News in South Africa 17th November:

1. Egg supply is steadily increasing:

The supply of egg and poultry meat is steadily increasing following shortages triggered by a bird flu outbreak that began in April, the department of agriculture, land reform and rural development said.

Egg supply is steadily increasing
Photo by Julian Schwarzenbach

“We are happy that the highly pathogenic avian influenza outbreak is under control and that 70% of farms that were not infected continue to produce eggs and chickens. Since the egg production cycle is not too long, we expect the situation to normalise early next year,” said the department’s spokesperson, Reggie Ngcobo.

South Africa has been importing eggs and poultry meat from countries such as Brazil, the United States and Argentina to ease the shortages.

“We started importing … fertilised hatching eggs in early October and that will eliminate any meat shortage that may arise,” Izaak Breitenbach, of the South African Poultry Association, told reporters.

In preparation for the upcoming festive season, the agriculture department said it had  imported nine million fertilised eggs, 37 802 tonnes of day-old chicks, 62 tonnes of egg product and 30 986 tonnes of poultry meat under strict biosecurity risk assessments.

“As a department, we don’t dictate which countries should make business sense for South African retailers to import eggs from but only ensure that biosecurity risk assessments are conducted when importers apply for import permits,” Ngcobo said.

Since April, several poultry farms in South Africa have experienced outbreaks of avian influenza, a highly contagious viral infection that affects poultry and wild birds. The country has been hit by two strains, namely influenza A(H5N1) and influenza A(H7N6).

Last month, more than 45 000 hens were slaughtered, burnt and buried in neighbouring Mozambique to prevent the spread of bird flu after the country reported an outbreak in the district of Morrumbene in the southern Inhambane province.

The National Institute for Communicable Diseases has said there is a low risk of humans being infected with avian flu.

Globally, only eight cases of influenza A(H5N1) in humans have been reported to the World Health Organisation in 2023, despite large outbreaks in poultry and wild birds around the world.

2. Natural gas supply shortage:

South Africa’s supply of natural gas is set to plunge within the next three to four years, and there’s a risk of a shortfall triggering the country’s next economic crisis, the head of an industry body warned. 

With Sasol set to curb production of the fuel from its fields in Mozambique between 2026 and 2027 as reserves dwindle and retain more output for its own operations, 300,000 to 400,000 jobs at firms that use gas for industrial purposes are endangered, said James Mackay, the chief executive officer of the Energy Council of South Africa. 

“We have a supply cliff coming,” Mackay, whose organization represents companies including Sasol and Glencore, said in an interview on Thursday. “There isn’t currently a supply alternative that will readily be available in the time frames needed.”

A gas supply crunch would be another impediment to growth in Africa’s most industrialised economy caused by inadequate state planning. The country experiences almost daily power outages because of inadequate generation capacity, and its ports and freight rail network are crumbling because of a lack of investment and maintenance.

“We do need a national focus on saying where that supply will come from, and there are a number of opportunities,” Mackay said. 

Gas could be imported through a port in Mozambique, or facilities could be speedily erected at South African harbours such as Richards Bay or Coega, he said. By 2030, a gas field discovered off the west coast by TotalEnergies could be in operation.

“We have a bit of a policy vacuum around how to deliver this energy transition and this supply problem,” he said. “This is not about policy direction; it’s really about execution, fast-tracking implementation, making decisions and making sure that policy is converted into very clear regulatory environments where we need investment decisions made.”

The collapse of state capacity in South Africa over the last 15 years in terms of everything from electricity provision to port efficiency has cost the country 40% of its growth, Harvard University researchers said in a report released on Wednesday.

3. Repo rate to remain unchanged:

The South African Reserve Bank (Sarb) will keep its repo rate unchanged on November 23 and wait until May 2024 before cutting it, a Reuters poll found, as policymakers try to navigate risks to inflation and the timing of when global interest rates will start to fall.

All 20 economists polled in the past four days were unanimous the central bank would keep its repo rate steady next Thursday at 8.25%.

The Sarb kept its main interest rate unchanged in September even with inflation well within its 3-6% target range, stressing deteriorating public finances risked fuelling price pressures.

