Page 82 - Risk Report 2024

1. Functional State 2. Politics

The sector operates mostly in rural areas where local The effects of the State’s alignment with anti-western
government’s service delivery is often poor and impacts allies create an uncertain outlook for the sector. If the
business continuity and the cost of doing business. AGOA agreement is cancelled (which will effectively close
Communities heavily rely on sector players (particularly the US market for agriculture exports) producers will be
forestry companies) to provide basic services (such as immediately and directly impacted. Dependence on imported
water and road networks), with increased cost and budget inputs like fertilisers, seeds, and equipment that could
pressures. Basic services must be self-served in some cases become less accessible or more expensive should western
despite municipal tariffs for such services, to satisfy minimum countries implement measures against SA. Not implementing
industry and quality standards, as well as minimum client anti-dumping legislation impacts producers as well as
requirements (often for the export market). Local electricity manufacturing in the long-term, which could include total
network volatility often leads to downtime and equipment loss of production and ultimately, negatively impacting food
damage, with additional cost. This additional cost reduces security. The situation is further exacerbated by political
profitability as commodity prices are set internationally in influence on labour relations, putting additional pressure
some cases or must be competed against with cheap imports. on producers and manufacturers, leading to business
Investment in infrastructure is difficult and expensive due interruption and increased cost.
to long bureaucratic approval processes hampered by
dysfunctional or inept authorities.

3. Economy 4. Social Security
Pressures on FDI continue to increase. African countries As the cost of doing business is constantly affected by various
have substantially eased the burden of entry, cut red tape, root causes (polycrises), the agri sector is experiencing the
and incentivised investment through policy and legislative brunt of the burden due to operating in remote geographical
reform. SA’s greylisting, national land ownership policy locations. Employees stem from the rural areas where social
uncertainty, increased B-BBEE requirements, high taxes, security, quality of life, unemployment, and inequality are the
failing infrastructure and lack of services cause investors most affected. The sector is compelled to help solve these
to look elsewhere in Africa. Long-term effects include less situations to maintain a willing local workforce of skilled,
representation of existing multinationals in the inputs side, semi-skilled, unskilled employees. As a key employer in most
with new infrastructure programs being rolled out outside of the remote areas where sector entities operate, these
SA. Importing these services and products will become entities incur excessive costs to provide training and job
necessary, creating opportunities for local investors to opportunities to people who would often not be employable
supply these products/services, should the political will be in other industries.
there. Local economic growth worsened significantly relative
to budget expectations due to intensified loadshedding in
2023, freight and port logistical constraints, and geopolitical
tensions, resulting in low demand, high cost, and low revenue.
The local forestry sector, especially the sawmilling, mining
timber, and pole treating industries took strain, resulting in
lower volumes being taken by customers.

5. Rule of Law 6. Water

Unethical behaviour mostly impacts the sector via Despite a key economic contributor in rural areas, the
procurement syndicates. Illegal immigration, syndicate driven forestry sector is often blamed for water scarcity in these
illicit activities on provincial and national scale, difficulties areas. Although water management of SA’s main reservoirs
securing hundreds of hectares, and 10-to-30-year production is generally done well, the water quality of various water
cycles make commercial forestry especially vulnerable to systems is of concern. Such polluted water cannot be safely
crime. With little success to investigate and prosecute cases, used to grow crops. Enforcement of NEMA legislation is poor,
the sector invests heavily in private security, investigation with some industries, but mostly failing local government
capabilities, and preventative measures, the cost of which infrastructure being the main contributors to pollution.
is exacerbated by investment in alternative energy due to The sector invests heavily in being self-sufficient in the
unreliable electricity supply from Eskom. Insurance on crime- storage and cleaning of water, due to water dependencies of
related losses has substantially increased, and in some manufacturing and irrigation.
cases, risks have become uninsurable, forcing the sector to
absorb losses.