The Coffee Table Economics (CTE) with Anchor note by Casey Sprake is distributed intermittently. It is a collection of Casey’s thoughts and perspectives on key economic factors, socio-political events, and the multiple dynamics shaping markets globally and in South Africa (SA).
Executive summary
In this week’s edition, we highlight the following:
- Bittersweet crisis: How surging cocoa prices are reshaping the global chocolate industry. Cocoa prices surged to an unprecedented high of nearly US$10,000/tonne in 2024, driven by a mix of supply shortages, rising demand, and speculative investor activity. This steep rise in cocoa costs has pushed chocolate prices significantly higher over the past year, creating ripple effects across the global chocolate market.
- Beyond the US dollar: The global reserve currency landscape is shifting. As the US dollar’s dominance faces gradual shifts, the evolution of reserve currencies reflects changing global power dynamics and financial priorities. The evolving role of reserve currencies suggests that the global financial landscape will likely become more multipolar, with a broader array of currencies sharing the stage in international finance.
- Resilient gains amid challenges: SA’s labour market shows signs of recovery in 3Q24. The latest Quarterly Labour Force Survey (QLFS) for 3Q24 revealed improved SA labour market conditions. This shift reduced the official unemployment rate from 33.5% in 2Q24 to 32.1% in 3Q24. However, the numbers tell a more nuanced story, reflecting both sectoral dynamics and ongoing challenges, particularly in youth employment
Bittersweet crisis: How surging cocoa prices are reshaping the global chocolate industry
Cocoa prices surged to an unprecedented high of nearly US$10,000/tonne in 2024, driven by a mix of supply shortages, rising demand, and speculative investor activity. This steep rise in cocoa costs has pushed chocolate prices significantly higher over the past year, creating ripple effects across the global chocolate market. Whilst West Africa (particularly Côte d’Ivoire and Ghana) produces over 70% of the world’s cocoa, Europe dominates chocolate manufacturing, with major players like Mars, Mondelēz, and Nestlé controlling much of the global market. The price increase has forced these companies to navigate cost pressures and supply constraints as chocolate demand continues to exceed production.
According to the latest data from the Observatory of Economic Complexity (OEC), Germany is the world’s largest chocolate exporter, with exports valued at US$5.6bn in 2022. Boasting over 200 chocolate manufacturers, Germany’s robust production is supported by large factories from Ferrero, Mondelēz, and Mars and leading domestic producers like Ritter Sport, which exports to more than 100 countries. Germany’s manufacturing strength is further bolstered by the benefits of EU trade agreements, which facilitate extensive exports across the European continent.
Following Germany, Belgium ranks as the second-largest chocolate exporter, renowned for its quality and craftsmanship. Barry Callebaut, the world’s largest chocolate factory, is based in Belgium, producing over 260,000 tonnes of chocolate annually. More than half of Belgium’s chocolate exports are destined for Europe, with a significant portion also shipped to Asia and North America. As such, the major players (Barry Callebaut, Cargill, and Puratos) drive the majority of exports, underscoring Belgium’s pivotal role in meeting global chocolate demand.
Italy holds the third position globally in chocolate exports, contributing around 7.3% of the world’s total. The Italian confectionary giant Ferrero, known for popular brands like Nutella, Ferrero Rocher, and Kinder, plays a leading role in Italy’s chocolate industry and exports.
The US ranks seventh in chocolate exports, with US$1.7bn. Hershey’s, which controls over one-third of the US chocolate market, has responded to surging cocoa prices by adjusting its pricing strategy and expanding its product range to include non-chocolate items like gummies. This year, Hershey’s even introduced a cinnamon-flavoured Kit Kat bar, notably made without cocoa, as part of its diversification efforts.
Looking ahead, the cocoa market has been strained by poor crop yields, climate impacts, and increased speculation, which, combined with surging demand, have exacerbated the supply deficit. Global cocoa production is projected to fall by 12% YoY in 2024, creating an estimated deficit of 439,000 tonnes – nearly six times larger than the shortfall recorded in 2023. This ongoing shortfall presents substantial challenges for the chocolate industry as manufacturers brace for continued volatility and seek alternatives to offset the impact of soaring cocoa prices on their products.
The bottom line
The cocoa price surge highlights the chocolate industry’s vulnerability to global supply dynamics and market volatility. As demand continues to outstrip supply, chocolate producers face the dual challenge of managing costs while sustaining profitability. The concentration of cocoa production in West Africa, coupled with Europe’s dominance in manufacturing, underscores the interconnectedness and fragility of the international chocolate supply chain. In response, some companies are shifting strategies, diversifying their offerings to reduce dependence on cocoa-heavy products. However, unless production constraints are addressed and more resilient supply solutions are implemented, consumers can expect higher chocolate prices and potentially fewer options in the coming years. This situation calls for industry-wide adaptation, emphasising sustainable sourcing, crop diversification, and innovative product development to balance consumer demand with environmental and economic realities.
Beyond the US dollar: The global reserve currency landscape is shifting
Reserve currencies (stable and widely accepted forms of money held by central banks and financial institutions) play a fundamental role in international trade and economic stability. They provide liquidity, support global trade, and help countries manage exchange rate risks. The US dollar has historically dominated as the world’s primary reserve currency, a position earned through its global liquidity, stability, and integration into the international financial system. According to the International Monetary Fund (IMF), approximately 60% of the world’s US$11.5trn in foreign exchange reserves are held in US dollars, reinforcing its status as “the world’s reserve currency.”
