News in South Africa 11th July:
1. Riot risks rising:
Top business and government officials have warned that South Africa is set to face a repeat of the July 2021 riots as very little has been done to address the issues facing the country over the last year.
Business Unity South Africa chief executive Cas Coovadia says the country’s law enforcement is a particular point of concern, with the ANC’s upcoming elective conference set to contribute to the violence.
“The factors leading to the July insurrection remain. The political infighting and factionalism persist and there is significant jockeying for power in the run-up to the ANC elective conference in December,” said Coovadia.
He added that the government seems to be making little progress in tackling this law and order weakness. “So, conditions are still ripe for disruption, if forces bent on this want to do so,” said Coovadia.
These concerns were echoed by the head of the Presidency’s investment and infrastructure office Kgosientso Ramokgopa, who described the situation as a ‘ticking time tomb’, TimesLive reports.
“The price of fuel and its relationship with where we are. Don’t watch TV and think people are bombing each other here, the bombing is in the fridge. The bomb is on the stove. And when it explodes, no one will be able to stop it. If food prices continue to rise it means the poor must have one meal. If it continues, it’s two meals every two days. That’s hunger. That’s anger. And that means the rich will never sleep.
“They will rise and topple an ANC government. We are seeing it in many parts of the world. The shortage of inventory has resulted in inflationary pressures. There aren’t enough cars in the US. That drove inflation and the federal reserve had to adjust the interest rates, and that’s followed by the South African Reserve Bank.”
Worst-case scenario
Banking group Absa has indicated that further violence and unrest in the country is a key consideration in its economic modelling.
While the alleged orchestrators of the unrest have been named by the police ministry, to date, no one has been convicted. This protracted investigation and apparent lack of accountability could heavily factor into how things proceed from here, Absa said in a May economic note.
The bank outlined three main scenarios it could see stemming from the unrest.
- Absa’s baseline scenario assumes no one is brought to account for the 2021 unrest, and KwaZulu-Natal remains fractious, but there is no big further eruption, just small, localized service delivery protests.
- In the bank’s upside scenario, rising socio-economic opportunities and greater political responsiveness diminish the risks of social unrest, particularly as the organisers of the July 2021 riots are brought to account.
- The bank’s downside scenario forecasts another big eruption of unrest along the lines of July 2021 riots at some point.
The South African Special Risk Insurance Association (Sasria) has already warned that it cannot afford to cover the country’s businesses should it see a repeat of the July 2021 riots in the coming years.
Sasria added that major retail groups such as Shoprite, Pick n Pay, and the Foschini Group could disinvest from the South African economy if this cover is not provided. Sasria is currently restricting all of its clients – including these major retailers – to a maximum cover of R500 million, which is ‘clearly not adequate’.
The group noted that reinsurer Lloyd’s of London had hiked premiums by as much as ten times in the last year as it is of the view that similar riots could reoccur in the country in the future.
2. Rand outlook still grim:
The last two weeks saw the rand weakening suddenly, from R15.80 to above R16.80 per dollar. It was still trading at around R14.50 in March/April. Commentators quickly blamed the escalating power interruptions and the expected impact on the economy for the rand’s blues.
However, Bianca Botes, director at Citadel Global, says that although load shedding negatively affects economic growth and sentiment, the weak performance of the rand stems from numerous factors.
“Eskom simply switching the lights back on will not result in a significant rebound,” she says.
Botes says that the global economic environment and a change in risk appetite are some of the factors that have been contributing to the sharp drop in the rand’s value.
Global forces
Izak Odendaal, investment strategist at Old Mutual Wealth, notes that sentiment turned against the rand over the past few days as the implications of Stage 6 load shedding sank in, but “for the most part, the currency has responded to global forces”.
Until recently, the rand has been supported by elevated commodity prices, but recent dollar strength has exerted downward pressure, he says.
Botes adds that investors around the world have been flocking to the strong dollar. “The dollar has surged to a 20-year high against the euro and is now investors’ ‘safe haven’ asset of choice.
Recession risk
Then there is the risk of a global recession.
“Taking a lesson from history, one can conclude that a recession is almost always preceded by a period of tightening monetary policy [rising interest rates, for example] and fiscal contraction [less government spending, higher taxes, or both] and often higher energy prices,” says Botes.
“The increasing risk of a recession is dampening appetite for risk assets, such as the rand and other emerging market currencies, and assets denominated in these currencies. During times of low sentiment, high risk and economic uncertainty, investors are flocking to safe haven assets.”
Strong dollar
Walid Koudmani, chief market analyst at financial brokerage XTB, says the dollar reached its highest level against the euro since December 2002 amid a significant boost in demand for dollars.
