Small businesses urged to collaborate and diversify amid global conflict
The latest hike doesn’t include the fuel levy increase, which is being introduced in April. (CHATGPT)
For many South African small businesses, global conflict often feels distant — until the fuel price increases. However, the recent escalation between the US and Iran is already impacting local SMMEs.
In the last week, Brent crude has climbed to more than $80 a barrel amid tensions around the Strait of Hormuz, the passage through which roughly 20% of global oil supply moves. Even without a formal closure, insurers have raised risk levels, and shipping costs are increasing.
Domestically, the impact is immediate. Fuel costs are rising, and in an economy that relies heavily on road freight to move goods, higher diesel prices ripple quickly through agriculture, retail and manufacturing.
Independent economist Elize Kruger suggests that while a sharp rise in oil prices is unlikely to trigger an immediate interest rate hike in South Africa, it “will negatively impact the economy through higher fuel prices”. She says the increase is expected to filter through the economy by raising transport costs and supplier pricing, ultimately eroding consumer spending power and dampening demand.
There’s also the currency channel. In periods of global risk, the US dollar typically strengthens, and as a result, emerging market currencies, including the rand, come under pressure. This week, traders have shifted from pricing in rate cuts to positioning for a possible interest rate hike as oil-driven inflation risks intensify. This creates a threefold exposure for SMMEs with higher logistics costs, currency volatility and potential pressure on borrowing costs.
We have been here before, though. When the Russia-Ukraine war began, very few South African businesses anticipated how dependent parts of our agricultural value chain were on fertiliser imports. Russia and its neighbours were major global suppliers, and when supply routes were interrupted and sanctions imposed, fertiliser prices spiked, and farmers faced sudden increases in input costs. Those increases filtered through to food production, pricing and margins across the agricultural ecosystem.
No business should be overly dependent on a single region or supplier. Having an alternative plan if one route or geography becomes constrained is no longer optional
Global supply chains are more concentrated than we assume, and in a country as import-dependent as South Africa, these pressures travel faster than expected. Aviation routes through key Middle Eastern hubs, including Dubai and Doha, have experienced operational strain, and shipping lines are imposing war surcharges and rerouting vessels.
Businesses importing stock may find orders delayed, inputs more expensive, and delivery timelines suddenly unreliable, as cargo moves through congested regional hubs. Tourism and manufacturing are likely to be among the first industries to feel these effects.
So how should SMMEs respond? In my view, it starts with collaboration, a strategic decision in times of uncertainty. Instead of absorbing rising fixed costs alone, businesses operating within the same industry should explore cost-sharing arrangements. Shared warehousing and office space or consolidated logistics contracts can reduce overheads without immediately cutting jobs.
Supplier diversification must become calculated too. No business should be overly dependent on a single region or supplier. Having an alternative plan if one route or geography becomes constrained is no longer optional.
Insurance should also be treated as a core component of risk management. For businesses procuring goods internationally, marine and freight insurance, including appropriate free on board arrangements, protects working capital. If goods are delayed or stranded due to geopolitical events, insured inventory is recoverable but uninsured inventory can quickly become a liquidity issue.
Finally, business owners must return to cost discipline. This means reviewing each major expense line, stress-testing cash-flow projections under different fuel and exchange-rate scenarios, and renegotiating contracts early rather than reactively.
Retrenchment should not be the first response. Instead, optimise operational costs, improve efficiencies, and share services to yield better long-term outcomes.
It is equally important not to overstate the macroeconomic risk. National Treasury director-general Duncan Pieterse recently said that “it would take a very large shock to derail our fiscal plans”, adding that South Africa has geared itself “in a way that we can manage some deviation”.
Stronger public finances and elevated commodity prices can provide some cushion but the risk lies in duration. A short-term oil spike can be absorbed but a prolonged period of elevated costs would require more adjustment.
In my experience, businesses rarely fail because of a single external shock. They struggle when volatility meets unpreparedness. Global tensions will continue to evolve, and SMMEs cannot control the trajectory of world events. What they can control is collaboration, diversification, insurance coverage and disciplined cost management.
Conflict may begin thousands of kilometres away but the risk of living in an interconnected world is that it can quickly become a crisis at home too. Those businesses that prepare well will fare much better.
Mtwentwe is MD of Vantage Advisory and host of the SAICABIZ Impact Podcast
