News in South Africa 14th July:

1. Rand breaks through R18/$:

The rand broke through the psychologically important R18/$ level for the first time in just over three months on Thursday, boosted by positive US data, along with hopes that Chinese stimulus will offer support to commodity prices.

Rand breaks through R18/$
Photo by Pixabay

The local currency reached R17.99/$ in mid-morning trade on Thursday but was trading about 0.6% firmer at R18.03 at 11:50.  By early Friday morning it reached R17.95/$.

This comes from general dollar weakness after data showed on Wednesday consumer inflation cooled at a faster pace than expected in June. Analysts said while markets are still expecting a hike from the US Federal Reserve in July, another hike in September is looking hard to justify.

“The short-term move on the rand aligns predominantly with recent US inflation data rather than factors domestic,” said IG SA senior market analyst Shaun Murison. A jump in key export commodity prices catalysed by the prospect of further Chinese stimulus and a softer dollar would have further benefitted the rand, he said.

Gold was up marginally at $1 964.80/oz just before midday, while platinum was faring better, adding more than 1% to $968.10. Brent crude was up a little at $80.25 a barrel.

“Disinflation both locally and abroad is suggesting that we are possibly nearing the top of monetary tightening cycles in a few major economies, possibly our own as well,” said Murison. “This is helping fuel some risk on trade in the near term which is further benefitting the rand.”

2. Unrest in SA concerning:

South Africa’s state of lawlessness and criminal activity should be a concern for every person in the country, says Edward Kieswetter, the commissioner of the South African Revenue Service (SARS).

His comments come after more than 20 trucks carrying goods along key supply chain avenues have been burnt, resulting in significant delays for business and posing a serious threat to the already strained economy.

Speaking to ENCA, the commissioner condemned those who have committed such acts, stating that they are ultimately harming themselves and ordinary South Africans.

“Those who believe that it is okay to interrupt these trades, goods, and services are ultimately harming themselves because these goods do not reach the ports of exit, of exports, meaning that many of those goods will go to waste – reducing the foreign currency that is supposed to return to South Africa,” Kieswetter said.

“It means our balance of trade or balance of payments is negatively affected, and ultimately it hurts our economy that then translates to an impact on the ordinary man and women on the streets,” he added.

“We are part of a system and are all interconnected; if we break any part of the system, ultimately, we pay the price.”

Over the past few days, twenty-one trucks have been set alight in Mpumalanga, KwaZulu-Natal and Limpopo. Police minister Bheki Cele said evidence points towards coordinated and organised operations aiming to ‘sabotage the state’.

Gavin Kelly, the CEO of the Road Freight Agency, has warned that the nationwide attacks pose a significant risk to the economy, with roughly 80% of all goods transported in and around South Africa being on trucks.

Kelly estimated that if around 7,000 vehicles are impacted daily, the sector could suffer losses of up to R35 million, with potential long-term consequences amounting to billions and further eroding international business confidence.

As reported by DailyInvestor, KDG Logistic’s Abdool Kamdar added: “If we provide secure supply chains and provide secure roads for goods to migrate in and out of our country, we slowly kill our country.”

“What we are seeing here is symptoms of cancer that will eventually kill our economy, and we can’t let this continue.”

3. Plans for state bank and pharma company proceed:

Despite the woes of state-owned enterprises (SOEs) like Eskom, the Land Bank, and South African Airways, the Gauteng government is still pushing ahead with plans to launch a state bank and even a state-owned pharmaceutical company.

The government leading South Africa’s economic hub believes the two entities will address current market failures that primarily hurt the poor.

Gauteng Finance MEC Jacob Mamabolo confirmed on Thursday that due diligence work related to establishing a state bank and pharmaceuticals company has been completed, with both reports – which cost the province R4.1 million to compile – now in the hands of the provincial government.

Mamabolo added that the next item on the to-do list involves engaging Premier Panyaza Lesufi and other stakeholders on a way forward.

‘Legal hurdles cleared’

“The due diligence report clears the legal hurdles and provides Gauteng with a strong legal framework towards establishing a state-owned bank. We are now in a better position to move forward knowing very well that the work that we are doing complies with the legislation,” Mamabolo said.

According to Mamabolo, the envisaged state bank will play a crucial role in supporting small, medium, and micro enterprises (SMMEs) and unserved individuals in the formal financial sector.

The pharmaceutical entity is supposed to address, among others, supply chain management, medicine procurement, distribution of medicines to provincial healthcare facilities, and medicine inventory and dispensary to the public.

No more SOEs

For Business Unity South Africa (Busa) CEO Cas Coovadia, there is no room in the country’s economy for additional SOEs, and simply put, both the government and the fiscus lack capacity to support the entities.

Instead, says Coovadia, it is in both the state and the taxpayer’s best interest to partner with private players already knowledgeable in the sectors to come up with solutions that will address the market failures government refers to.

“We don’t believe more state-owned institutions in areas that the private sector is, we believe very successful and effective in, are necessary,” says Coovadia.

“Firstly, the experience we have of the way state-owned institutions are run in South Africa does not fill anyone with confidence, and if these institutions fail, what it does is simply put a further hole in the fiscus because the fiscus would have to bail them out … ”

4. Mining output down:

South African mining output decreased by 0.8% in May, according to data from Statistics South Africa released on Thursday.

This was after mining production increased by 2.3% in April, snapping 14 consecutive months of year-on-year decline.  

In May, production was dragged down mainly by diamonds, where output fell 31.4% year-on-year, while platinum-group metals decreased by 7.2% year-on-year. 

On a month-on-month basis, seasonally adjusted mining production was down 3.8% in May compared with April. 

Seasonally adjusted mining production increased by 3.1% in the three months ended May, compared with the previous three months. The largest positive contributors were gold, which increased by 10.1%, while iron ore recorded a 6% increase and coal output was up by 1.9%. 

Economists at Nedbank said power outages, slower domestic and global demand and lower commodity prices continued to weigh on output and expected the weak trend of the past 18 months to persist.

Wednesday’s Stats SA data showed that mineral sales at current prices decreased by 11.8% year-on-year in May, with the largest negative contributors being coal which slumped 37%, iron ore which fell 30.2% and platinum-group metals which decreased by 20.1%.

5. Sabotage could cause further load shedding:

Professor Hartmut Winkler from the University of Johannesburg’s Faculty of Physics said Eskom’s better performance since the start of winter could be the result of fewer instances of sabotage.

Experts have warned that South Africa could face a dark winter for months as cold weather increases household electricity demand.

However, the country has experienced less load-shedding during the first months of winter than during the first few months of the year.

Eskom attributed this to, among other conditions, lower demand, improved generation capacity, increased OCGT diesel deliveries, and warmer-than-usual weather.

However, the utility ramped up load-shedding this week, returning South Africa to stage 6 for the first time in a month.

This was attributed to prolonged high demand due to the colder weather and the failure of some generator units.

Winkler told SABC that it is still unclear how Eskom implemented lower load-shedding stages for so long.

He believes it is unlikely that the utility was able to “work out its technical capacity” and fix issues better than it had been able to previously.

“I don’t think that that would be the case. Eskom is extremely experienced, and you can’t turn around a massive organization like that in a matter of a few weeks,” he said. 

Rather, Winkler speculated that the lower load-shedding stages could be attributed to Eskom having experienced fewer instances of sabotage over the past few weeks.

All information sourced from articles posted by: Fin24, BusinessTech, Moneyweb, Mail & Guardian, and Daily Investor.

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