What unrest in South Africa means for distribution

Unrest in South Africa as a result of the imprisonment of former president Jacob Zuma has focused attention on supply chain disruption. Zuma’s home province is KwaZulu-Natal, home to the largest and busiest port in sub Saharan Africa, Durban. Retail businesses have also extensively been targeted by looters, resulting in queues at shops and fuel retailers today.

Over the last few years South Africa has had a weakened economy, spiralling unemployment and growing political instability. There are deep divisions nationally and within the ruling ANC party. The high profile jailing this week of former President Joseph Zuma on contempt of court charges, related to corruption has led to mass protests, riots and looting.

The outbreaks of unrest have now spread from Zuma’s home province of KwaZulu-Natal to Johannesburg, which signals much deeper issues than divided opinion over Zuma’s guilt. The unrest has been a catalyst for widespread extensive criminal activity. Stores and malls have been extensively looted and damaged. President Cyril Ramaphosa has condemned the violence and deployed the military to support the overwhelmed police service.

These events come as the country has entered an extended national lockdown that includes night curfews and alcohol bans to try and curb the third wave of the Delta variant. The rollout of the much-needed vaccination programme has also come to a standstill. In a country with such deep rooted political, societal, and economic issues, including violent civil unrest, what is different this time?

The unrest had centred in the KwaZulu-Natal province, with major unrest reported in the provincial capital Pietermaritzburg. Two major malls, Brookside & Edendale, were targeted in Pietermaritzburg and had 90% of goods stolen, according to local reports. The unrest quickly spread to Durban, where modern trade was mass targeted across the city. Retailers such as Shoprite have come under attack and suffered extensive looting and damage. The unrest also spread to Johannesburg.

Disruption of trade routes

The targeting of major road networks around the city has served to disrupt trade routes. This includes the blocking of roads by protestors and the attacks on delivery and emergency vehicles. This led to the complete closure of a major section of the N3 Toll Road linking Durban with Johannesburg. The N3 is the most important commercial road in South Africa and the major transport corridor connected to Durban, by far the largest and busiest port in Sub Saharan Africa. It is the gateway for imported goods into South Africa, and also serves as the major port gateway for Botswana, Zimbabwe, Malawi, Lesotho and Eswatini. The closure of this major transport route has halted movement of all goods to and from the ports including key food exports and imports. There is widespread confusion over whether the violent actions are pro Zuma protests or the desperation of those suffering severe economic distress from rising unemployment and increasing food prices.

The risk of further unrest has led retail and distribution organisations to take steps to minimise to exposure. This includes securing stock in warehouses and placing stops on goods leaving. Food and medical shortages relating to supply chain disruption are forecast to escalate as stores are nervous to restock as fears of further unrest rise.

Backlogs and the movement of goods

Transport, cold stores and logistics companies have currently stopped movement of goods in and around Durban port as concerns over driver safely and looting continues. Citrus fruits, a key export along the N3 to Durban, are valued at $35m a week. Deliveries have been severely disrupted as trucks are unable to move and staff cannot get to work to pack the goods ready for export. South Africa is one of the largest global exporters of citrus, exporting 90% of national fruit production. 2021 is projected to be a bumper year for citrus growth in South Africa with a projected 9% volume increase as a result of increasing global demand for natural vitamin C, because of COVID-19.

So what are the alternatives outside KwaZulu-Natal? Cape Town is South Africa’s second largest seaport, but has suffered from backlogs even before handling any traffic from Durban, which accounts for 60% of South Africa’s container traffic. The smaller Port Elizabeth (Gqeberha) Container Terminal is one of the three specialized container-handling facilities along the South African coastline. Maputo port in Mozambique provides an efficient option as it links to the DP world bonded dry port on the border of South Africa. This allows goods to bypass Durban congestion and reach Gauteng and Johannesburg directly within a day when restrictions are not in place. Maputo is still operational but is facing some delays relating to Covid protocols. Walvis Bay in Namibia’s annual capacity has increased from 350,000 TEU containers to 837,000 as a result of a new $268m investment.

