News in South Africa 12th September:

1. 200 000 public job cuts:

President Cyril Ramaphosa has called an urgent but long overdue meeting with organised labour for Tuesday, as the possibility of a further wage freeze, job cuts, and more cuts to government services hang over the country. 

200 000 public job cuts
Photo by Timur Weber

Federations were urgently advised of the meeting two days ago, although it replaces a meeting that had been due to take place last month. 

Labour federations are appalled at the proposals made by the Treasury to national departments and provinces, instructing harsh cuts to budgets, including freezing all public service posts and infrastructure budgets. 

In addition to these cuts, the Treasury has proposed to the Presidency that the government take bold decisions to scrap specific government programmes and entire government departments to reduce costs.

According to those who attended the meeting, it has also mooted reducing the headcount in the public service by offering more attractive voluntary severance packages with a target of cutting 200 000 jobs.

The cuts have become necessary in the lead-up to the medium-term budget policy statement on 1 November as the Treasury faces a perfect storm of low growth, falling tax revenues, and higher borrowing costs. 

‘Shocking proposals’

Treasury has also posed the question of funding the R350 social relief of distress grant, which activists and Cosatu want to see made permanent. It has warned that it would need to raise VAT by two percentage points to fund the grant beyond March 2024. 

In a statement responding to a report of the cuts, Cosatu said on Monday that it was “deeply dismayed” at the “shocking proposals”. 

“Whilst we appreciate the real fiscal constraints facing the state and the need to cut fat and reprioritise expenditure, the suggestions offered by Treasury of slashing expenditure and further decapacitating the state when the economy is in desperate need of stimulus and a well-oiled and capacitated public services, will only serve to choke the economy and further weaken an already enfeebled government,” it said. 

Cosatu suggested instead that government address the main causes of the economic malaise by fixing the energy and logistics constraints crippling the economy. 

2. Manufacturing falls:

Manufacturing is one of South Africa’s most important sectors, but a worse-than-expected decline in July spells trouble for South Africa’s GDP in Q3.

Stats SA said that South Africa’s GDP grew by 0.6% in Q2 2023, with manufacturing and finance driving this growth.

Manufacturing in Q2 saw an industry growth rate of 2.2%, contributing 0.3% to the overall growth of the economy – the most of any sector.

However, with intensified bouts of load shedding and the N3 truck attacks in July, there were fears that the manufacturing sector would be hurt.

“Based on the Absa PMI data for July and August, this impacted supplier delivery times and probably weighed on manufacturing output,” the Bureau for Economic Research said.

Despite the existing concerns, manufacturing production was worse than the economists predicted.

Stats SA said that manufacturing production increased by 2.3% in July 2023 compared to July 2022.

The largest contributors were:

  • petroleum, chemical products, rubber and plastic products (6,8% and contributing 1,4 percentage points);
  • motor vehicles, parts and accessories and other transport equipment (9,5% and contributing 1,0 percentage point).

Although manufacturing did see year-on-year growth, production is far lower than the 4.5% and 4.8% predicted by economists at Nedbank and the BER, respectively.

In addition, seasonally adjusted manufacturing production declined by 1.6% from June 2023 to July 2023.

This is again far lower than the 0.5% and 0.8% month-on-month increases that economists at the BER and Nedbank predicted, respectively.

However, looking more positively, seasonally adjusted manufacturing production increased by 0.9% in the three months ended July compared to the prior three months. Seven of the 10 divisions reported a positive growth rate during the period.

The biggest contribution was made by the basic iron and steel, non-ferrous metal products, metal products and machinery division (2.7% and contributing 0.6 of a percentage point).

Seasonally adjusted manufacturing sales also increased by 1.2% month-on-month. This followed month-on-month changes of -2.7% in May and -0.4% in June.

Nevertheless, seasonally adjusted manufacturing sales decreased by 1.4% in the three months ended July 2023 compared to the three prior months.

The biggest contributor to the decline was the petroleum, chemical products, rubber and plastic products division (-9.1% and contributing -1.9 percentage points).

3. Lower mining revenues:

Deputy commissioner of the South African Revenue Service (Sars) Johnstone Makhubu says tax revenue from the mining sector alone was down R22 billion in June this year, while load shedding is expected to have a R60 billion negative effect on tax collections.

Speaking at the opening of the 10th Tax Indaba in Sandton, Makhubu added that Sars has also seen a sharp increase of around 14% in value- added tax (Vat) refunds. This is mainly due to an increase in imports and the effect of higher inflation on input costs.

The conference heard that headwinds that beset the South African economy before and during the Covid-19 pandemic have not subsided. The country’s growth projections remain poor, negatively affecting confidence levels, employment, poverty and equality.

Major risks that exacerbate the decline in economic growth are South Africa’s electricity crisis, lack of demand for manufactured goods, erratic global activities and overregulation. This is translating into a worrying slowdown in revenue collections from the main contributors such as the mining and manufacturing sectors.

Surviving taxation

The theme of the Indaba, hosted by the South African Institute of Taxation (Sait), is surviving taxation in a no-growth environment.

