News in South Africa 16th October:
1. Population grows – economy falls:
The most notable figure in the 2022 census of SA’s population is confirmation that the population increased to above 62 million people, which is close to 20% higher than in the previous census 10 years ago. An immediate thought that comes to mind is that the economy did not grow this much.
Many more people need to eat from a cake that is only slightly bigger. Everyone is getting a smaller slice.
Statistics SA says the census found that the population increased from 51.7 million in 2011 to more than 62 million in 2022. While it notes that the increase represents a growth rate of 1.8% per annum, Stats SA’s job does not include comparing this with SA’s economic growth. If it had, the launch of the results would have been less festive.
The gross domestic product (GDP) increased by only 12% over the same period. The result is a marked decline in GDP per capita.
Christo Luüs, economist at Ecoquant, says it is obvious that GDP per capita had been negative over the past 10 years, adding that we are “back at the levels of 2006”.
“We had two bad years – 2009 due to the global financial crisis and 2020 because of the Covid-19 pandemic – which had a big impact on the figures.”
“However, our population growth is still too high and our economic growth too low. According to the United Nations, global population growth decelerated from more than 2% in the 1960s to less than 1% currently. SA’s population is increasing much faster than this.”
Luüs supplied figures that show only negligible growth in GDP since 2011, from R4.1 trillion to the current R4.6 trillion.
However, economic growth only exceeded population growth in only five of the last 12 years.
Luüs calculates current GDP per capita at R74 276 (real GDP per person per annum), compared to R74 858 in 2006. GDP per capita did increase from 2006 to R79 430 in 2013, but it has been downhill since.
“Overall GDP growth is hampered by inefficient and thoughtless policies, to0 much red tape, a large civil service, too little privatisation, too little maintenance and expansion of infrastructure, state institutions that have failed or are failing, crime, loss of skills, a growing tax burden and a low savings rate,” says Luüs.
2. Ripple effect of war:
South Africans may feel far removed from the conflicts in the Middle East, but economists warn that the country can’t escape the ripple effects and consequences of war.
The eruption of what economists call the “Israel-Hamas war” in the Middle East last week added layers of complexities to markets that threaten to drive energy prices higher while heightening the risk of further interest rate hikes and higher inflation here at home.
The main area of contention in this particular analysis is oil.
Oil prices hit around $95 a barrel in September due to tightening supplies, but eased to under $85 a barrel in early October as market tensions eased.
This easing of prices has put petrol and diesel prices on track for a cut in November. However, this does not factor in the risk profile for the weeks and possibly months ahead.
Economists have warned that with the Israel-Hamas conflict dominating headlines over the past week, markets have again moved into high risk and uncertainty, pushing oil prices higher.
At the start of the new week (Monday, 16 October), oil prices are once again above $90 a barrel, driven by tensions around the war.
According to economists at the Bureau for Economic Research, this is because Iran now risks being pulled into the conflict, with the United States alleging that the major oil producer had a hand in setting up the war.
This brings the risk of retaliation into the picture, the BER said.
“Oil output in Iran would not only be impacted in the event of Israeli strikes on the country but also due to the possible reimposition and/or tightening of Western sanctions against Iran.
“The Iranian regime has not only financed Hamas for many years, but the suspicion is also that the county may have helped with the planning of the Hamas attack on Israel that sparked the outbreak of war,” it said.
RMB chief economist Isaah Mhlanga said that the war not only holds significant risks for oil but also for the local and global economy.
“Iran is a major oil-producing country and one of the new members of the BRICS+ countries. The US has alleged that Iran was involved in the attack on Israel by Hamas. That allegation puts Iran on the firing line for more US sanctions that could be extended to any country that trades with it,” he said.
“This increases the risks to the global and South African economy from a geoeconomic, geostrategic and geopolitical perspective, with negative implications for the outlook for inflation, monetary policy and economic growth.”
Mhlanga said that the longer the war goes on, the greater the risk that it expands to other nations – either directly or indirectly – particularly in the Middle East.
“A possible expansion of the war to the broader Middle East will drive energy prices higher, particularly oil prices. As an oil importer, the immediate impact on the South African economy will come through higher fuel prices and overall inflation,” he said.
While inflation and interest rate projections are, for now at least, are broadly unchanged, Mhlanga said the risk profiles have shifted.
“The risk of a rate hike in November is higher now relative to last month,” he said.
3. Government prevents internet access:
Government institutions implementing black economic empowerment (BEE) policies and competition rules prevent millions of South Africans from getting fast, affordable broadband.
Two examples of how the government’s destructive interference in the free market prevents progress are Elon Musk’s Starlink service and Vumatel’s Vuma Key project.
Starlink is a low-latency, broadband internet system developed by SpaceX which uses a constellation of low Earth orbit satellites.
