News in South Africa 18th August:

1. Food price warning:

Economists have warned that drier weather conditions and recent developments in international trade could lead to food price increases.

Food price warning
Photo by Gustavo Fring

According to Stats SA, annual inflation for food and non-alcoholic beverages – a central reason for high headline inflation – dropped from 11.9% in May to 11.0% in June.

Although food price inflation is expected to continue dropping in the near term, drier weather conditions may hurt agricultural production – leading to further price increases.

South Africa is currently in an El Nino period, an uncommon weather pattern that happens every two to seven years, which results in drier weather conditions in South Africa.

In their Q3 Quarterly Perspective, economists at Absa said that the drier conditions could hurt food prices and the overall growth of South Africa’s economy.

“South Africa is currently experiencing El Nino for the first time since 2015/16. Expectations are that the weather pattern’s damage will be limited, given healthier soil moisture from the past four seasons of La Niña. But El Nino remains a downside growth risk worth monitoring in the months ahead,” the economists at Absa said.

Despite acknowledging the four prior rainy seasons, Investec Chief Economist Annabel Bishop also noted that El Nino could negatively impact food prices.

“In combination with the effects of climate change, which have been very marked this year in the northern hemisphere summer, South Africa’s summer crop production does hold some uncertainty and could see stickiness in food price inflation,” Bishop said.

David Rees, Senior Emerging Markets Economist at Schroders, also noted that drier conditions in South Africa could have a disastrous effect on both local and global food supply chains, pushing prices higher.

2. Unemployment a major concern:

While unemployment showed a welcome decrease in the second quarter of 2023, the number of people looking for work in SA still exceeds 7.9 million.

Add the 3.2 million who would love to work and have money to buy food and pay rent, but have given up looking for a job after months of searching got them nothing, and the number of unemployed persons in SA tops 11 million.

Suddenly, it doesn’t look that great that 154 000 people found new jobs, even if it means (in SA) that 154 000 families suddenly have a breadwinner.

The numbers look better when taking a somewhat longer term view. Since the end of June 2022, around 700 000 thousand people have found jobs, and since September 2021 employment increased by one million jobs.

However, employment still did not recover from the sudden sharp spike in retrenchments when the economy came to a standstill after Covid-19 hit. Statistics SA notes that there are still less people in gainful employment in SA than before Covid.

One must also remember that employment was a problem even then. It remains a grim fact that unemployment according to the expanded definition (including discouraged work seekers) is above 42%.

Behind the numbers

As always, statistics are open for interpretation and a lot of people caution that the reality might even be worse than the disparaging numbers indicate.

For instance, Statistician-General Risenga Maluleke pointed out in his presentation of the Quarterly Labour Force Survey (QLFS) results for the second quarter of 2023 that youth unemployment is way worse, while the report also shows that unemployment in some regions in SA is way higher than in others.

Casey Delport, fixed income investment analyst at Anchor Capital, says the data in the survey could have been skewed by an increase in the number of people who were not economically active for reasons other than discouragement in the period of the survey. The increase of 93 000 people who exited the workforce impacted the calculation.

She also points out that the results of the latest QLFS differ from those in other surveys.

“Overall, employment data from the QLFS survey (a household-based survey of labour market dynamics covering the formal, informal, and agricultural sectors) has, in recent months, diverged sharply from data reported in the Quarterly Employment Statistics (QES) survey. The QES is an enterprise-based labour market survey that only reports on the formal sector.

3. Reserve Bank interest rate hike warning:

South Africa’s central bank remains concerned by the risks to the inflation outlook and may resume hiking interest rates if they materialize, said Deputy Governor Fundi Tshazibana.

The central bank’s monetary policy committee last month paused its longest phase of monetary tightening since 2006, leaving its policy benchmark at 8.25% after raising rates in its 10 prior meetings to bring cumulative increases to 475 basis points since November 2021.

“We’ve been very clear this is not a solid pause because the risks remain significant,” Tshazibana said in an interview with Bloomberg television on Thursday, citing double-digit food inflation.

“There are a number of vulnerabilities and risks that we are seeing,” she said, adding the central bank is also concerned by electricity, which is feeding into underlying prices.

The economy is experiencing its worst bout of power cuts, with this year’s outages exceeding those for all of 2022, because state utility Eskom can’t meet demand from its ageing and poorly maintained plants.

Inflation slowed to 5.4% in June but remains above the 4.5% midpoint of the central bank’s target range, where it prefers to anchor price-growth expectations.

Policymakers predict inflation will only reach the midpoint in 2025 and are closely watching inflation expectations for evidence they are moderating.

4. Govt messed up the 9.6GW nuclear project:

The 9.6GW nuclear project, under former president Jacob Zuma’s administration, failed because government failed to develop it “systematically” at a “pace and rate” the country could afford, Mineral Resources and Energy Minister Gwede Mantashe has said.

The minister was speaking during a webinar about the just transition hosted by the Wits Business School on Thursday.

Mantashe was frank that the country is intent on keeping nuclear part of the range of technologies – including solar, wind, hydro and coal combined with carbon capture – needed to ensure energy security. The Integrated Resources Plan of 2019 (which is currently under review) also makes provision for 2 500MW of nuclear. Mantashe said the request for proposal for this would be issued “very soon”.

South Africa currently has about 1 800MW of nuclear power from the Koeberg power station in the Western Cape. The plant is currently undergoing refurbishment as part of the requirements for it to continue operating for a further 20 years.

But just a few years ago, government – led by Zuma – had tried to push through a 9.6GW nuclear project that never got off the ground.

“The reality is that I think in the previous project of nuclear – we did mess up in the 9600MW nuclear project. We were found wanting in developing it systematically at a pace and rate that we can afford,” Mantashe said.

The project was problematic because of its massive cost – said to be R1 trillion – which former finance minister Nhlanhla Nene told the state capture commission, would have ended up being the “largest public investment programme” in the country’s history. Nene pushed back against it because it would have had consequences for Eskom and the country’s debt.

Chief Justice Raymond Zondo, who chaired the commission, believes this resistance from Nene led to his untimely axing by Zuma on 9 December 2015. The consequences of this saw the rand crash from R13.40/$ to R15.40/$ overnight, and South African bonds lost 12% of their capital value, the commission heard.

The project was ultimately blocked through the courts because of a legal challenge launched by organisations Earthlife Africa Johannesburg and the Southern African Faith Communities’ Environment Institute in 2015. The Western Cape High Court in 2017 ruled in the applicants’ favour indicating that government’s decisions to secure the 9.6GW of nuclear power were unlawful, because it did not follow democratic processes such as holding public consultations.

5. Provinces expect to overspend budgets by R24.8bn:

Provinces are projecting to overspend their 2023/24 budgets by a total of R24.8 billion, mainly due to the implementation of the wage agreement reached between the government and public sector trade unions.

The wage agreement provided for a 7.5% increase from April 1 at an unbudgeted cost to the government of R37.4 billion.

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

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