Increasing fuel imports drive up risk

South Africa’s fuel industry is shifting rapidly, with over 60% of petroleum products now imported. This dependency brings financial risks, credit exposure, and supply challenges – leaving businesses seeking innovative financial solutions to navigate an uncertain future.

South Africa’s fuel industry has undergone a dramatic shift in recent years, with over 60% of the country’s petroleum products now imported, compared to just 22% four years ago. This transformation, driven by a shrinking domestic refining capacity, has fundamentally changed how fuel is sourced and financed. Instead of importing crude oil for local refining, South Africa now imports refined fuel, introducing new risks to businesses across the supply chain.

According to Sarah Wright, senior underwriter at Lombard Guarantee, this shift is not just about supply – it’s about financial security. “As we transition to becoming a net importer of refined fuel, fuel wholesalers and consumers in our economy are needing to look further afield for supply and therefore diversify their suppliers, often purchasing from more than one source,” she expands.

Financial complexity and credit exposure

This evolution in fuel sourcing has added financial complexity for both suppliers and buyers. Companies that once relied on stable local refineries now have to navigate international credit terms, foreign exchange risks, and new contractual obligations. “The move to importing refined fuel has added complexity for suppliers and buyers, who have been forced to navigate financial exposure across international transactions,” notes Wright.

For key industries such as airlines, mining, transport, and fuel wholesale distribution, the ability to secure reliable supply chains is critical. The process often involves multiple layers of businesses, making financial stability a top priority. “The need for risk mitigation strategies on credit arrangements is therefore crucial,” Wright explains. “One non-payment or late payment can have a significant domino effect.”

The role of insurance guarantees

In this increasingly volatile environment, traditional financial security measures may no longer be enough. Businesses need strong financial solutions that not only protect them from risk, but also provide the liquidity needed to operate efficiently.

This is where insurance guarantees play a vital role. “Guarantees offer the stability that both suppliers and buyers need to thrive in an unpredictable credit market,” says Wright. These financial instruments help companies secure credit terms without requiring large upfront cash payments, ensuring that cash flow remains stable while reducing risk for both suppliers and buyers.

To illustrate the impact of guarantees, Wright shares the case of a fuel wholesaler who required a substantial guarantee to secure credit terms with a supplier. “After meeting with the client and understanding their business beyond the numbers, a guarantee was issued, allowing them to purchase fuel on credit. Over four years, they effectively managed risk, scaled their operations, and moved away from costly financing options,” she relates.

Proactive stance needed

As South Africa’s fuel sector continues its shift towards an import-driven reality, businesses need to be proactive in securing financial certainty. “Structured guarantees provide stability, ensuring businesses can operate with confidence. They’re not just about mitigating risk; they’re about enabling business continuity,” says Wright.

By facilitating trade, managing exposure, and reducing credit risk, guarantees are becoming an essential tool in the resilience of South Africa’s evolving fuel industry. As the sector continues to navigate uncertainty, businesses that leverage financial safeguards like insurance guarantees will be best positioned to thrive in an unpredictable future.