The service is available on all seven continents, in over 60 countries, and currently connects over 2 million active customers.
It is perfect for providing fast, affordable, uncapped broadband to rural areas where fibre is unavailable, like farms, game reserves, and small towns.
The service is available in numerous African countries, including Zambia, Nigeria, Kenya, Mozambique, Rwanda, and Malawi.
However, Starlink, based in the United States, is unavailable in South Africa as it does not abide by the country’s BEE rules.
The country’s rules require telecommunications licensees to be 30% owned by historically disadvantaged groups.
DA MP Natasha Mazzone said the government was using the legislation to try and force SpaceX to give 30% of its equity to “ANC-connected individuals”.
She said these rules deny South Africans the opportunity to fully participate in the digital era, ultimately affecting the most economically vulnerable communities.
The DA has demanded that the communications minister revise relevant legislation to enable international investors to offer high-speed Internet access to all.
MyBroadband tested Starlink in numerous rural locations in South Africa, which shows it works exceptionally well.
However, because of ideological policies which only benefit the political elite, South Africans are blocked from benefitting from this exceptional service.
4. Drive for green hydrogen:
The Eastern, Northern and Western Cape provinces have agreed to team up in a bid to position South Africa as a global hub for the production of green hydrogen and derivative products, as well as to produce the components required in the green hydrogen value chain, ahead of the finalisation of the long-awaited Green Hydrogen Commercialisation Strategy.
The three coastal provinces are all playing host to potential multibillion-rand green-hydrogen projects and have been working separately on strategies and roadmaps in an effort to capture the jobs, growth and industrialisation opportunities that could flow should the projects materialise.
However, the three provincial administrations have also decided that there is greater potential to advance the opportunity through cooperation rather than competition, particularly in the areas of infrastructure, skills development, trade and investment promotion, as well as on the development of supportive policy and regulation.
They are also open to extending this cooperation into the region, including to green-hydrogen aspirant Namibia, in an effort to create a Southern African Development Community hydrogen corridor.
The areas of collaboration have been formalised into a memorandum of understanding (MoU) that will be signed at South Africa’s second Green Hydrogen Summit under way in Cape Town.
The trilateral MoU follows on from a similar agreement announced in 2022 between the Western Cape and Northern Cape governments, which have both since also advanced with their individual strategies.
The Western Cape government is aiming to develop Saldanha Bay, which is an established deep water port and industrial hub, into a production centre for green hydrogen and derivatives such as green direct reduced iron, which could be manufactured at the currently mothballed Saldanha Steel Works, as well as bunkering fuel for the shipping industry.
The province also envisages the Atlantis Special Economic Zone becoming a key production centre for components used in the green-hydrogen value chain, including wind, solar and electrolyser components.
The Northern Cape has also finalised its Green Hydrogen Roadmap, which indicates that between $300-billion and $500-billion of green hydrogen production and value-chain investment could be directed the way of the province, which has abundant sun, wind and land, by 2050.
There are several projects already being progressed in the province, which also views the proposed greenfield port of Boegoebaai, located just south of the Namibian border, as potentially emerging as a flagship future production and export hub.
In the Eastern Cape, the strategy will be implemented primarily in the Coega Special Economic Zone, where Hive Hydrogen is considering a 1.07 GW investment to produce green hydrogen and green ammonia for export.
The MoU and the provincial strategies are said to be in line with the draft Green Hydrogen Commercialisation Strategy, which has been under development since 2021 but which has not yet been approved by government.
Speaking at the launch of the summit, Electricity Minister Kgosientsho Ramokgopa indicated that he did not expect the strategy to meet with any resistance from Cabinet once it was presented for approval, but provided no definitive time frame for its consideration by the executive.
Industrial Development Corporation COO Joanne Bate, who is also leading the panel established by Trade, Industry and Competition Minister Ebrahim Patel to oversee the finalisation of the strategy, indicated that its formulation was well advanced.
Bate reported that a systems approach had been adopted in an effort to ensure that all the various components of developing a green hydrogen industry, including the associated value chain, were considered with a view to maximising the social, economic and trade benefits to the country.
It was stressed that the opportunities extended beyond the Eastern, Northern and Western Cape provinces and also included opportunities in provinces such as the Free State and Mpumalanga where Sasol was investigating displacing grey hydrogen produced from coal with green hydrogen to produce sustainable aviation fuels and other products.
5. Crumbling roads:
National road agency Sanral says that the government needs to turn to the private sector to help maintain roads in the country, as there is currently not enough money to get the work done.
Leaning on the private sector would also be beneficial as money and how it is spent can be tracked better, curbing government mismanagement and poor financial control.
All information sourced from articles posted by: Moneyweb, BusinessTech, DailyInvestor, Engineering News, and BusinessDay.
