News in South Africa 14th March:
1. Economy battered:
According to Stats SA gross domestic product (GDP), the broadest measure of economic activity, declined by 1.3% from the third to the fourth quarter, adjusted for inflation and seasonality. This was much worse than expected and is a big number in absolute terms.
It does not take a trained economist to realise that load shedding carries much of the blame, with big declines in the energy-sensitive manufacturing, mining and agricultural sectors. Electricity production itself is a meaningful contributor to overall economic activity in its own right, responsible for R100 billion a year in real value added.
No surprise that it contracted 1.9% in the quarter.
However, there was also an unusually large 3.2% decline in the financial sector that is generally less affected by load shedding. Given that it is the biggest sector in the economy, it was responsible for the fact that the overall growth number was so much worse than anticipated. On the plus side, its poor performance is unlikely to repeat.
The low-growth trap
The economy is considered to be in a technical recession when it experiences two consecutive negative quarters, and this might very well happen (first quarter growth data will only be available in June).
But the concept of a technical recession is fairly meaningless in a slow-growing economy. Though the long-term average growth rate of the economy is 3% (since 1960 when GDP was first estimated), the average over the past decade is 1%.
A low-flying airplane is at greater risk of crashing if it hits an air pocket compared with one at cruising altitude. Similarly, an economy with trend growth of 1% is going to experience negative quarters quite often, whereas if the economy is chugging along at 3%, two negative quarters will be unusual and noteworthy.
Unfortunately, South Africa is stuck in such a low-growth environment (some would say trap), but this is not necessarily a recession. Household spending was positive in the fourth quarter, and this is the largest component of economic activity when viewed from the expenditure side (as opposed to the production side).
A recession is best thought of as a deep, long-lasting decline in production, employment, and income across a broad range of sectors.
2. Shortage of electricity grid connections:
A shortage of electricity grid connections poses a major challenge that needs to be overcome as South Africa seeks to add the generation capacity needed to end record outages, according to the head of an office that procures power from private producers.
The continent’s most industrialized nation has been subjected to rotational blackouts since 2008 due to state utility Eskom Holdings SOC Ltd.’s inability to meet demand from an unreliable fleet of coal-fired plants that are prone to breakdowns.
While South African President Cyril Ramaphosa has announced a series of measures over the past year to tackle the crisis, including doubling wind power purchases from private contractors to 3,200 megawatts in a recent round of bids, none of those projects were selected because they couldn’t be connected.
Filling a gap of about 6,000 megawatts of capacity needed to stabilize the system requires grid access for more new projects and quick permitting processes, Bernard Magoro, head of the Independent Power Producers’ office, said at a Cape Town conference.
The office has been working with Eskom to resolve bottlenecks and will only institute another round of bids to buy additional power from private producers after grid issues are addressed, Magoro said.
A program to procure 3,000 megawatts of gas-fired power is meanwhile facing obstacles at the ports, which will take delivery of the fuel and house the generation plants, he said, without elaborating.
3. Massive increase to core inflation rate:
South Africa’s core inflation rate probably increased at the fastest pace in six years in February, spurred by a sharp rise in health-insurance premiums, Absa said.
The core consumer price index, which excludes the effects of volatile items including food and energy, likely rose an annual 5.2% last month from 4.9% in January, Absa economists led by Miyelani Maluleke said in a research note.
That would be the highest rate since February 2017. Overall, inflation probably quickened to 7% from 6.9%, they said.
The central bank targets inflation at 3% to 6%, with the MPC preferring to anchor expectations at the midpoint. Core inflation hasn’t accelerated for the past three months.
“Given elevated concerns about inflation risks currently, the market may initially read such a jump in core CPI inflation as an indication of broadening inflationary pressures,” the economists said.
“However, the data should be watched more closely to distinguish between widening inflationary pressure and idiosyncratic factors related to medical-health insurance.”
Health insurers including South Africa’s biggest medical-aid provider, Discovery, along with Medihelp Medical Aid and Momentum Health Medical Scheme, have started resetting prices higher after keeping them low for the past two years, as claims return to pre-Covid-19 levels, the cost of care increases and excess reserves shrink.
“Based on announcements by various medical aid scheme providers, we estimate that health insurance premium inflation will average 6.4% in 2023, up from 4.2% in 2022,” the Absa economists said.
“Given that the category accounts for 7.1% of headline CPI and 9.5% of core CPI, the higher inflation will have an appreciable effect on the CPI data when surveyed in February and April.”
Still, mounting price pressures from a 7% depreciation in the rand against the dollar this year, as well as rising food and gasoline costs, may see the central bank’s monetary policy committee increase interest rates when it meets at the end of this month.
4. Affordability drives spike in vacant rentals:
The number of residential rental properties standing vacant increased from a low of 6.92% in the third quarter of 2022 to 8.13% in the fourth quarter of 2022, according to the latest vacancy survey released by the TPN Credit Bureau, which specialises in the property market.
Gauteng’s vacancy rate was 10% at the end of 2022, well above the national average of 8.13%. In KwaZulu-Natal, the vacancy rate was 3.26% at the end of last year.
The Eastern Cape experienced its highest vacancy rate to date, at 17.82%. High unemployment in the province impacts affordability, according to the TPN report.
In the Western Cape, however, high demand and low supply led to the lowest vacancy level since 2016, namely 2.13%.
Waldo Marcus, head of marketing at TPN, says price remains the key consideration for prospective tenants.
5. Police vow to arrest beggars who direct traffic:
The Tshwane Metro Police Department (TMPD) plans to arrest beggars who direct traffic at busy intersections during load-shedding.
The feedback was in response to a query from MyBroadband regarding the department’s position on the rise in beggars, car guards, and street vendors acting as traffic pointsmen when robots go down during power outages.
Residents in parts of the City of Tshwane have complained about how scarce it was to see TMPD officers assisting at many of these intersections during those times and praised the unofficial “pointsmen” for stepping in.
Some also reward them for their actions by throwing money out the window as they drive through the intersection.
In some instances, TMPD officers have been seen chasing beggars away from intersections experiencing traffic flow problems due to load-shedding. However, instead of taking over, the officers would drive off.
Last week, the Automobile Association of South Africa (AA) called on traffic authorities in the country to do more to deploy personnel to these areas, specifically in rush-hour traffic.
“Private sector pointsmen [such as those offered by Outsurance] are dispatched to certain areas, but other, busier intersections are ignored. This creates a vacuum for ‘good Samaritans’ to step in,” the AA said.
TMPD senior superintendent Isaac Mahamba said that the department was planning future operations to arrest beggars who regulate traffic as they were “impersonating traffic officers” and presented a danger to themselves and motorists.
Mahamba said that the Road Traffic Act of 1996 stated that only a peace officer in full uniform and with training was allowed to regulate traffic.
“The city won’t take any responsibility for the accidents that may be caused by these beggars,” said Mahamba, echoing previous comments by the Johannesburg Metro Police Department on the same issue.
All information sourced from articles posted by: Moneyweb, BusinessTech, DailyInvestor, Fin24, and MyBroadband.