News in South Africa 16th September:
1. Eskom wants 32% hike:
Eskom plans to apply for a 32% tariff increase from 1 April 2023/24, it announced on Thursday.
The large increase is another attempt by Eskom to persuade the National Energy Regulator of SA (Nersa) to grant it tariffs that are reflective of its costs. But for many years, Nersa has disagreed with Eskom on how much revenue it is allowed to raise from consumers and granted it significantly lower tariffs.
For instance, while it asked for a 20.5% increase for 2022/23 it was granted 9.61% by the regulator.
The tariff application is under consideration by Nersa, which must make a final decision by Christmas eve at the latest. It is to hold public hearings next week. Eskom’s announcement on Thursday was to inform the public that it had updated its tariff application for the financial years 2024 and 2025. It had previously requested increases of 15% and 10%, respectively. That will now change to 32% and 9.5%.
The increased tariff for the next two years is based on new assumptions by Eskom. The first and most significant is the cost of primary energy, particularly diesel. Due to global factors, Eskom now has much higher diesel costs, and due to the poor performance of its plants, will also need to spend more on diesel than anticipated. It projects that primary energy costs will be 7.85% higher with the most of the increase (6.09%) a result of diesel.
In an addendum document published on its website, Eskom indicated that while it previously budgeted R5 billion for diesel in 2023/4 the cost was more likely to be R16 billion. Related to increased diesel usage is a dramatically revised view on Eskom’s electricity availability factor (EAF). This is the percentage of plant in good working order that can dispatch energy at any time. When Eskom first made this tariff application in June 2021, it estimated the EAF would be 72%. In January 2022, it revised this to 62% and now believes that 59% is a more realistic estimate.
The second increased cost area is energy purchased from independent power producers (IPPs). This will make up 9% of the overall increase, a result of Eskom buying more electricity from IPPs as more come on-stream.
The third area in which costs will be higher is Eskom’s depreciation of assets. Nersa uses a formula to determine Eskom’s return on assets, which in turn determines what it can claim for depreciation through the tariff. Eskom believes that Nersa made a mistake in evaluating its return on assets in its 2022/3 tariff application and has taken the regulator to court for a review. Nersa has, however, not opposed the application and it is likely the two will reach a settlement.
But for now, adjustment of the value of the regulatory asset base will add a whopping 10.67% to the tariff for 2023/24, should it be approved by Nersa. On top of these revised assumptions about higher costs, Eskom is also entitled to recover money from consumers retrospectively through a mechanism called the Regulatory Clearing Account. This mechanism allows Eskom to apply to Nersa for money already spent, provided Nersa decides it was pragmatic and justifiable expenditure.
2. Requirements for economic recovery:
A new discussion document – COVID-19 and the South African Economy – provides practical policy changes to help grow the economy.
Over the last decade, the country’s growth rate has failed to keep pace with the rest of the world and its expanding population.
The stagnant economy has resulted in increased unemployment and inequality.
South Africa has also fallen behind in world trade and has failed to take advantage of its unique climatic conditions to address energy shortages.
Stern and Loewald said the existing policy framework is not working fast enough and that policy reforms are needed to alter the trajectory of the slow-growing South African economy.
“As a small, open and exposed economy, the policy options available to South Africa are limited,” they said.
They have suggested policy recommendations that can be implemented quickly and at a reasonable cost.
- The unrestrained roll-out of renewable energy production, absent from unnecessary and potentially costly conditions and led by private sector interests and capabilities.
- Concluding and implementing regional and continent-wide trade agreements, including an open approach to using preferences and rules of origin and developing informed positions that reflect the country’s actual economic interests.
- Direct labour market reforms to lower hiring and firing costs, especially for smaller businesses, and increase investment in wage subsidies.
- Relaxation of immigration restrictions, especially on skilled and regional workers and their families to encourage foreign firms and talent to locate, invest and remain in South Africa.
- Targeted land reform initiatives that focus on shifting production away from bulk commodities and into the intensive production of higher value crops, such as fruit and vegetables, on high potential land.
- An independent assessment of the unintended consequences of local content and Black Economic Empowerment (BEE) policies on employment, competition, trade and investment.
Ensuring that these reforms are implemented fully and effectively will require a change to the policy-making process.
“The economic departments of the government need to work in tandem to achieve a common policy outcome,” the researchers said.
It will require strong leadership from the centre and a willingness from others to look beyond the short-term sector and insider interests.
3. Tyre import taxes and troubles:
A battle is raging over Chinese tyres flooding into South Africa, with importers arguing that higher duties will make travel more expensive and local manufacturers drawing attention to widespread job losses.
Tyres imported from China are now subject to additional duties of 38.33%, according to a recent government gazette signed by the South African Revenue Service’s (SARS) head of legislative policy tax, customs, and excise.
These tyres are being imported at “unfairly low prices”, argues the South African Tyre Manufacturers Conference (SATMC) in its application for relief from ITAC, and are causing “material injury to the local industry.”
