News in South Africa 11th August:
1. SA R500 billion in debt:
South Africa will need to borrow R500 billion over the next year, or R2 billion per weekday on average, to fund its current fiscal deficit and refinance maturing debt. This increases the risk of investing in the country and increases borrowing costs for local companies.
Nedbank CEO Mike Brown flagged this concerning trend after the company released its half-year results earlier this week.
The bank reported earnings growth of 11%. Rising impairments from its retail segment subdued this growth, as Nedbank had to increase provisions for bad debts by 57%.
Nedbank is the first of the ‘big four’ banks to report half-year results, with its results seen as a sign of things to come for its competitors.
South Africa’s major banks are expected to report higher levels of impairments as consumers and businesses come under pressure from higher interest rates and a stagnant economy.
Brown said most of South Africa’s economic troubles are internal “own goals”, such as load-shedding, logistical inefficiencies, and the country’s foreign policy affecting relations with the country’s largest trading partners.
Nedbank anticipates meagre growth for South Africa this year of only 0.3%, rising to 1% in 2024. The bank estimates that load-shedding alone costs the economy R900 to R1 billion a day.
Low to no economic growth will likely result in increased unemployment and add to the cost of the government’s social support schemes.
This will put tremendous pressure on the country’s finances and potentially widen the existing fiscal deficit.
2. Mining and manufacturing uptick:
Stats SA has published the latest monthly data for the mining and manufacturing sectors in South Africa, with each delivering growth at rates far larger than market consensus had anticipated.
This bodes well for the country’s second-quarter GDP number, as both sectors are significant economic contributors.
However, the good news still comes with the caveat that prospects for the third quarter may not be as bright.
According to Stats SA, the country’s mining sector grew by 1.1% year on year in June after shrinking by 0.7% y/y (previously -0.8% y/y) in May.
The outturn was better than the Bloomberg consensus prediction of a 0.3% y/y expansion.
Seasonally adjusted mining output, which aligns with the official calculation of quarterly GDP growth, also expanded by 1.3% month-on-month following a monthly contraction of 3.8% in May.
Thanda Sithole, FNB Senior Economist, said that, despite this, output expanded by 1.5% quarter-on-quarter in 2Q23, reflecting continued momentum from the 1.4% quarterly expansion in 1Q23.
“This means that the mining sector contributed positively to 2Q23 quarterly GDP growth,” he said.
A similar pattern was seen in the manufacturing sector.
Here, Stats SA showed that total manufacturing output (not seasonally adjusted) expanded by 5.5% year-on-year in June, reflecting an acceleration from 2.4% y/y (revised from 2.5% y/y) growth in May.
The outcome was better than the 3.0% y/y expansion predicted by Bloomberg consensus.
Seasonally adjusted manufacturing output, which aligns with the official calculation of quarterly GDP growth, increased by 1.2% m/m after shrinking by 1.3% month-on-month in May.
Output expanded by 2.3% quarter-on-quarter in 2Q23, advancing from the 1.4% quarterly expansion in 1Q23.
“The manufacturing sector also contributed positively to 2Q23 quarterly GDP growth, adding to the cheering momentum from the mining sector. This is encouraging and poses an upside risk to (FNB’s) -0.1% preliminary quarterly GDP prediction for the second quarter.” Sithole said.
3. Rental property on the up:
South Africa’s residential rental property market continues to show resilience in the face of high interest rates and weak consumer disposable income, registering low vacancies and payment defaults in the first quarter of 2023.
This is according to insights shared in TPN’s latest Residential Rental Monitor Report this week.
According to TPN Credit Bureau, residential rentals have benefitted from high interest rates, which have dissuaded consumers from committing to long-term bond repayment contracts.
The rental market may continue to enjoy these spoils as interest rates are expected to remain elevated for the rest of the year, it adds.
The latest report indicates that vacancies in the first quarter of 2023 stood at 6.19% compared to 13.31% in the previous year. Further, TPN’s Market Strength Index pinned the balance between demand and the availability of residential rental property above the market equilibrium and at 59.14 points, levels reportedly last seen in 2017.
“Traditional market factors indicate that the residential rental market is buoyant with improved returns and lower vacancies,” says Waldo Marcus, industry principal at TPN Credit Bureau, in a statement.
“A further interest rate hike before the end of the year is expected to further deter property purchases and retain healthy demand for residential rental property.”
4. Taxi strike outfall:
Minibus taxi drivers who’ve been on an eight-day strike that’s caused chaos in Cape Town called off their protest action and will return to work on Friday.
“The taxi strike is officially over,” Geordin Hill-Lewis, the city’s mayor, said late Thursday. “We have reached an agreement.”
Outfall:
The empty shelves of many grocers in the Western Cape are a result of the ongoing taxi strike, which is limiting the mobility of staff, including those working at distribution centres.
The strike, which started last week, stems from a disagreement on the legislation governing impounding of vehicles. It has also resulted in violence, with five people having been killed since it started.
It has also prompted food shortages in some areas, as retailers take precautionary measures to ensure the safety of their staff, but they say this should be temporary.
Shoprite, SA’s biggest grocer, said in a statement that its distribution centres are all still operational and that it is working to ensure “uninterrupted deliveries” to its supermarkets.
“Supply lines to the majority of stores are currently running smoothly, with the exception of a few high-risk areas. Fresh fruit, vegetables and convenience lines are being prioritised,” the statement read.
There are some supermarkets that may “temporarily” be in short supply of products that are delivered directly to the stores by suppliers – these being fresh bread, dairy and eggs, it said.
5. Eskom debt write-off:
Gauteng Premier Panyaza Lesufi is calling on Eskom to write off debt owed by municipalities in the province.
Speaking at the provincial energy indaba in Midrand on Thursday, he revealed that municipalities in Gauteng owed the power utility R13 billion.
He further congratulated Emfuleni, saying it was the only municipality that did not owe Eskom money.
In June, it was revealed that the utility was owed R56 billion by municipalities across the country.
Lesufi said that while National Treasury paid off a portion of Eskom’s debt, the power utility should do the same for municipalities in the province.
He said there were already structures that were put in place by both the utility and Treasury to assist defaulting municipalities.
“Eskom has started a process where municipalities must apply [to argue] why their debt should be scrapped. So, we are pressuring municipalities to do so, and we are also pressuring Eskom to respond speedily to those municipalities.”
But Lesufi said only three of ten municipalities applied to have their debt written off by the power utility.
All information sourced from articles posted by: DailyInvestor, BusinessTech, Moneyweb, Fin24, and EWN.