“The move not only pushed the exchange rate below the lows of May 2022, but also below the lows from the turn of 2016 and 2017, meaning that [the] euro/dollar traded at the lowest level in almost 20 years,” he says.
Inflation
As long as SA’s inflation rate remains at levels significantly higher than those of its main trading partners, the rand will continue to weaken with little hope of strengthening by much – even if the dollar gives up some of its recent sharp gains.
Adriaan Pask, chief investment officer at PSG Wealth, says the increase in SA’s inflation rate to a five-year high of 6.5% in May indicates that inflation will remain high.
“The Reserve Bank forecast of headline inflation for 2022 was revised higher, to 5.9% from the previous 5.8%, due to higher food and fuel prices. Prices continued to accelerate mostly for transport (15.7%), food and non-alcoholic beverages (7.6%) and housing and utilities (4.9%),” says Pask.
“While food prices are expected to remain elevated, fuel price inflation should ease in 2023, helping headline inflation to ease to 5%, despite higher core inflation.”
Inflation has been increasing worldwide, forcing central banks to accelerate their normalisation of global policy rates. “On balance, capital flow and market volatility are expected to remain for emerging market assets and currencies,” says Pask.
3. Taxi fares and fuel costs:
The National Taxi Alliance (NTA) is pleading with government to help ease the economic blow for commuters and taxi owners in the wake of a series of sharp price hikes.
The call by the NTA comes after the taxi industry plans to increase fares by between 25% and 30% because of the rising fuel costs.
The latest fuel hike tipped the cost of petrol to over R25 per litre.
NTA spokesperson Theo Malele said the alliance has written to the Minerals and Energy Department to ease fuel levies.
“It’s not fair that we have to do this but as a business, we have to survive and therefore this is just unavoidable the prices will go between 25% and 30%. And it is the material conditions on the ground that will actually inform the associations on the ground as to what part of this margin they should embark on”.
4. Parliament impeachment hearing:
Parliament will embark on a historic exercise this week. It will start hearing evidence in its first-ever impeachment inquiry.
At stake is the future of Public Protector Busisiwe Mkhwebane, whose fitness to hold office will be probed.
It comes after two years of legal battles challenging the legitimacy of the process.
Parliament’s Section 194 ad hoc committee will be venturing into unchartered waters this week.
Never before has it considered removing a head of a Chapter 9 institution that it has appointed.
Section 194 Ad Hoc Committee chairperson Richard Dyantyi said, “11 July we are going ahead, there’s no postponement. We are on track. We are here today to do the final touch-ups.”
“This is where we are going to spend our time, every day of the three to four weeks until the end of the inquiry. We are very confident that Monday is the start of the process to check the fitness to hold office of Advocate Busisiwe Mkhwebane.”
5. Fuel saving tablet hoax:
Fuel and motor experts have called the bluff on so-called fuel-saving tablets and other related products promising to dramatically reduce fuel consumption and help consumers save money at the pump.
With fuel prices soaring to all-time highs and motorists buckling under financial pressure to get by with the cost of food rising, fuel-saving mechanisms may look like an attractive proposition.
The fuel aftermarket has seen a rise in new products and devices such as airflow modifiers, magnets, and consumables such as tablets or bottled additives.
Recently, a fuel pill by a US-based brand called B-Eco has made its way into South Africa, going viral on social media platforms. Its makers promise that the pills improve fuel consumption by up to 15%.
But any product claiming to improve consumption to that dramatic effect is “certainly a scam,” and often, these products “disappear from the market as quickly as they come”, Adrian Velaers, Senior Engineer, Technical Marketing Services, at Sasol’s Cape Town Fuels Research Centre told Business Insider South Africa.
Over the years, Sasol’s Fuels Research Centre has tested various fuel aftermarket products. Although suppliers claim miraculous benefits, none of them were effective, Velaers said.
“We constantly test additives to select the best ones that do give small improvements by cleaning your engine or reducing friction, and these are already in the fuel you buy at a Sasol forecourt,” he said.
“However, any additive that claims to improve the combustion efficiency and improve overall fuel consumption by more than 3% is not scientifically possible and definitely a scam,” said Velaers.
The Automotive Business Council has expressed its deep concern about the plethora of products marketed to cash strapped consumers looking to evade the steep fuel costs.
Besides the fact that local authorities have not tested these products as part of South Africa’s current emissions standards, they simply do not work, Mikel Mabasa, CEO of the National Association of Automobile Manufacturers of South Africa.
All information sourced from articles posted by: BusinessTech, Moneyweb, EWN, ENCA, and Business Insider.