But there’s fierce opposition to SATMC’s push for pricier Chinese tyres, namely from the Tyre Importers Association of South Africa (TIASA), which has already called on government to reverse the latest duties. During the period under investigation by the Itac – August 2020 to July 2021 – R5.7 billion worth of tyres were imported into South Africa, with almost half coming from China.
Tyre importers argue that additional duties, which it says could range between 8% and 69%, will ultimately increase the cost of travel and transport in South Africa.
Local manufacturers argue that TIASA is determined to shift the narrative towards cost increases, which it knows is a particularly sensitive topic among cash-strapped South Africans, and away from the issue of employment, which SATMC says is the real crux of its application for anti-dumping duties.
“Consumers and ourselves should not be misled by the short-sighted narrative of the importers that travel will be expensive and start to focus on the country maintaining and creating more jobs for its citizens,” Nduduzo Chala, SATMC’s managing executive, told Business Insider SA.
“An environment that is conducive to improving and increasing industrialisation is one that will ensure the people have jobs and the economy will prosper. There is no substantial investment being made or ever made by importers. It’s local manufacturers that contribute to the growth of the country, and that should be protected.”
Chala added that the local tyre manufacturing sector currently employs 6,500 direct employees and 19,000 indirectly and that “these are at risk if unfair trade is not addressed, and local manufacturers continue to be uncompetitive.”
TIASA argues that its members “are all South African wholesale companies, many of which have been in business for two or three generations, employ a collective 3,000 people directly, and support at least 55% of those 19,000 indirect jobs claimed by SATMC.”
“The point is that every single job sustained in our country is valuable,” said De Villiers.
4. High flight prices:
South Africa’s remaining domestic airlines are likely to remain under pressure for the next four to five months, says FlySafair CEO Elmar Conradie – with limited flight capacity and rising input costs keeping ticket prices higher than before.
Of South Africa’s eight domestic airlines that were in operation pre-Covid-19, only four remain: FlySafair, Lift, CemAir and Airlink. Other airlines – SA Express, Kulula, British Airways and Mango – have all been grounded or liquidated, taking significant capacity out of the skies.
In the post-Covid months, Conradie said that there had been a lag between supply and demand for air travel in the country, with demand bouncing back almost immediately but airlines struggling to restore capacity.
“Domestically, demand bounced back very quickly, and there isn’t enough capacity to meet it. There are not enough flights. Regionally, there are administration issues, especially around licences,” Conradie said.
Following the closure of Comair, the industry lost around 40% of its flight capacity. The loss of SA Express and the grounding of Mango have only exacerbated this.
He added that there are a lot of routes that are left unserviced. Things are improving – but it’s a slow process.
The FlySafair lead said that ticket prices remain high, due in part to a supply and demand issue, but more with a lack of supply rather than a remaining few airlines trying to corner and exploit the market.
He said that this demand – or rather, lack of supply – is driving prices and that the problem will likely remain for the next four to five months as airlines move to boost capacity.
To address this, FlySafair added more flights at the start of September 2022, with even more flight capacity being launched in October, Conradie said. The group hopes to get additional planes in the sky by December – bringing three new planes in total – with further capacity coming in 2023.
However, Conradie noted that it’s not exclusively supply-and-demand issues driving up ticket prices. Input costs for airlines have climbed significantly, he said – fuel prices for airlines have doubled, and the rand’s weakness against the dollar has also caused maintenance costs – which are priced in dollars – to shoot up.
All of these factors, in combination have led to higher prices.
5. Mass graduate emigration:
About half of South Africa’s top earners and university graduates are considering emigration as citizens lose faith in the country’s future, the Social Research Foundation said, citing a survey it conducted.
Out of 3,204 registered voters the Johannesburg-based research group surveyed in July, 53% of university graduates and 43% of those who earned more than R20 000 a month may leave the country, according to the findings. Overall, 23% of those surveyed said they may look to live in another country.
Confidence in South Africa’s future has fallen after more than a decade when average economic growth failed to match the increase in population, meaning the country’s citizens have been getting poorer. The country has been wracked by corruption scandals in recent years and regular power outages since 2014. More than 350 people died in a spate of looting and arson in July 2021.
The number of those considering emigration “rises with social and economic status,” the SRF said in a statement accompanying the survey results on Thursday. Almost a third of urban South Africans are mulling leaving compared with just 11% of those living in rural areas.
“People between the ages of 25 and 40 are the most likely age groups to be considering emigration,” according to the foundation. “The data is consistent with the foundation’s past findings on confidence in South Africa’s future.”
If an increasing number of South Africa’s richest people leave the country, the number of those paying tax, which supports welfare payments to almost a third of South Africans and other government services, will plunge, the SRF said.
“South Africa is vulnerable to surrendering near half of its top skills base and income earners, and by extension much of its remaining tax base,” the SRF said.
The survey had a margin of error of plus or minus 1.7 percentage points.
All information sourced from articles posted by: Fin24, Daily Investor, Business Insider, BusinessTech, and Moneyweb.
