News in South Africa 13th June:
1. Rand on the rise:
Sentiment towards South Africa is slowly shifting, with markets embracing talks between the government and business leaders to address the energy, logistics and crime crises – while the state puts some substance behind its claims of neutrality towards Russia.
According to Investec chief economists Annabel Bishop, these developments – along with a brighter load shedding outlook – have caused the rand to recover some of its losses from the past few weeks.
The unit was trading at R18.55 to the dollar on Monday (12 June), a much better position than the R19.91 record it hit in recent weeks.
It is trading at its strongest levels since mid-May 2023, before the United States Embassy’s accusations that South Africa supplied weapons to Russia.
“The rand has pulled stronger as the South African government seeks to dampen down its relationship with Russia, to strike a neutral balance,” she said.
“Additionally, the state has been proactive in working to resolve the electricity crisis, while big business and the presidency have established a partnership initiative to remove obstacles to inclusive economic growth and job creation.”
In addition to local developments, the markets have also cheered the likely pause, if not end, to the interest rate hike cycle in the US this week.
The good news could also continue.
“The rand was heavily oversold on levels in May, and June’s recovery could see momentum towards R18.00/USD, while US interest rate cuts are likely to strengthen it further, and indeed the anticipation of these cuts ahead of time,” Bishop said.
Thus, the playing field is primed for a stronger rand if the momentum can be carried.
2. Local investor turmoil:
South Africa’s reliance on deep local markets to finance most government borrowing is no longer a given.
Domestic investors are demanding ever-higher yields as foreigners pull back from the market, just as the National Treasury gears up to refinance almost R1 trillion of debt over the next three years. That’s raised alarm bells at the South African Reserve Bank, which warned last month that the growing reluctance from domestic investors to continue absorbing government issuance could drive borrowing costs even higher.
The average yield for 10-year bonds sold at the government’s weekly auction has climbed to 11.27%, compared with 10.2% five years year ago, according to data compiled by Bloomberg. In that time, domestic funds, banks and insurers absorbed about R2 trillion of government bonds, boosting their share of the debt to 75% from 58%, according the Treasury data.
“It is difficult to see them absorbing another R1 trillion in the coming three years,” said Rashaad Tayob, the Cape Town-based head of fixed income at Foord Asset Management, whose Abax Balanced Prescient Fund has outperformed nine out of 10 peers over the past three years. “Allocations to bonds are higher everywhere, and the ability to buy more is constrained.”
Rising borrowing costs along with stagnant economic growth are complicating the government’s pledge to reduce its budget deficit and curb debt. A R254 billion bailout for state-owned power company Eskom means government debt will probably peak at 73.6% of GDP in fiscal 2026 — a higher level and three years later than previously expected. Debt-service costs — the fastest-growing expenditure line item for about a decade — will increase to almost 20% of main-budget revenue. Failure to consolidate debt could see the country’s credit rating slide deeper into junk.
3. Small business Ombudsman:
A plan to create an ombud office for small businesses – with the power to issue money orders without necessarily getting lawyers involved – is back on track.
On Monday, Small Business minister Stella Ndabeni-Abrahams published an explanatory summary of the National Small Enterprise Amendment Bill, a key step to getting it before Parliament and into law.
That bill, she said, seeks to set up the Office of the Small Enterprise Ombud Service, which is supposed to deal with small businesses, notably in order to get them paid what they are owed.
“The mischief the bill aims to remedy is the lack of effective and affordable access to a justice system for small enterprises,” said the minister in her notice. “Business-to-business disputes and late or non-payment of amounts due and payable to small enterprises are a significant reality in the lives of small enterprises across the world, with very adverse implications on their growth.”
We know roughly how that is supposed to work, because the law is not an entirely new one. Almost exactly a year ago, Ndabeni-Abrahams’ department declared that it was ready to go – after first being introduced in late 2020.
As it stood at the time, the draft law proposed an ombud office that could deal with non-payment, but that also went a long way beyond that, encompassing anyone who has any kind of dealings with any small businesses.
The original bill said the ombud would be able to deal with both contractual and “other legal relationships” that are not captured in a contract, or, in theory, even written down.
Within such a relationship, small businesses would be able to complain of any of three things of increasingly broad reach:
- “unfairness”
- “abuse or unjustifiable exercise of power or unfair or other improper conduct or undue delay”, and
- “practice, act or omission which results in unlawful or improper prejudice to a small enterprise”.
If the ombud upheld such a complaint, they would have the power to award “damages”, which could exceed amounts specified in contracts or invoices.
When Cabinet last week approved the introduction of the 2023 version of the law, it promised, by way of Minister in the Presidency Khumbudzo Ntshavheni, the amendment will “realise greater stability to the sector and advance economic opportunity through the creation of job opportunities by small, medium and micro enterprises”.
In at least its broad strokes, the law seems set for a smooth ride through Parliament, with the DA in May welcoming it as an antidote to “the apathetic government” and its “lack of urgency” in supporting small businesses.
4. Sabotage cripples Eskom:
Electricity Minister Kgosientsho Ramokgopa said sabotage at Eskom is of grave concern and catastrophic proportions with highly organised attempts at undermining the country’s electricity supply.
Ramokgopa made these comments during an interview on eNCA, where he gave an update on the government’s implementation of the Energy Action Plan (EAP).
The minister focused on sabotage at Eskom’s power stations as this will negate any improvements in the utility’s Energy Availability Factor and additional generation capacity.
“We are placing significant amounts of effort in ensuring that we protect these assets and defend the gains we have made,” Ramokgopa said.
The National Electricity Crisis Committee (Necom) has set aside a group of intelligence and police experts to focus on workstream six of the EAP, focusing solely on crime, corruption, and safety at Eskom.
This has resulted in over 1,300 cases of sabotage being reported and over 100 arrests being made.
However, we need to “go beyond the ordinary men to the main orchestrators and the brains behind the efforts to undermine electricity supply”, Ramokgopa said.
The report followed former Eskom CEO Andre de Ruyter’s revelations about employees and contractors sabotaging the power utility in his book, ‘Truth to Power’.
De Ruyter said two stages of load-shedding could be ascribed to sabotage, theft, and corruption.
5. Mozambique electricity boost:
Eskom is set to receive an additional 1,000 megawatts of gas-fired energy from Mozambique as part of Electricity Minister Kgosientsho Ramokgopa’s plan to alleviate SA’s energy crisis.
As the country battles with relentless power cuts, Ramokgopa has turned to neighbouring countries to help stabilise the electricity grid.
The minister hosted Mozambique’s Mineral Resources Minister, Carlos Zacarias, in Pretoria on Monday to acquire additional megawatts.
The additional supply of power will enable the power utility to reduce load shedding by one stage.
The meeting comes after Eskom warned South Africans to be cautiously optimistic following a significant improvement at power plants.
The utility’s Eric Shunmagum said households and businesses could have an easier winter on the load shedding front.
“We anticipated a much tougher winter but with us improving on the performance, we’re actually making up. So, if we continue on this trend, and once again I need to say keeping breakdowns to below 15,000, having sufficient diesel reserves, I think we’re good to go.”
All information sourced from articles posted by: BusinessTech, Moneyweb, Fin24, DailyInvestor, and EWN.