However, the US dollar’s dominance has gradually eroded over the past two decades. In 2000, more than 70% of global reserves were held in US dollars, compared to the 59% recorded in 2024. This decline indicates a shift in the global financial landscape, though the impact on other traditional reserve currencies, such as the euro, yen, and pound sterling, has been modest. Despite the US dollar’s decline, these currencies have not significantly increased their shares of global reserves. Instead, the share of reserves held in non-traditional currencies like the Australian dollar, Canadian dollar, Chinese renminbi, and South Korean won has grown. This trend suggests that reserve managers are diversifying into currencies outside the traditional basket, seeking new benefits from emerging financial markets.
The rise of non-traditional reserve currencies can be attributed to several factors. They offer diversification, attractive yields, and a hedge against potential volatility in the larger, more traditional currencies. Technological advancements in digital finance have also made it easier for central banks to manage these currencies, facilitating transactions and enabling seamless transfers. This growing accessibility has allowed reserve managers to broaden their portfolios with currencies that may offer resilience and performance benefits in an increasingly complex global market.
China’s renminbi (RMB) stands out among non-traditional reserve currencies as a prominent example of this shift. The IMF reports that reallocations toward the renminbi accounted for roughly 25% of the global move away from the US dollar in recent years. This trend underscores the renminbi’s emerging role as a regional and global currency, particularly among countries seeking alternative reserve options. In 2021, Russia was the largest holder of renminbi reserves, representing nearly one-third of all renminbi reserves, valued at c. US$105bn. Other notable holders include Brazil, Switzerland, and Mexico. For many of these nations, particularly Russia and other BRICS countries (which currently comprises nine countries -Brazil, Russia, India, China, SA, Egypt, Ethiopia, Iran, and the United Arab Emirates [UAE]), holding the renminbi offers not only economic benefits but also a strategic alignment with China’s growing economic influence.
The bottom line
As the US dollar’s dominance faces gradual shifts, the evolution of reserve currencies reflects changing global power dynamics and financial priorities. Central banks increasingly value diversification to mitigate economic risks and optimise returns, while technological advancements continue to lower barriers to holding and trading these non-traditional currencies. The evolving role of reserve currencies suggests that the global financial landscape will likely become more multipolar, with a broader array of currencies sharing the stage in international finance. This transformation underscores the importance of adaptability in reserve management and reflects the growing complexity of a global economy that no longer relies on a single dominant currency.
Resilient gains amid challenges: SA’s labour market shows signs of recovery in 3Q24
The latest 3Q24 QLFS revealed an improvement in SA’s labour market conditions. Employment rose by 293,840 jobs, while unemployment declined by 373,305, bringing the total number of unemployed individuals to 8,010,520. This shift reduced the official unemployment rate from 33.5% in 2Q24 to 32.1% in 3Q24. However, the numbers also tell a more nuanced story, reflecting sectoral dynamics and ongoing challenges, particularly in youth employment. Youth unemployment remains an alarming issue, with rates at 60.2% for those aged 15-24 and 40.4% for the 25-34 age group. This persistent youth joblessness underscores structural barriers, such as skill mismatches and limited entry-level opportunities, which inhibit young workers from fully participating in the labour market. Addressing these barriers remains essential for long-term economic stability.
Sectoral performances were mixed. Community and social services led the employment gains, adding 194,285 jobs—128,000 from the formal sector. The construction industry followed with a substantial increase of 176,452 jobs, reflecting demand from infrastructure projects and construction activities. Wholesale and retail trade added 108,838 jobs, boosted by seasonal retail activity and increased consumer spending. Other sectors showing growth included mining (+27,304) and agriculture (+39,035), while the informal sector, a critical source of employment in SA, contributed 165,234 additional jobs.
Despite the overall positive trend, several key sectors experienced losses. Financial services saw a sharp reduction of 189,066 jobs, a contraction reflecting broader structural adjustments and cost-saving measures in response to the challenging economic climate. Manufacturing shed 20,190 jobs, grappling with loadshedding, input cost pressures, and global demand volatility, while transport lost 17,917 positions.
Historically, SA has seen employment gains in election-related periods, such as 2Q24, typically followed by a dip in subsequent quarters. However, 3Q24’s resilience—particularly in the formal sector’s community and social services jobs—indicates a more robust labour market than anticipated. The upcoming 3Q24 Quarterly Employment Statistics will shed further light on these trends. Looking forward, modest employment growth is expected, supported by medium-term improvements in SA’s economic outlook. Nonetheless, structural challenges (such as low business confidence, infrastructure bottlenecks, and weak economic growth) will likely constrain more robust job creation. This context emphasises the importance of pro-growth structural reforms, especially in high-employment, multiplier sectors like manufacturing, construction, and services.
Regardless, the employment gains support a positive outlook for household consumption, with several tailwinds aiding financial stability. Factors such as two-pot pension fund reforms, declining fuel prices, and easing interest rates are alleviating household financial pressures. This and rising employment are projected to drive consumption growth, a vital component of economic recovery. As household consumption strengthens, it could create a virtuous cycle, further boosting demand across various sectors and supporting the labour market.
The bottom line
The increase in total employment is encouraging and aligns with the generally held expectation for economic data to improve in 2H24. However, given the potential for volatility, a sustained positive trend is needed before we can be more optimistic about the employment outlook. At this stage, stability in formal private sector employment supports the view that, while the employment-to-GDP ratio has recovered somewhat, additional GDP growth will be essential to underpin a lasting upward trend in job creation.
