News in South Africa 12th May:

1. Cyril investigates arming Russia allegations:

South African President Cyril Ramaphosa instituted an inquiry into allegations that the country supplied weapons and ammunition to Russia, despite Pretoria having taken a neutral stance on its invasion of Ukraine.

Cyril investigates arming Russia allegations
Photo by Pixabay

Ramaphosa announced the probe on Thursday, hours after US Ambassador to South Africa Reuben Brigety alleged that the armaments were collected by a Russian ship that docked at the Simon’s Town naval base in Cape Town in December.

While US intelligence had agreed to provide evidence of the shipment, none has been provided so far, the South African presidency said in a statement.

The weapons were loaded onto the Russian cargo vessel, the Lady R, before it made its way back from Cape Town to Russia, Brigety said in remarks to reporters on Thursday, a recording of which was obtained by Bloomberg.

The shipment “does not suggest the actions of a non-aligned country,” he said.

The US takes the arming of Russia extremely seriously and the issue remains unresolved, according to the ambassador, who spoke after returning from the US with a South African delegation that had sought to ensure the country retains its preferential trade access to American markets.

He didn’t specify what weapons the US believed had been collected and the US Embassy declined to comment further on the claims.

2. Rand crashes amid arming Russia accusations:

The rand crashed on Thursday, losing more than 30c of its value against the dollar in minutes after the US ambassador accused South Africa of providing weapons and ammunition to Russia.

It was reported that US ambassador to South Africa Reuben Brigety said the weapons and ammunition were loaded onto a Russian ship that docked at the Simon’s Town naval base in Cape Town in December last year.

The rand hit R19.32 – close to its previous record low, reached in 2020 – following the news on Thursday afternoon. It also came close to hitting a record low against the pound, and was last trading at above R24 on Thursday. 

The rand recovered to around R19.15/$ by late afternoon.

The report triggered fears that the US will take economic action against South Africa, perhaps by scrapping the duty-free export benefits it receives thanks to the African Growth and Opportunity Act (Agoa).

“For many, the fortunes of the rand are becoming more overtly entwined with the political prospects of the African National Congress,” Robert Hoodless, an analyst at InTouch Capital Markets, told Bloomberg earlier on Thursday. “President Cyril Ramaphosa seems nowhere to be seen. Perhaps this is because of yet another calamitous diplomatic decision over relations with Russia.”

The currency has already been under pressure, breaching the R19/$ level earlier on Thursday amid a toxic cocktail of load shedding and a deepening economic crisis, as well as interest rate concerns.

3. Stock markets down:

Major stock markets dropped Thursday as investors weighed fresh US inflation data, the financial health of a regional bank and another UK interest rate hike.

Shares in US lender PacWest plunged almost 29 percent after it indicated a fall in deposits, rekindling fears over the stability of the banking sector.

Traders also assessed data showing US wholesale prices rose modestly in April, giving the Federal Reserve another point of reference as it weighs the prospect of another rate hike next month.

In Britain, the Bank of England lifted its interest rate by a quarter point to 4.5 percent, the highest level since the 2008 financial crisis as inflation there remains above 10 percent.

“The Bank of England is clearly concerned about the stickiness of UK inflation,” said Shanti Kelemen, chief investment officer at M&G Wealth.

“Higher interest rates will eventually reduce demand for services, but it takes time for the impact to be translated to the economy.”

Major European indices all dropped through afternoon trading, including the FTSE 100 in London which dipped into the red after earlier gains.

Wall Street’s main indices opened lower, after the previous day’s rally.

While raising its rate for a 12th time in a row, the BoE upgraded its British GDP forecast, adding there would be only a small impact from recent turmoil in the commercial banking sector.

BoE governor Andrew Bailey said the UK would this year experience “modest but positive economic growth and a much smaller increase in unemployment”, after predicting a recession six months ago.

4. Double crisis for food security:

The agricultural sector is in crisis as load shedding costs farmers billions of rands to keep the supply chain afloat, while vaccine shortages threaten red meats.

This is according to Agri SA’s CEO Christo Van der Rheede, who noted that, without action, South Africans can expect crop failure, higher food prices and shortages of certain food products in the near future.

“The entire agricultural value chain relies on electricity for irrigation, their processing plants, and to maintain cold storage facilities – which can easily affect the quality of your meats and vegetables if it experiences disruptions,” said Van der Rheede.

This is a disaster and a crisis for the agricultural sector, as its farmers are forking out billions on diesel for generators and alternative power sources to keep production going,” he added.

According to reports from Agri SA, over the nine months between January and September 2022 – when load shedding more than doubled compared to 2021 – the agricultural sector lost more than R23 billion.

In 2023, South Africa has been in the dark for as long as the whole of 2022, having endured over 35 days of blackout time. Considering this fact, Agri SA believes losses of billions of rands will exceed that experienced in 2022 – threatening the sustainability of the sector and the 800,000 jobs it provides.

While load shedding cannot be fixed overnight, there are critical short-term measures that Agri SA believes can be implemented to mitigate its impact on food security, as outlined by the letter it submitted to the National Disaster Management Centre in February 2023.

Agri SA called for the following measures to be put in place immediately:

  • Declare the agricultural sector and associated value chain an essential service;
  • Partially exempt the agricultural sector from load-shedding beyond stage 4;
  • Allow for higher rebates on diesel and petrol used for electricity generation;
  • Amend the current tariff structure to reduce the cost of electricity during peak times;
  • Trade load-shedding schedules using a local feasibility study (a tiered approach can be taken, using red, orange, and green to identify critical areas); and
  • Rapidly expand load curtailment* to all agricultural areas, which qualify in terms of the user mix.

Compounding the pressures of load shedding is the shortage of critical animal vaccines, which further threatens the country’s food security.

5. Additional reporting requirements:

The effects of recent legislative changes to tighten South Africa’s control over money laundering and terrorist financing activities is starting to take shape.

The first deadlines for newly recognised accountable institutions to submit their risk and compliance returns to the Financial Intelligence Centre (FIC) are looming.

In terms the FIC’s Directive 6, legal practitioners, estate agents, people providing gambling activities and people who transact on behalf of a company, foreign company or a trust must submit their risk and compliance reports by the end of May.

By the end of July credit providers, the South African Postbank, high-value goods dealers, the South African Mint, and crypto asset service providers must file their risk and compliance reports in terms of Directive 7.

In addition, Directive 8 obliges all accountable institutions to screen their employees for competence and integrity and to scrutinise their information to identify, assess, mitigate, and monitor the risk of money laundering, terrorist financing and proliferation financing.

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

Leave a comment

Your email address will not be published. Required fields are marked *