The central bank is expected to hold policy steady in January and March 2024 and then cut by 25 basis points to 8.00% in May, the median from a sample of 13 economists showed. The previous poll predicted a cut in the first quarter.

However there was no clear majority on what exactly it will do in May, its only meeting in the second quarter, with five predicting rates will be 25 bps lower then, two saying 50 bps lower and six forecasting no move.

Eight of 10 economists responding to an extra question said the bigger risk on the timing of the first Sarb interest rate cut was it comes later than they expect rather than sooner.

Traders bet this week that news of cooling inflation in the US consumer price index data will allow the US Federal Reserve to forgo any more interest rate hikes and to start cutting rates by May. Producer price index figures also pointed to cooling.

Elize Kruger, an independent economist, said the Sarb will be conservative on the timing of its own monetary policy loosening, especially should the narrative on global interest rate expectations change to suggest higher for even longer.

4. R16.5bil in solar panel imports:

South Africa has imported over R16.5 billion worth of solar panels in the first nine months of 2023, equal to over 4,500 MW in generation capacity. 

Trade and Industrial Policy Strategies senior economist Gaylor Montmasson-Clair revealed this in a social media post this week. 

South Africa has seen sustained demand for solar panels, inverters, and batteries in 2023 as the country experienced the worst load-shedding in its history in the first part of 2023. 

This has pushed businesses and households to adapt to the reality of an inconsistent energy supply, with many turning to solar to reduce their reliance on Eskom. 

The demand for alternative energy sources has increased almost in lock-step with the increased load-shedding South Africa has experienced in 2022 and 2023. 

Sustained demand has created local business opportunities and a local solar panel manufacturing industry potentially emerging. 

Since 2010, South Africa has imported R35 billion worth of solar panels. Imports were initially supported by government investment into renewables but are now primarily supported by private investment.

In 2022, South Africa imported R5.6 billion worth of solar panels, with demand increasing towards the end of the year as the country began to experience prolonged outages. 

Demand has skyrocketed in 2023, with R3.6 billion of solar panels imported in the first quarter alone. 

This was followed by a record second quarter, with R8.4 billion worth of solar panels imported. 

Demand declined in the third quarter to R4.5 billion. 

5. Bond rally breathes new life into the rand:

The rand extended gains on Wednesday, heading for its biggest two-day advance against the dollar since July, as a rally in government bonds lured foreign investors back to the country’s debt.

The rally, sparked on Tuesday by cool US inflation data that raised optimism the Federal Reserve is getting closer to a rates pivot, may extend into the close of the year: The South African currency is more likely to end 2024 below the current level of around R18.16 per dollar than above, according to Bloomberg’s forecast model based on options pricing.

The rand gained 0.4% to 18.1566 per dollar by 14:50 in Johannesburg, bringing gains in the past two sessions to 3.1%.

This is why the rand may end the year on a strong note:


Implied volatility levels are falling, suggesting options traders anticipate price swings to moderate in the coming weeks and months. Three-month implied volatility for the rand versus the dollar is near its lowest level in more than two years.

Risk reversals

The cost of hedging against rand declines is falling. One-month risk reversals — the premium of options to sell the currency over those to buy them — are around a six-month low. 

Bond demand

Tuesday saw the strongest demand from local banks at a government since July 2021, and foreign investors are also returning to the market. Non-residents bought most South African bonds on a net basis on Tuesday in four months, according to JSE data.

Inflows this quarter amount to R17.5 billion, according to JSE data tracking settled trades.

Carry trade

Lower volatility and yields among the highest in emerging markets are boosting the rand’s appeal for investors who borrow at low interest rates to invest in assets that provide a higher rate of return, known as the carry trade.

The dollar-rand carry trade has returned 4.7% this quarter after losing 8.2% in the first nine months of the year. That’s stoked demand for South African bonds: the Bloomberg EM Local Currency South Africa Bond Index had its biggest daily gain in four months in dollar terms on Tuesday, and is trading near the highest level since July.

All information sourced from articles posted by: Mail & Guardian, BusinessTech, Moneyweb, DailyInvestor, and Fin24.

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