News in South Africa 18th October:
1. Water infrastructure collapse:
South Africa’s deteriorating water infrastructure threatens to plunge the country into widespread social unrest as taps run dry in some of the country’s largest cities.
This is feedback from water expert and University of the Free State professor Dr Anthony Turton, who told Newzroom Afrika that “we are seeing institutional failure” in the management of water in South Africa.
Turton said South Africa has enough water to supply the population and businesses comfortably. However, the water supply is being mismanaged, resulting in shortages in some parts of the country.
“If we manage our water wisely, we certainly have enough to grow our economy and population. The problem is that we are not managing it wisely,” Turton said.
An estimated 50% of the water from bulk water suppliers in South Africa does not reach the end consumer due to leakages, theft, and failing infrastructure.
“It is not a water scarcity issue. It is an institutional failure issue,” Turton said.
Curiously, it is not a national institutional failure but rather the local failure of municipalities to maintain and upgrade their water infrastructure.
Local municipalities have shown they cannot correct things that have gone wrong despite multiple warnings and signs of failure.
“We can say that places like Johannesburg Water are a perfect example of state failure at a local level.”
Some solutions are on the table, with the private sector likely having to step in to provide funding for infrastructure projects and expertise.
“It is in the great interest of the majority of society to resolve this issue. If we do not get this right, there will be an external correction through legal intervention in the courts or a suspension of the Constitution through some or other kind of popular uprising and extrajudicial means.”
To prevent this in the short term, the government has implemented what it has called ‘water shifting’ to avoid the entire collapse of some local water systems.
“Water shifting is to the water sector as load-shedding is to the energy sector,” Turton said.
“This essentially prevents a local angry mob from taking to the streets and protesting. That is really all it does. It keeps some people happy for some of the time.”
2. Ballooning govt debt hinders growth:
South Africa’s strained public finances are hindering economic growth and a return to lower inflation, the country’s central bank cautioned on Tuesday.
“Reducing public debt to sustainable levels can deliver a triple dividend, namely lower cost of capital, reduced debt-service costs and lower inflation,” the South African Reserve Bank said in its six-monthly Monetary Policy Review.
The comments come ahead of a Nov. 1 update on the nation’s budget outlook by Finance Minister Enoch Godongwana. He is expected to announce a large revenue shortfall and wider-than-expected budget deficit, aggravated by slower growth and weaker earnings from commodity exports.
Godongwana is being pressed by other cabinet ministers in the ruling African National Congress to climb down from proposed austerity measures designed to rein in debt and meet stabilization targets in the wake of drastically lower-than-expected revenue.
Bond Yields
South African government bond yields have climbed above 12% in recent months even as the country’s inflation rate has declined to 4.8% from above 7%, as investors weigh threats to the public purse. The central bank aims for inflation at the midpoint of its 3% to 6% target range.
Consumer prices in September, scheduled for release on Wednesday, are expected to increase 5.4% on an annual basis, according to economists surveyed by Bloomberg.
The review confirmed the central bank’s forecast for 0.7% economic growth this year, aided by stronger-than-expected investment and continued spending.
Even so, the central bank flagged additional spending pressures, citing a swelling public sector compensation bill, while debt-service costs have risen sharply.
“With reduced tax revenue, higher public sector compensation and state-owned enterprise, financial needs will put additional pressure on financing conditions,” the bank said.
3. E-toll waiting game:
National road agency Sanral says that e-tolling in Gauteng is still alive – but the group has long since stopped chasing motorists who refuse to pay their bills and is confident that the government will settle the debt bill.
In the group’s annual report for the 2022/23 financial year, it noted that uncertainty around the future of e-tolls and the Gauteng Freeway Improvement Project (GFIP) still persists, especially given the fact that the government has still not concluded its agreements and conditions for the bailout that would ultimately see the system scrapped.
On 26 October 2022, the Minister of Finance announced that a Special Appropriation of R23.736 billion for the 2022/23 financial year would be given to Sanral to settle maturing debt and debt-related obligations on the toll portfolio.
The minister also indicated that an agreement with the Gauteng Provincial Government was reached to settle GFIP debt with 30/70 split between the Gauteng government and the national government – further details of which would be agreed to determine the final outcome on GFIP.
The approved allocation to Sanral was paid out in two tranches. The first tranche of R8.980 billion was received in January 2023 after the Special Appropriation Bill was promulgated into law.
The second tranche of R14.76 billion was received on 31 March 2023.
However, Sanral noted that some of the transfer conditions had not been met at year-end (31 March 2023).
“Sanral can only recognise this amount as an equity injection on its balance sheet once all the conditions are met. The amount was allocated specifically for settlement of maturing toll debt and all debt redemption obligations that became due since,” it said.
This means that the e-tolling system – and its related debts – are still on Sanral’s books until the matter is concluded.
4. One in five tenants behind in rentals:
Some 18.4% of residential tenants in SA are in arrears on their rent, a figure that is somewhat improved from the nearly 25% recorded at the height of the Covid pandemic.
An analysis by PayProp Rental Index for the second quarter of the year suggests the latest figure is “within the normal range seen before and after the Covid-19 pandemic, but it could be a cause for concern if it continues to rise”.
Using another metric, the news is slightly better: the quantum of arrears as a percentage of rent fell 1.2% quarter on quarter to 77.1%.
Stats like these cannot be comforting for those planning on building a property investment portfolio when nearly one-in-five are behind on their monthly rentals.
Many people saw an opportunity to purchase their first property when prime interest rates dropped to 7% in 2020, but they screamed up to 11.75% in the following two years.
A home loan of R1 million for an average two-bedroom investment property would have cost R7 753 a month in repayments in 2020/21 when the prime rate was 7%, says property analyst Miguel Martins in the PayProp Rental Index report.
Now it would cost R10 837 per month. That is an increase of R3 084 a month, and while rental growth is recovering well, it hasn’t kept up.
“If that landlord was making a healthy R1 000 per month in rental profit two years ago, they may now be incurring a R2 000 monthly loss at today’s interest rates, which the landlord is having to fund themselves,” says Martins.
5. Municipalities are in trouble:
Maropene Ramokgopa, Minister in the Presidency responsible for Planning, Monitoring and Evaluation has painted a bleak picture of the state of municipalities in the country, revealing that nearly 90% are in a dire situation.
According to the Department of Cooperative Governance and Traditional Affairs, there are a total of 257 municipalities in South Africa.
Of the 257, 163 municipalities are distressed and 66 dysfunctional, said Ramokgopa.
All information sourced from articles posted by: DailyInvestor, Fin24, BusinessTech, Moneyweb, and 702.
