There is a disconnect in South Africa between how the economy actually functions and how it is often discussed in public discourse. In ordinary times, that gap is frustrating. But this knowledge gap, fuelled by an ideological disconnect, is even more dangerous in more volatile moments. South Africa and the world are currently bracing for the full impact of US-Israel-Iran conflict, which is already expected to be as disruptive as Covid-19 and has the potential to be even more so.  

Global shocks do not remain distant for long. Conflict in a region central to energy supply chains inevitably feeds into fuel prices, logistics costs, and inflation. This we all know.  

But a common refrain is increasingly being seen in the media illustrates a more pernicious problem: the expectation that food retailers or producers “should not increase their prices.” While politically appealing, this framing is economically ignorant. Businesses operate within cost structures they do not fully control: collective labour bargaining, volatile input costs, currency fluctuations, fuel and electricity prices, transport inefficiencies, and regulatory burdens. When those costs rise, prices follow.  

Inflation is not opportunism; it is the reality of an economy that is highly exposed to imports, grappling with a supply chain that relies mostly on fuel-guzzling trucks, crumbling state infrastructure, and often incoherent government trade and industrial policy that is glacially slow to adapt to fast-moving global realities. 

Often there is also a moral argument thrown into the mix: private businesses have some moral duty to not increase their prices as a result of global price shocks. This further illustrates how South Africa’s economic misunderstanding is tainted by ideology.  

South Africa is a welfare state. In 2024, about 9.2 million individuals out of the total population of 63 million were taxpayers. About 19 million people receive basic state grants, which swells to 28 million if you include the (still-active) Covid-19 Social Relief of Distress grant. Taxpayers have no other choice but to pay tax – that is until they don’t due to company closures or unemployment.  

Businesses operate differently. To keep consumers returning, they need to carefully manage their margins, stock, and cash flow, and do so in a way that keeps investors happy that short-term decisions lead to sustainable long-term outcomes. When margins, cash flow and confidence erode enough, the consequences are dire: retrenchments, reduced investment, or closure. 

This is where South Africa’s real policy failure becomes evident, even before the US-Israel-Iran war. Our local news is dominated by industries in distress – entire sectors on the verge of collapse or closure. Steel, mining, mining services, sugar, automotive production, diary and cattle farming, the local film industry. The list goes on. For all of these industries, a contributing root cause will be either be a government policy or set of policies that do reflect global and local economic realities.  

The issue is not that a handful of private companies continue to operate profitably under difficult conditions. The issue is that the broader economic environment is not being actively enabled to support the creators of employment and tax revenue for the state. 

South Africa’s frameworks around, amongst others, education, industrialisation, connectivity, and labour were often designed for a different economic era, or shaped by ideological assumptions that have not delivered the intended outcomes over the past three decades.  

The global economy, however, has now fully transitioned to a new reality in just the past 14 months or so; one that favours transactional competitiveness, agility, and investment certainty. South Africa’s domestic policy has not adapted with sufficient urgency. 

The expectation that businesses should absorb shocks, maintain employment, and keep prices stable is a folly. It’s the same thinking that has led the state into a dead-end where there are still more people unemployed (and unemployable) than there are taxpayers.  

We cannot now ask our private businesses to go down the same road. 

Companies, already operating under extremely challenging conditions, perhaps have one more responsibility: they must also explain. Explaining why prices move. Explaining why investment decisions are delayed. Explaining why certain operations are no longer viable. In effect, businesses are being drawn into an educational role: explaining sound economic principles to an audience beyond shareholders and investors.

– Gerhard Mulder
Account Director