The economic growth rate has been adjusted downwards from 0.9% to around 0.3%, yet the target for revenue collection growth is between 4% and 6%.

Sars has been able to achieve revenue collection growth of 2.6%.

Sait CEO Keith Engel says this is an indication of the pressure on the fiscus. A tax system can only react to what is happening in the business environment. “It is impossible to tax yourself into growth”.

The fundamental issues impacting South Africa’s business environment are the lack of basic services such as the provision of water, electricity and transport, and overregulation.

The benefits of reliable and affordable electricity, sufficient water and working railways and ports that businesses enjoyed 20 years ago are almost gone.

Distrust of private sector

Government’s distrust of the private sector has led to overregulation, and it now wants to be involved in everything – but businesses need to be able to function freely and not be forced to focus on compliance instead of growing their operations.

Overregulation is killing the opportunities that still present themselves in the economy. Efforts to change this are “ever so slow” and there seems to be resistance to change, says Engel.

4. Inflation expectations decline:

South African inflation expectations declined for the first time in two years, suggesting price-pressures have peaked and the central bank will be able to keep interest rates on hold.

Average inflation expectations for this year fell to 6.1% in the third quarter from 6.5% previously, according to a survey released on Monday by the Stellenbosch-based Bureau for Economic Research. The rate of price growth for 2024 is now seen declining to 5.5% from 5.9% and to 5.3% from 5.6% in 2025, according to participants in the poll of analysts, business people, labour unions and households.

“It was the first drop in average 2023 expectations in two years,” BER said. “Lower expectations were also evident over the entire forecast horizon — 2023 to 2025 — and mostly due to downward revisions by business people and trade unionists,” it said in a statement published on its website. The expectations were slightly above the central bank’s average inflation forecasts of 6% for this year, 5% for next and 4.5% in 2025. 

The survey results influence decision making by the South African Reserve Bank’s monetary policy committee, which prefers to anchor inflation expectations close to the 4.5% midpoint of its target range. Its preferred indicator for medium-term inflation expectations is two-years-ahead.  

The rate of price growth has dropped for four straight months to 4.7% and is nearing the midpoint, which it has exceeded since May 2021.

The central bank’s MPC has raised the key interest rate by a combined 475 basis points to 8.25%, at 10 straight meetings to contain inflation, before pausing in July.

Governor Lesetja Kganyago has repeatedly said that the job to combat inflation is not yet done. “The arrival of one swallow does not mean that summer is here, we need to see a couple more,” he said last month. Concerns he has highlighted include core goods inflation, price setters’ inflation expectations and currency weakness.

5. Load shedding worse under new Electricity Minister:

Electricity Minister Kgosientsho Ramokgopa and other politicians regularly tell South Africans that Eskom is doing well in fighting load-shedding, but official data tells a different story.

In May, Ramaphosa promised that the end of load-shedding “should be in sight soon”, with its severity reducing in the short term.

In August, he doubled down on his promise, saying the government is doing great work to fix Eskom and the energy crisis and that load-shedding will end by 2024.

Ramokgopa also said Eskom could maintain lower stages of load-shedding due to the improvement of the energy availability factor (EAF).

In June, he said Eskom was much closer to achieving its target of 70% EAF and that it has been consistent on an average of 60% for the past 14 days.

“We are getting much closer to the target of 70% EAF that we had promised,” Ramokgopa said during a virtual meeting.

Energy expert Chris Yelland slated these comments, saying the government is misleading South Africans.

Yelland highlighted that Eskom’s EAF is still on a downward trend when considering the year-on-year change.

The latest Eskom week-on-week EAF is nowhere near 70% and continues to decline.

For the last week in August, Eskom’s EAF was 55.32%, compared to 61.10% for week 34, 2022. The EAF for the 2023 year to date is 54.52%, compared to 59.78% for the same period in 2022.

“The government’s messaging that the EAF is heading upwards and is close to 70% is just not true,” he said.

To see what is really happening, Daily Investor analysed Eskom’s performance and load-shedding under Electricity Minister Kgosientsho Ramokgopa.

Load-shedding increase under Ramokgopa:

Daily Investor created a moving load-shedding stage average to create a continuous data series to visualise the progression of load-shedding stages.

The data revealed that the year-on-year load-shedding severity has increased since Ramokgopa was appointed as electricity minister.

The average year-on-year load-shedding stage increased from 1.94 in 2022 to 2.64 in 2023 under Ramokgopa’s leadership.

The moving average chart of load-shedding shows the progress in the severity of load-shedding stages from 2022 to the same period in 2023 under Ramokgopa.

Sourced from DailyInvestor

Energy availability factor:

Another important measurement of Eskom’s performance is energy availability, depicted as the EAF.

The EAF shows the percentage of time the power station was available for use when it was needed. It is a core measure of performance for any power utility.

The EAF has experienced a noticeable deterioration since Ramokgopa has been appointed as minister. It declined from 60% in 2022 to 55% in 2023 under Ramokgopa.

Sourced from DailyInvestor

All information sourced from articles posted by: News24, BusinessTech, Moneyweb, Fin24, and DailyInvestor.

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