News in South Africa 11th October:

1. SA is falling apart:

South Africa is falling apart, with unreliable electricity, poor railways, ports which do not function properly, a dilapidated road network, and deteriorating state finances.

SA is falling apart
Photo by David Peinado

Late last month, Transnet CEO Portia Derby and CFO Nonkululeko Dlamini resigned, with Transnet Rail CEO Siza Mzimela following suit a week later.

More recently, Eskom chairman Mpho Makwana resigned following a public spat with Public Enterprises Minister Pravin Gordhan.

These resignations expose the turmoil and instability at state-owned enterprises (SOEs) that struggle to provide basic services to South Africans.

Speaking to eNCA, economist Dawie Roodt said most of South Africa’s SOEs, including Transnet and Eskom, have been run into the ground.

He said the SOEs make billions in losses at a time when the state is also battling a fiscal deficit.

Apart from the concerning financial situation, Eskom and Transnet fail to support business activities like mining in South Africa.

“We don’t have electricity to take materials out of the ground, and we don’t have trains to get it to the harbours,” he said.

Even if you can get it to the harbours using expensive trucking services, the ports don’t function efficiently.

“The impact on the mining industry is huge. The minister of finance is feeling this impact because his revenue is under pressure,” Roodt explained.

Apart from the impact on the mining and agriculture industries, which struggle to export their products, the effects of Transnet’s collapse go much further.

“Because the trains don’t work properly, businesses start using trucks to transport products. However, the trucks are destroying the roads,” he said.

“The roads are now falling apart, and the country needs to re-invest to fix the crumbling road infrastructure.”

To make matters worse, the South African Police Service is not capable of protecting vital infrastructure from vandalism and theft.

“What we are witnessing here is a lack of competent leadership. That is what causes problems in most cases,” he said.

“If we don’t get somebody to do a proper job running state-owned enterprises, the economy will suffer tremendously – like we are seeing already.”

2. Encouraging news for SA’s economy:

Africa’s economic activity will likely slow again this year amid taxing headwinds but is expected to recover in 2024, according to the International Monetary Fund’s latest regional outlook.

Growth in sub-Saharan Africa’s gross domestic product is forecast to edge down to 3.3% from 4% in 2022 before bouncing back to 4% next year, the IMF said in the report, released Tuesday in Marrakech

“A long-awaited rebound is on the horizon. Inflation is falling, public finances are stabilising, and growth is poised to increase,” the IMF said. “Still, even though the outlook is less ominous, it is still too early to celebrate.”

The region was slammed by the pandemic and surging food prices after Russia’s invasion of Ukraine, with soaring inflation leading to aggressive interest-rate increases around the world.

That’s led to a vicious funding squeeze in Africa amid rising debt-service costs and weakening currencies.

Even so, the IMF voiced cautious optimism.

“Model estimates suggest the region’s economic recovery may already have started,” the IMF wrote in an analysis that carried the hopeful title, “Light on the Horizon?”

South Africa, which accounts for 19.5% of the regional economy and is being hobbled by rolling power shortages and infrastructure bottlenecks, is seen playing a key role in the upswing.

Growth in its economy, which is forecast to grow by 0.9% this year – up from its last forecast in July of 0.3% growth – is predicted to accelerate further to 1.8% in 2024, the IMF said, based partly on continued improvements in the supply of the country’s electricity.

Nigeria, the region’s other economic powerhouse, which has undergone painful reforms since President Bola Tinubu took office in May, is poised to expand 2.6% this year and 3.1% next.

The IMF sees those gains extending to four-fifths of sub-Saharan Africa, though it warned that a two-speed recovery would persist, with nations who depend heavily on exporting raw materials lagging better-diversified economies.

Factors aiding the upturn include the end of the pandemic, more resilient-than-expected consumption and a gradual decline in the rate of inflation around the world.

The South African Reserve Bank (SARB) also recently increased its forecasted economic growth for South Africa to 0.7% from 0.4%.

3. One more Sarb hike on the cards:

It appears South Africans may not be out of the woods yet, with the latest insights out of Bank of America (BofA) pointing to one more interest rate hike for the year, while food and oil prices are expected to remain high.

On Tuesday, the bank published its Global Research Emerging Insight report in which it predicts firm positioning from the South African Reserve Bank (Sarb) Monetary Policy Committee (MPC) to combat higher consumer price inflation (CPI) risks.

BofA expects the Sarb to close out the year with a 25-basis-point interest rate hike when it meets next month, after which the bank expects rates to remain flat until the second half of 2024 when it anticipates the Sarb will start implementing rate cuts.

Should this be the case, the interest rate will increase from the current 8.25% to 8.5%, breaking the MPC’s ‘hold’ attitude which prevailed in the last two cycles.

“We are further pushing our first cut expectation to July 2024 (previously May 2024), after the Fed’s expected June cut. This means cumulative cuts of 50bp in 2024 and 100bp in 2025,” BofA said.

The bank’s revised position reportedly comes after the emergence of new local and international risks, which together have weakened the near-term inflation outlook.

4. Service delivery stress:

South Africa’s population has increased from 51.7 million in 2011 to 62 million in 2022, and the government is increasingly finding it difficult to provide basic services that are reliable and face no major disruptions to the populace.

The census 2022, which was conducted by Statistics South Africa and the findings of which were unveiled on Tuesday 10 October, has found the government’s provision of most basic services to the population has largely increased since 2011. This was when the last census was conducted by Statistics South Africa.

Good news

The good news is that between 2011 and 2022, more households had access to piped water and those without water have been declining. Over this period, more households had access to a flush toilet while the use of bucket toilets was also reported to have declined. And the proportion of households being electrified and using electricity has also increased. 

Bad news

But the bad news is that while access to services from the government is growing, the services being provided are not reliable. This is more so in the provision of piped water to households, which faces major disruptions

The census has found that the number of households increased from 14.4 million in 2011 to 17.8 million in 2022, with most (or 65%) of these being considered formal dwellings (made with brick/concrete structures). 

Of the 17.8 million households in 2022, almost half have experienced water interruptions for two or more consecutive days. Of the households, the Northern Cape had the highest proportion of experienced water cuts (65.8%), followed by the Northwest (65.2%), Mpumalanga (60.9%), Eastern Cape (59.2%), KwaZulu-Natal (57%),  and Limpopo (54.5%). The lowest occurrence of water disruption was recorded in the Western Cape (27.7%) and Gauteng (40.5%) was considered to have the least water interruptions by the census respondents. Most households (about 70.8%) had access to a flush toilet across South Africa, but pit latrines (without ventilation) accounted for 12.5% and 2.1% for bucket toilets. 

5. Municipal debt crisis:

The National Treasury announced on Tuesday that it has extended the deadline for municipalities to apply for the Eskom municipal debt relief support programme for one month to the end of October.

This is to allow municipalities more time to apply for the programme and to process applications still with provincial treasuries.

Debt owed by municipalities to Eskom has escalated by about R4bn in the current financial year and now stands at about R64bn, electricity minister Kgosientsho Ramokgopa told the media on Monday. “There is no sign of that increase abating anytime soon,” he said.

Eskom has previously said debt owed by municipalities could increase to R68bn by end-March 2024 unless there is an intervention by the state.

The debt relief programme was launched in May and it gives municipalities the opportunity to have their Eskom debt written off systematically over a period of three years. To qualify, municipalities have to comply with 14 financial management and other conditions, which include keeping up with current account payments to Eskom.

More than half of the 257 municipalities in the country have defaulted on their Eskom bills. The Treasury said at the end of March 136 municipalities were in arrears.

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

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