News in South Africa 19th May:
1. Price of water has tripled in the past decade:
While most of the attention has been on the skyrocketing cost of electricity, especially as load shedding has become a near-permanent feature of daily life, the price households are paying for water has increased by significantly more in the past decade.
Since 2012/13, Nersa-approved municipal electricity tariffs have roughly doubled. In comparison, the prices being charged for water have effectively at least tripled (up approximately 200%).
This is according to an analysis of water tariffs of the three major metros – Johannesburg, Cape Town and eThekwini (Durban) – between 2012/13 and the current financial year (2022/23).
In specific or extreme scenarios, the increase has been closer to fivefold (400%), with some charges up many hundreds of a percent.
Municipalities will argue that the primary driver of these increases has been the cost of bulk water, although this only comprises about half the increase over the last 10 years.
By way of illustration, in 2012/2013, Umgeni Water’s weighted average bulk tariff was R4.25 per kilolitre (kl). Currently (in 2022/23), it is R8.37. That’s an increase of 97%.
The remainder will be from other expense increases (primarily employee costs), but a not-insignificant proportion of the increase will be due to the operational decline of the metros.
The more water that is lost due to leaks, theft and billing issues (which municipalities call “non-revenue water”), the more has to be recovered through tariffs charged to those customers who actually pay.
2. SA to purchase emergency power:
Deputy President Paul Mashatile assured South Africans that government was determined to bring an end to load shedding.
Mashatile’s statement followed the battling power utility’s warning that South Africans should brace for the toughest winter yet, as power cuts were expected to hit Stage 8.
Eskom further said its shortfall of generation capacity could be a reality until August.
Mashatile was speaking during an oversight visit to an agriculture institution in KwaZulu-Natal on Thursday.
Various agricultural projects continued in the province but for some, like chicken farmers, power cuts affected their businesses.
On several occasions, government said that it was addressing the issue of power cuts, even appointing a new Minister for Electricity in earlier 2023.
But for South Africans this did not bring much joy, as power cuts continued.
Mashatile, however, said government was actually hard at work in this regard.
“Government is determined to keep the lights on, apart from appointing the Minister of Electricity. You know that we’ve have announced that we are now embarking on purchasing emergency power.”
3. Crisis countering monetary policy:
A crippling energy crisis, a low growth environment and deteriorating fiscal metrics combined to push the rand to a record low last week.
But the normal response of raising interest rates to defend the currency may prove counterproductive, undermining a fragile economy and pushing the rand even lower, according to economists at Goldman Sachs International. The South African Reserve Bank wants to support the rand to cut the cost of imports and ease pressure on inflation.
Tighter monetary policy risks “creating a feedback loop for the rand”, Andrew Matheny and Bojosi Morule wrote in a note to clients.
“The risk of overtightening in the face of (forex) pressure is real and could ultimately undermine the SARB’s policy response.”
The rand on Friday reached 19.5148 per US dollar amid diplomatic tensions over US accusations that Pretoria helped ship arms to Russia. That sent inflation expectations above the central bank’s target range of between 3% and 6%. It also stoked speculation over more interest rate hikes after the May 25 decision.
Matheny and Morule raised their forecast and now expect the central bank to deliver a 50 basis-point hike to 8.25%. Cuts will only begin in the second quarter of 2024, they said.
The central bank has already delivered 425 basis points of tightening since November 2021, with March’s bigger-than-expected 50 basis-point increase the latest move.
The central bank is now in a tough position, with both rate hikes and a pause to the tightening cycle both potentially undermining the rand.
“If the SARB doesn’t hike, or even does a 25 basis-point hike, versus the market that is pricing in 50 basis points, we are likely to see some rand weakness,” said Walter de Wet, an analyst at Nedbank Group Ltd.
The best policymakers can hope for is avoiding rand weakness, rather than strengthening the currency through rate hikes, he said.
4. Gold returns as safe haven:
Since the start of the year, the gold price has surged to levels previously seen during the Covid-19 pandemic. The return to this “safe haven asset” indicates concerns, risks, and fears in markets worldwide.
As South Africa and other countries are headed for recessions, investors, retailers, and central banks have increasingly turned to gold as a hedge against economic turmoil. This has led the gold price to soar over recent months.
Market Strategist at the World Gold Council, Joseph Cavatoni, told Business Day TV that the risks of rising inflation, geopolitical tensions and market uncertainty drove central banks and investors to gold.
The gold price surged to its highest level in decades in August 2020, during the Covid-19 pandemic – a period filled with uncertainty and turmoil.
While the price decreased after this spike, it has remained mostly steady and above pre-pandemic levels.
However, the gold price started climbing at the end of 2022 and has not stopped. 2023 has proven to be an excellent year for gold, as the price has not dipped below $1,800 per ounce since the start of the year and has been above $1,900 since mid-March 2023.
Currently, gold is trading around the $2,000 per ounce level.
5. Cost of owning a car soars:
Cash-strapped South Africans are feeling the pinch as the prices of vehicles continue to rise, with some segments even beating inflation in the first quarter of 2023.
TransUnion has released its latest Vehicle Pricing Index (VPI), showing that the South African car market came under renewed pressure in the first quarter of 2023 as the effects of fuel hikes, inflation, challenging economic conditions and load-shedding took their toll.
The index measures the relationship between the increase in vehicle pricing for new and used vehicles from a basket of passenger vehicles incorporating 15 top-volume manufacturers.
TransUnion’s data showed that the South African vehicle market faced significant challenges as total financial agreement volumes in passenger vehicles decreased by 12% from Q1 2022 to Q1 2023.
This includes a decline in new vehicle finance deals of 2.6% YoY, while used vehicle finance deals decreased by 17.7% YoY.
According to the credit agency, this volume slump is partly due to rising vehicle prices, which exceeded wage growth, and diminishing disposable incomes.
According to the report, the price of new vehicles, on average, increased by 6.3% in Q1 2023.
While this is below inflation (CPI) – recorded at 7% over the same period – the price increases in three segments exceeded CPI, and the price of all new vehicles is forecasted to increase in the coming months, noted the report.
On average, the price of medium SUVs increased by 11.4% in Q1 2023, while the price of Crossovers and small SUVs increased by 7.7% and 7.1%, respectively.
Adding to the challenges of owning a car is that used-vehicle prices have experienced, on average, a more significant increase than new cars, with the report recording a price increase of 8.1% in Q1 2023 (1.1% above inflation).
All information sourced from articles posted by: Moneyweb, EWN, Fin24, DailyInvestor, and BusinessTech.
