News in South Africa 21st June:

1. Sharp rise in riots:

The Institute of Risk Management South Africa (IRMSA) has published the 9th Edition of the Annual Risk Report, sounding a new alarm on the various crises hitting South Africa.

Sharp rise in riots
Photo by Maurício Mascaro

Among the biggest risks the country faces is growing social unrest, with the group already noting a rise in protests and riots, fuelled by social and economic pressures that have persisted for almost a decade.

“Over the past eight years, South Africa has faced recurrent risks that have persisted and intensified, paving the way for the current situation,” said IRMSA’s Chief Risk Advisor, Christopher Palm.

Economic challenges include stagnant growth, high unemployment, and persistent inequality – these have consistently ranked among the major risks facing the country for years, IRMSA said.

Concerns over corruption, governance, the rule of law, and breakdowns in public service delivery have also been recurring themes, it said.

IRMSA said that South Africa had experienced a surge in social unrest, with protests in recent years as issues such as inadequate service delivery, poverty, inequality, unemployment, and political corruption feed frustration in the population.

However, the country’s issues are not limited to this. Environmental risks, particularly related to climate change, extreme weather events, and water scarcity have also emerged as significant concerns, it said.

“Furthermore, technological disruption, cyber vulnerabilities, and the rise of artificial intelligence and automation have added to the complexity of the poly-crisis,” the group said.

The risk experts said there is an urgent need for South Africa to address these risks collectively – particularly the impact of climate change, the persistent energy crisis, and the deteriorating infrastructure situation.

2. Cost of living crisis:

Cash-strapped consumers having to tighten their belts, especially in the lower and middle-income markets, is putting South Africa’s major food producers under pressure and they will have to diversify upwards of the income scale to boost their bottom lines.

This is the view of Sasfin senior equity analyst Alec Abraham, who spoke to Moneyweb on the lacklustre stock price performance of JSE-listed food producers.

He says while lower income consumers are battling from a cost-of-living perspective, food and consumer goods manufacturers are struggling to control high input costs, forcing producers to push the price burden onto the struggling customer.

This push-and-pull dynamic between the producer and the consumer is causing a headache for investors in the sector, with some steadily backing away.

“Basically, what the food producers are showing is that consumers are under an extreme amount of pressure, particularly the lower-end consumer … The lower income consumers are the most vulnerable in terms of suffering from job losses and no opportunities in the low-growth economy,” says Abraham.

Statistics South Africa (Stats SA) this month released the retail trade sales figures for April which showed a 1.6% decline year on year. The biggest contributors to the decline were general dealers (-1.8%) as well as retailers in food, beverages and tobacco in specialised stores (-6.2%) and all ‘other’ retailers (-4.2%).

3. Huge tax increases needed for NHI:

Connie Mulder, head of the Solidarity Research Institute, said the planned National Health Insurance (NHI) would require large tax increases.

South Africa’s National Assembly recently passed the National Health Insurance Bill aimed at introducing universal health insurance.

The Department of Health promotes it as a way to provide good healthcare for all by sharing the money available for healthcare among all people.

However, many businesspeople, health professionals, and medical aid schemes warned that it is unworkable and is chasing medical professionals out of the country.

Business Leadership South Africa CEO Busi Mavuso says the National Health Insurance Bill is unworkable with no implementation or funding plan.

“It is as if the government is intent on striding forward, somehow ignoring that, eventually, the whole charade will collapse,” she said.

The biggest problem is money. The NHI’s money bill – the financing part of the plan, which must come from the National Treasury – has not been published.

The government has a misguided belief that the money which is currently flowing into private healthcare will make its way into NHI.

4. July fuel price outlook mixed:

Petrol prices currently still look set for a small cut at the start of July. Diesel, however, may be hiked.

Based on the current oil and rand prices, the latest data from the Central Energy Fund shows that diesel prices may be increased by 10c to 15c a litre, depending on the grade. Petrol 95 and 93 unleaded may be lowered by 6c a litre and 15c, respectively.

However, there is still some time to go before the final prices are set. Fuel prices will only be adjusted on 5 July.

South African fuel prices are largely determined by international oil costs and the rand exchange rate, as oil is priced in dollars.

Brent crude oil has strengthened slightly since the beginning of the month, from $74 to $77 a barrel. But oil remains under pressure owing to a strong supply flow from Russia – as well as concerns about the Chinese economy, which is not rebounding as fast as expected.

5. Low risk of retrenchments:

Something has to give: businesses are struggling amid load shedding, rocketing input costs and aggressive rate hikes – while demand for their products and services is faltering in a weak economy.

In normal times, this would trigger a shockwave of retrenchments.

But economist and director of Econometrix Azar Jammine believes many businesses already trimmed their staff count close to the bone during the pandemic.

“With Covid-19, we saw significant retrenchments, and I think a lot of businesses used that opportunity to downsize.”

So, even with the rising costs, they can’t afford to retrench more staff without hurting their operations.

South Africa still has 1 million fewer jobs than before the pandemic, says labour law specialist, Andrew Levy.

“I do see employers continuing with this upward trend of shaking out labour. But is there going to be a sudden nuclear explosion of retrenchments? No, I can’t see that,” said Levy.

Jammine says many businesses will look for other ways to save costs – or to insulate themselves against the Eskom and Transnet crises, by generating their own power and reducing their dependence on the rail network.

Sharon Pearce, an HR transformation expert at Flux Trends, says many companies have frozen positions following resignations for much longer than before Covid-19. Some jobs have never been filled again or were replaced by contract workers instead of permanent positions.

The trend towards contract workers makes those workers more vulnerable to layoffs. Businesses often look at cutting their contractors’ and freelancers’ bills first before taking the drastic step of retrenching their full-time workers.

Overall, the country’s labour market remains in crisis, with the number of unemployed people in South Africa increasing from 4.9 million to 7.9 million over the past decade.

Jammine says the problem is that more than 400 000 people are entering the job market every year, while not nearly enough jobs are created.

All information sourced from articles posted by: BusinessTech, Moneyweb, DailyInvestor, Fin24, and News24.

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