The onward impact of delays during the citrus harvest to such a critical source of foreign exchange will create delays at ports and in freight forwarding onward from port. There is also likely to be a shortage in the availability of temperature-controlled trucks required to transport the fruit and an increase in the cost to move goods. Insurance and risk premiums will also increase, so prices for freight and transport will likely be subject to additional surcharges later in the year. In addition, all ports in South Africa are already operating under the strict COVID-19 protocols including additional cleaning, testing and social distancing. Switching supply routes is not quick or simple under pandemic conditions. Import priorities around basic foods and medical supplies for the ongoing Covid crisis are projected to continue.

Retail closures and retail responses

The looting has left stores in affected areas empty and extensively damaged. Smaller businesses do not want to risk opening due to the increased risk of looting. Larger stores are reporting they plan to reopen quickly. But with extensive damage extending to the store fixtures and fittings, replenishment will take longer than expected. Retailers are likely to focus on restocking stores that escaped damage to try and stem the losses. The focus back to food security and securing essentials was at the forefront of Shoprite’s public message. It responded with an in-store only R99 ($6.77) for a monthly pantry essentials promotion containing rice (2kg), sugar (2kg), maize meal (2.5kg), sunflower oil (750ml)  and wheat flour (2.5kg). This deal offers R59 ($4) savings and is valid until the 8th August.

What this means is that the absolute priority for mass market South African retailers like Shoprite is to show support for its customers through price leadership. Consumers face a squeeze from a weak economy, rising unemployment and increasing food prices. Retailers are increasingly focusing on price leadership and the development of their private label ranges. This is likely to accelerate further in the coming months.

Conversely, the super-premium divide will widen. Both Pick n Pay and Checkers are developing more premium, market-style supermarket formats to appeal to wealthier customers at a time when most people are feeling a pinch in their finances.

The ongoing threat of unrest

The cause of the unrest in South Africa is not strictly about Zuma. Pre-COVID-19 unemployment rates were already high at over 20% but jumped to 32.6% in Q1 2021. Consistently high unemployment is a major threat to social stability. With continued economic duress, so the threat of repeated unrest remains high.

This issue is also not isolated to South Africa. The South African unemployment rate is now on par with Nigeria, which has also seen substantial unrest across the country earlier this year. In Eswatini, where living standards have actually gone backwards in the past decade, people are rioting against the king and demanding he curbs his spending.  In March, political unrest during elections and widespread unhappiness about poverty saw riots in Senegal that were frequently targeted on foreign businesses, including supermarket chain Auchan.

The short, sharp economic shock from the COVID-19 pandemic and the associated impacts such as lockdowns will also resonate in other countries where there is existing dissatisfaction with political elites and the management of the country’s economy.

Supply chain disruption across Southern Africa

The local supply chain disruption is extensive. Queues have formed outside shops and petrol stations in Durban. Although South African-based retailers have been hit hardest the linger and more severe the impact in Durban, the more it will cause supply chain disruption across the Southern African countries that also rely heavily on the port of Durban. This, in turn, could raise food prices across the region. On Thursday 15th July, the Mozambican Federation of Road Transport Associations (FEMATRO) warned trucks with essential goods destined for Mozambique were stuck in South Africa due to the violence, and warned of food shortages.

The export disruption will also impact retailers in the UK, UAE & US, which are all major destination markets for South African fruit. Transport costs could rise and the increasing use of surcharges in additional to freight rates is forecast to continue for the rest of the year.

A final impact that we can already see is a weakening of the Rand, which had actually recovered strongly against the dollar after a collapse in value during the early weeks of the COVID-19 pandemic. Again, the consequences of that would flow through to the economy in the form of higher oil prices, more expensive machinery and higher costs for pharmaceuticals.