News in South Africa 10th May:

1. Good news for food prices:

South Africans can breathe a sigh of relief as experts predict that food inflation is set to decelerate this year.

Good news for food prices
Photo by Anna Pou

Consumers have been facing a tough economic climate, with inflation, interest rate hikes, and load shedding all taking their toll.

According to Stats SA, Consumer Price Inflation ticked upwards to 7.1% in March from 7.0% in February, despite many experts predicting a decline.

The 14.0% year-on-year increase for food and non-alcoholic beverages was one of the biggest contributors to the overall inflation rate, contributing 2.4 percentage points to the total.

The increase was the largest annual increase since March 2009 (14.7%).

In March, the sweets and desserts; fruits and vegetables; and the product category ‘other food products’ all saw massive upward inflationary pressure, while the milk, eggs & cheese product group saw its annual increase reach 13.6% from the recent 3.7% low in April 2022.

Consumers will have some respite as food inflation is expected to ease in South Africa.

“We expect the prices for a majority of food items to start decelerating in the next 12 months,” Dawie Maree, Head of Information and Marketing at FNB Agribusiness, told BusinessTech.

“Although prices may not drop entirely, food inflation is likely to decline.”

“We expect an easing on food inflation from the second half of the year, although it will be very much dependent on energy/fuel prices and possible price shocks on the international level, given the impact of the exchange rate. The probability of the latter is low at this stage.”

Despite the easing of food inflation, consumers should not expect an immediate easing in prices as businesses continue to feel the effects of load shedding.

2. SA’s middle class is broke:

With a sharp, rapid rise in interest rates – prime is now 11.25%, up from 7% in the past 17 months – households are under immense pressure.

Car and home loan repayments have increased by an average of 12% and 38% in rand terms respectively, according to data from Absa (a far larger proportion of a home loan repayment comprises interest).

Inflation remains elevated and outside the South African Reserve Bank’s target range which has resulted in yet more interest rate hikes. However, average monthly salaries in the country have slipped by 4.8% (to R14 318) from a year ago, according to the BankservAfrica Take-home Pay Index.

Pay increases have simply not kept up with the rising cost of living.

Investec chief economist Annabel Bishop says this declining real wage environment is “very negative” for the economy as “continuously falling real incomes reduce consumers’ spending power, which is a huge suppressor on demand … weakening economic growth”.

Households are being hit from all sides. And the further up the middle-class continuum one moves, the more likely it is people are paying significant amounts to supplement services that the state would ordinarily provide: think private healthcare, private security, private education – and, increasingly, private energy generation/water supply/refuse removal.

Salaries not keeping pace

The numbers are scarier when one looks at the average debit order amounts across the pool of 20 million clients. Home loans are up 20%, vehicle finance by 15%, with a 15% increase in personal loans. Debit orders for education (school or tertiary fees) are down by 15%, with a slight decline in the value for insurance (1%). Debit orders for investments are not keeping up with inflation – these increased just 3%.

Capitec says the average weighted growth across all spending categories was 5%, while the growth across the debit order categories was 12%. The average increase in salaries (or regular deposits) over the same period? Just 4%.

You can see the problem.

3. Eskom lying about load-shedding:

Energy expert Adil Nchabeleng says Eskom has decided not to inform the public when it exceeds stage 6 load-shedding and that we are already experiencing much higher stages.

South Africa has experienced the worst-ever load-shedding this year, and many stakeholders are warning people to prepare for a dark winter.

Even electricity Minister Kgosientsho Ramokgopa has warned that South Africans should brace for a cold winter that may include stage 8 power cuts.

However, Nchabeleng argues that the country is already experiencing load-shedding exceeding stage 6.

“Eskom has made a decision to cap its announcements at stage 6 load-shedding, avoiding announcing stage 8 or higher load-shedding,” he said.

“They are giving us the impression that everything is oscillating around stage 6, which is a lie. It is beyond stage 6 when considering the frequency of power cuts.”

“We are sitting at a minimum of 12 hours of electricity cuts on a given day, and they are blanketing out major areas.”

He said Eskom manages its communications regarding the load-shedding stages it announces to avoid social unrest and related problems.

The table below shows cases where Eskom exceeded 6,000MW of load-shedding, which equates to stage 7 and stage 8 load-shedding.

However, Eskom denied exceeding stage 6 load-shedding. It explained that during these days, it implemented stage 4 load-curtailment to limit load-shedding to stage 6.

DateEskom stage announcedElectricity shed (MW)Actual stage
20 February 2023Stage 66,595MWStage 7
21 February 2023Stage 67,045MWStage 8
22 February 2023Stage 67,092MWStage 8
23 February 2023Stage 66,061MWStage 7
13 April 2023Stage 67.072MWStage 8
Sourced from DailyInvestor

4. Gold mines return to profit:

Mining giant Sibanye-Stillwater said on Tuesday its gold mines in South Africa had returned to profit in the first quarter of 2023, boosted by record prices for the precious metal and an “appropriate” wage settlement with its workforce.

The company, which also operates platinum group mines in the Rustenburg area and in the US, said its SA gold mines recorded earnings before interest, tax, depreciation and amortisation (ebitda) of R774 million during the quarter ended March 2023. This was a swing from a R680 million loss in the same period in 2022, when the company was hit by a three-month wage strike.

Despite this, group ebitda fell almost 43% to about R7.8 billion, with the decline driven by troubles at its SA platinum group metal operations, as well as about a 19% fall in the rand price of the basket of four PGM metals (4E) it produces.

Its SA 4E production, when excluding third-party purchases of concentrate, fell 8% to 379 791 ounces, primarily due to the ongoing planned closure of a shaft at Kroondal, copper theft-related production disruptions (5 200 ounces), load curtailment (5 120 ounces) and productivity constraints in areas where operations are mining through adverse ground conditions (4 100 ounces). The group said, however, that third-party concentrate purchases more than doubled, and when including this, production was only down 4%.

However, the company got a boost from the dollar gold price breaching record highs in May, which underpinned its status as a hedge against uncertainty. Prices in rand terms rose about 16%, while SA production jumped 46% to just over 200 000 ounces.

5. R2.5bn alternative energy fund for farmers:

Agriculture minister Thoko Didiza says a R2.5 billion “agro-energy fund” will be created by the land bank, allowing farmers to apply for funding in alternative energy sources.

The fund said that farmers will be able to receive grant funding between R500,000 and R1.5 million depending on the scale of their farm’s operations.

Didiza said that the fund will focus on energy-intensive agricultural activities, such as irrigation, exhaustive agricultural production systems and cold-chain logistics activities.

All information sourced from articles posted by: BusinessTech, Moneyweb, DailyInvestor, Fin24, and BusinessDay.

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