News in South Africa 17th May:

1. Unemployment rises:

South Africa’s unemployment rate rose for the first time in more than a year and may continue climbing as power cuts intensify, discouraging investment and sapping economic growth.

Unemployment rises
Photo by Ron Lach

The official jobless rate jumped to 32.9% in the three months through March from 32.7% in the prior quarter, Statistics South Africa said Tuesday in a report released in the capital, Pretoria.

That’s the first increase since the fourth quarter of 2021. The median estimate of five economists in a Bloomberg survey was 33%.

Unemployment according to the expanded definition, which includes people who were available for work but not looking for a job, stood at 42.4%, compared with 42.6% in the December quarter.

But, the number of employed persons increased by 258 000 to 16.2 million in the first quarter of 2023 compared to the fourth quarter of 2022.

And the unemployment rate, according to the expanded definition – which includes people who were available for work but not looking for a job – decreased by 0.2 of a percentage point to 42.4%.

Both the formal and informal sectors recorded increases in employment of 209 000 and 107 000, respectively. Finance, community and social services, and agriculture created the most jobs.

But there were fewer positions in private households as well as small decreases in trade, mining, construction and manufacturing.

Africa’s most industrialized economy is experiencing its worst bout of power rationing yet, with outages this year exceeding those for all of 2022, because state utility Eskom can’t meet demand from its old and poorly maintained plants.

2. Credit rating outlook dims:

Updates of South Africa’s credit rating are imminent – S&P Global Ratings will issue its review on Friday (19 May), and others are expected to follow soon thereafter.

Unfortunately the situation looks dire, with all the agencies previously warning that the ongoing electricity crisis would undoubtedly impact economic growth and increase the country’s credit risk.

S&P Global has already downgraded SA, in an unscheduled sovereign debt rating announcement on 8 March – when it changed the outlook from “positive” to “stable”.

While S&P Global affirmed SA’s foreign currency sovereign credit rating at BB-/B, it said economic growth is facing increasing pressure from infrastructure constraints, “particularly severe electricity shortages”.

It said then that European Union regulations concerning the timing of credit rating updates and deviations from the announced calendar are only allowed in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation.

“In this case, the reason for the deviation is the impact of persistent electricity shortages and infrastructure constraints on economic growth,” said S&P.

“Reforms to address infrastructure shortfalls and to improve governance and performance at state-owned enterprises (SOEs) are slow, weighing on growth, while contingent liabilities from SOEs pose continued downside risks to South Africa’s fiscal and debt position.”

Since then, these problems have worsened. In addition, most economists and financial institutions have revised their economic growth estimates downwards.

3. Import bill could rocket to R110bn:

SA’s import bill could surge R110bn in 2023 due to a weaker rand, Genera Capital investment specialist Adrian Saville has estimated, as the pressure mounts on the Reserve Bank before its monetary policy committee (MPC) meeting next week.

The drop in the value of the currency since the most recent MPC meeting in late March has raised speculation that the Bank could hike interest rates another 50 basis points as it seeks to manage the fallout of a weaker currency on inflation and the inflation outlook. But tightening policy in a deteriorating economic environment is sure to trigger a backlash in many quarters, especially as the repurchase rate is now at a level deemed to be restrictive.

Policymakers could be pre-emptive in their decision-making to avoid inflation expectations becoming entrenched at much higher levels than the 4.5% midpoint of the target range.

Saville said SA’s total import bill could rise to R2.34-trillion from R2.23-trillion in 2022 if the rand averaged at R19.20/$, from R18.20/$. The scenario could add 1.8% to consumer prices, he said.

“The Bank’s mandate first and foremost is to defend the purchasing power of the rand by managing inflation. It might have to hike rates by 50 basis points to make the rand attractive,” he told Business Day on Tuesday.

The country’s imports accounted for 33% of GDP in 2022.

“There is more uncertainty than ever before. Just like the central bank, we operate in a data dependent environment. We think the Bank could hike rates by 50 basis points next week given that the balance of inflation risks is tiled on the upside,” said Absa economist Peter Worthington. “But a 25 basis-point increase is also possible, especially if the rand recovered further from its recent sharp sell-off.”

4. Concerns over stage 8 loadshedding:

Eskom Acting CEO Calib Cassim says he is not concerned about South Africa suffering a grid collapse, but he is worried that the nation could hit stage 8 load shedding.

Despite recent fears of a grid collapse, Cassum said the system operator informed him this will never happen.

Eskom’s transmission manager, Segomoco Scheppers, added that even an escalation to stage 8 does not mean a blackout is coming, as there are protection devices that kick in to stabilise the grid.

5. Delays at SA’s nuclear power station:

Eskom plans to shut down unit 1 of the Koeberg Nuclear Power plant for another 200 days next year, says energy expert Chris Yelland, EE Business Intelligence – and this will likely add to the group’s inability to keep South Africa supplied with power.

Koeberg nuclear power station is currently offline for maintenance, refuelling and refurbishment in preparation for a 20-year life extension. The process has already been delayed, with the unit only expected to come back online in August.

However, Yellend noted that there is already another shutdown of the unit planned for 24 July 2024 – three days after its current 40-year operating licence for the station expires on 21 July 2024.

Eskom is now in a race against time to meet stringent requirements for extending the nuclear power station’s operating licence before July next year, when the National Nuclear Regulator (NNR) will have to decide whether Koeberg is able to safely operate for another 20 years.

“Each of the two units at Koeberg – Unit 1 and Unit 2 – has a rated capacity of 970 MW. The further outage of Unit 1 will therefore remove about 900 MW from the grid for another 200 days,” he said.

This is equivalent to nearly one stage of load shedding at a time when the electricity supply in South Africa is already severely constrained, said Yelland.

The latest planned shutdown, announced in an Eskom briefing on 9 May, means that Unit 1 will not be operating from 24 July 2024 until mid-February 2025, and suggests that the continued operation of Unit 1 after the deadline will be delayed, said the energy expert.

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

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