages as well as others will continue to plague our industry this year.

Sadly, there appears to be no way to end these shortages. Localisation of parts such as semiconductors – while sounding great in theory – isn’t practical, as Len Brand, CEO of Tata International Africa and Managing Director of Tata Africa Holdings, points out: “Using the microchip shortage as an example, the reality is that despite copper for chips coming from Zambia, the raw material will still go to China to get processed into a chip. The chip will then go to Germany to be built into the fuel injection pump and the pump will go to Korea or India to get incorporated in the kits, which will then be brought to Africa.”

Yet another seemingly insurmountable problem in 2022 is inflation. The Navigator, Anchor Capital’s quarterly review of the major themes affecting markets, explains this situation particularly simply and effectively: “Supply chain blockages, where people are either too sick to work or are on lockdown, continue to hamper the supply of goods. Against this backdrop, individuals have shifted their spending towards goods, while services such as travel remain difficult under pandemic conditions,” the report warns. “The increased demand for goods at the time of a decline in supply is the perfect recipe for inflation. Inflation and rising interest rates are going to be the theme for the first half of this year at least.”

This is something that we’ve seen for the first time (in recent years) in inflation-impervious countries such as Germany. In August last year, we predicted that inflation in that country would rise to 4%. That was considered massive, but we were wrong! Annual inflation in Germany is now at its highest since 1993; in December 2021, year-on-year price increases hit a whopping 5,3%!

It was only a matter of time before South Africa was impacted by this global trend. In a sign of things to come, the annual inflation rate in South Africa accelerated to 5,5% in November 2021 and – according to Trading Economics’ global macro models and analysts’ expectations – it is expected to reach 6,0% by the end of this quarter.

Still, things could be worse. According to Business Insider Africa, there are other African countries in a considerably worse position, such as Sudan (inflation rate: 387,56%), Zimbabwe (50%), South Sudan (40%), Ethiopia (37,6%), Angola (29,7%), and Zambia (22,1%). So, while our challenges here on the southernmost tip of Africa are food for thought, we don’t really have too many reasons to complain.