News in South Africa 15th May:
1. US won’t sanction SA over weapons row:
South African Finance Minister Enoch Godongwana said his country resolved a row with the US over allegations that Pretoria supplied weapons to Russia and it’s unlikely to face any repercussions.
A furore erupted on May 11, when US Ambassador to South Africa Reuben Brigety told reporters that armaments were collected by a Russian cargo ship, the Lady R, from the Simon’s Town naval base in Cape Town in December. South Africa’s government denied the accusation and criticized Brigety for going public with it.
The Americans first raised their concerns about the matter two months ago, Godongwana said in an interview in Cape Town on Sunday. President Cyril Ramaphosa asked his security adviser and an independent judge to investigate, and dispatched a delegation to the US to ease tensions, he said.
“A number of actions were taken in order to ensure that our relationship with the US remains and that relationship should be normal and cordial,” the minister said. “The Americans are not likely to respond with any anger tomorrow.”
The rand slumped to its weakest level on record against the dollar and yields on government bonds soared last week, amid investor concern that any escalation in the diplomatic row may put trade worth billions of dollars at risk.
The market reaction “could have a massive disruption to our fiscal framework,” and a recovery in the rand and the nation’s bonds will depend on whether investors are comforted that the issue has been resolved, Godongwana said. “Once people realize that the matters raised by the ambassador have been dealt with, I think that things are going to stabilise.”
On Monday, the currency gained as much as 1.6% to trade at 19.0303 per dollar by 8:27 a.m. in Johannesburg
Relations between South Africa and the US have soured over Pretoria’s insistence that it’s taken a non-aligned stance toward Russia’s war in Ukraine.
2. Rand versus emerging market currencies:
The rand has been hammered by increased load-shedding, economic uncertainty, and its dispute with the United States, making it the worst-performing emerging market currency.
The South African currency weakened to 19.36 per dollar on Friday morning, breaching the all-time low of 19.35 set during the Covid-19 lockdown in April 2020.
The weak rand will further hurt the struggling economy through higher inflation and increased interest rates.
What frustrates many South Africans is that most of the pain related to rand weakness is self-inflicted.
Head of markets research at RMB Isaah Mhlanga told The Money Show that this is a domestic concern that is being reflected in the currency.
He mentioned some global events affecting the rand’s value, like poor data coming from China and geopolitical tensions.
However, he said the biggest driver had been the bad sentiment surrounding Eskom and potential stage 8 and above load-shedding.
While the possibility of a grid collapse remains an extreme scenario, every time the country switches from stage 4 to stage 6, it brings fears of a collapse which are reflected in the rand.
Many people highlight that other countries also have challenges, including high inflation and poor economic growth.
However, an analysis of emerging economy currencies showed that South Africa lags behind countries like India, Brazil, and Australia.
The chart below shows the rand’s value against the US Dollar compared with the Brazilian Real, the Indian Rupee, and the Australian Dollar.
3. New Vat registration changes:
The value-added tax (Vat) landscape is changing, and the latest focus is on the registration process following a spike in suspicious registrations.
The South African Revenue Service (Sars) has with immediate effect implemented a more stringent process for all new Vat registrations.
Applicants can be called to present themselves at a Sars branch, with all the necessary registration documentation for validation.
The application will only be finalised if Sars is satisfied that it is a lawful application. The spike in suspicious applications raised concerns about potential Vat fraud.
In the 2022/23 financial year Sars paid R319 billion in Vat refunds. This represents the bulk of the R381 billion refunds paid to taxpayers.
4. Investors avoid coal:
Kweku Bedu-Addo, the CEO of Standard Chartered Bank Southern Africa, says further investment in Eskom’s ageing coal-fired power plants is unlikely as investment firms turn towards greener investments.
In April, the electricity minister Kgosientsho Ramokgopa said that private investment was needed to extend the lifespan of Eskom’s ageing coal-fired fleet to reduce load shedding.
However, Bedu-Addo said that investors do not want to be trapped in standard assets as they face pressure from climate lobbyists.
5. Load shedding is forcing emigration:
High-net-worth South Africans are looking to leave South Africa as the power crisis intensifies.
Speaking to reporters, Amanda Smit, a managing partner at investment advisory firm Henley & Partners, said that there has been an uptick in people inquiring about investment migration products in South Africa and countries abroad.
Smit said that many of the people looking into migrating their investments or leaving the country see it as a way to improve their standard of living, their ability to travel, access better education for their families and safeguard their wealth.
According to the managing partner, one can attribute the spike in people looking to leave the country to growing concern among South Africans regarding the dire power situation, the volatile currency, and the general state of the economy.
South Africa’s energy crisis is in the worst position it has been in for years, with everyday citizens facing blackouts ranging from two to four hours at a time, sometimes three times a day.
Cumulatively this year, the country has experienced roughly 35 days of blackout time.
According to Smit, the type of people that are deciding to leave include highly successful and established business people with a family wanting to get their ‘Plan B’ in place.
There has, however, also been a growing trend of people from less financially well-off positions also leaving.
Recent data from the South African Revenue Service (SARS) showed that thousands of South Africans have ceased their tax residency in the country – indicating a large number of people emigrating.
In February, Edward Kieswetter, the commissioner of the tax authority, admitted that over 6,000 people had left the country. However, he said that headlines noting wealthy people leaving the country are overstated.
All information sourced from articles posted by: Fin24, DailyInvestor, Moneyweb, BusinessDay, and BusinessTech.
