News in South Africa 16th August:

1. Unemployment concerns:

Despite a slight drop in the unemployment rate economists still believe that far too many people in South Africa remain unemployed.

Unemployment concerns
Photo by Timur Weber

On Tuesday, Statistics South Africa released the second Quarter Labour Force Survey for the period starting from 1 April to the end of June 2023.

It shows there’s been a 0.3 percentage point decrease in the unemployment rate – which now stands at 32.6%.

However, the figures also show there are still 24.4 people aged between 15 and 64 who are unemployed, discouraged from looking for work and not economically active.

CEO of the Free Market Foundation David Ansara said a 0.3 percentage point decrease in the unemployment rate is not something to celebrate.

He said the government’s overbearing regulatory frameworks are deterring employers from making new hires.

Meanwhile, FNB senior economist Thanda Sithole said more employment gains are needed to deal with the country’s growing population that’s entering the workforce.

“The prevailing economic weakness alongside the dynamic impact of load shedding pose a downside risk to the ongoing labour market momentum.”

Sithole said while the employment rate is still about 74,000 jobs shy of the pre-pandemic levels of 2019 – the economic recovery has shown incredible resilience since.

2. SA could grow by 3% if Eskom and Transnet are fixed:

South Africa could dramatically boost economic growth if the country fixed its fraying transport network and public electricity utility, the International Monetary Fund said.

“If all the structural things are tackled, we believe growth can go up to 2.5% to 3%,” Max Alier, the IMF’s resident representative to South Africa, told a Bloomberg event in Johannesburg on Tuesday.

South Africa grew 1.9% last year and activity will slip to just 0.3% in 2023, according to economists polled by Bloomberg, as electricity outages at troubled state utility Eskom Holdings SOC Ltd. and rail and port bottlenecks take their toll.

The country’ central bank estimates that power cuts – known locally as loadshedding — alone shaved 3.2 percentage points from gross domestic product last year and will likely cut another two percentage points off growth in 2023.

Steps to improve the power situation – including relaxing restrictions on private power generation – could see growth next year advance to 1.7%, IMF forecasts show. 

Given the public finance restraints faced by South Africa, Alier said the goal should be to remove obstacles to mobilize private sector capital.

“The public sector has very limited fiscal space to provide the needed resources,” he said. “You need to create the conditions for the private sector to be willing to put the investments in.”

3. Rand volatility rises ahead of elections:

Rand traders are starting to look to next year’s South African election, betting that it will bring with it whipsaws in the value of the currency.

The rand’s one-year implied volatility — the options market’s estimates of price swings over the life of the contract — has shot up from three-year lows reached last month.

It has risen about 70 basis points to 15.8% since July 13, one of the five highest among emerging markets monitored by Bloomberg — in league with the ruble, lira, and Argentine peso, which are being buffeted by political ructions.

The ruling African National Congress faces its toughest electoral test yet amid tensions over nationwide blackouts, shoddy government services, accusations of rampant corruption and widespread poverty and unemployment.

The market is considering various scenarios for the outcome of next year’s vote, including the ANC retaining its majority or possibly losing support to just below 50%, Annabel Bishop, chief economist at Investec, said at a Bloomberg event in Johannesburg on Tuesday.

“What we are concerned about is that we may get coalitions that can’t work together that possibly have policies that are too opposing,” Bishop said. “And, of course, what we all hope, is that we get a stable government.”

While the largest opposition party, the Democratic Alliance, has struggled to capitalize on the discontent, a number of smaller parties have seen an uptick in support as voters seek an alternative.

The ANC has lost majority control over key municipalities, including the economic hub of Johannesburg and the capital, Pretoria.

But coalitions in local government have been marred with chaos and instability, making it almost impossible to govern efficiently.

4. Businesses punished for success:

The Competition Commission is sending a damaging message to businesses and potential entrepreneurs in South Africa: if you’re too successful, you will be punished.

This is according to legal researcher at the Free Market Foundation (FMF), Zakhele Mthembu, who has slammed the commission’s final report on the Online Intermediation Platforms Market Inquiry, which took aim at dominant players in South Africa’s digital marketplace and services sector.

The report – published at the end of July – found that popular and successful services like Takealot, Google Search, Mr Delivery, and local classified sites, among others, were all dominating their fields and using this dominance to promote or give preferential treatment to their own products or services.

To counter this, the commission ordered that these businesses change the way they operate – sometimes on a fundamental level.

For example, one of the biggest targets in the inquiry – Takealot – was ordered to split its marketplace business from its retail business so that it could not use its position as a dominant marketplace to promote its own retail products.

It was also ordered to remove limitations on third-party sellers where they could not sell their products at a lower price elsewhere.

While arguments can – and have – been made that certain aspects of the commission’s report are fair and could indeed boost competition in the sector, Mthembu said that the commission has gone too far and is instead “killing the golden goose”.

The commission is essentially punishing successful companies for growing and diversifying, instead of boosting competition by addressing government-controlled barriers.

“Instead of looking at obvious barriers such as regulations and legislation that make doing business in South Africa so burdensome, the commission obsesses over business advantages that firms acquire voluntarily through market interactions,” he said.

“The commission then seeks to punish these businesses for having legitimate market advantages. Instead of seeing competition as a process that is constantly unfolding, the commission thinks the market shares that exist at the time of its inquiries will persist forever in the absence of government interference.”

Mthembu said that the main bug-bear of the commission is the aforementioned “self-preferencing” practiced by the the dominant businesses.

However, he argued that this is an entirely legitimate exercise of property rights.

“If a business owner decides to use their own property to benefit themselves; for example, by selling only their own products rather than those of a competitor, how can this be regarded as a bad or illegal activity? After all, encouraging customers to purchase one’s products rather than those of other businesses is the whole point of a market economy,” he said.

The researcher warned that the commission’s stance and findings risks crippling one of South Africa’s most successful – and growing – industries at a time the country cannot afford to stifle growth. In addition, its stance also risks deterring future investment in the sector.

5. JSE closing three EFTs:

Exchange-traded fund (ETF) provider Satrix has announced the closure of three ETFs at the end of next month. These are the Defensive Equity, Moderate Equity, and High Growth Equity Volatility Managed SA funds it acquired from Absa (NewFunds) in March this year. It says the three portfolios do “not align with Satrix’s strategic objectives”. 

Industry provider etfSA said in July that subsequent to the transfer of NewFunds ETFs to Satrix, the latter has “processed substantial redemptions of some of these previously NewFunds products, which suggests that this may look to clean up the number of ETF products they issue, particularly where duplication is involved”. 

All three were launched in 2019 and have failed to gain significant scale. By the end of last year, the three funds had between R55 million and R78 million in assets under management.

Following those redemptions, the three funds together have just R29 million under management (two of the funds are in the single-digit millions). Satrix says this lack of scale means it is “not cost-effective for investors to remain in the portfolio”.

“Fixed regulatory fees are levied against total portfolio units, regardless of value. The fixed fee costs are borne by fewer portfolio investors, thereby impacting performance returns (after-fees) negatively.” 

Each of the Volatility Managed SA funds allows investors “to gain varying market exposure based on volatility, to a universe” of between 15 and 34 liquid equities on the JSE. It says “this index construction will likely expose investors to significant active risk relative to the broader market and is inconsistent with the Satrix approach to constructing factor strategies and risk management in a concentrated market like South Africa”.

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

Leave a comment

Your email address will not be published. Required fields are marked *