News in South Africa 22nd May:
1. Stage 8 all but certain:
Business interest group BLSA says that stage 8 load shedding is all but certain in the coming months, warning that companies relying on diesel to keep their operations going during outages will be hit even harder as the lights go out for as much as half the day.
According to Business Leadership South Africa (BLSA) chief executive Busi Mavuso, not only will record load shedding hit companies’ bottom lines, but the knock-on effect on the country through business confidence and investor sentiment will also be felt for some time.
“The impact on already weak business confidence is obvious. This is not the environment in which businesses are going to undertake new investments. That will feed into weaker overall economic performance with growth facing yet another setback,” she said.
Mavuso said that the bitter pill of stage 8 load shedding would be easier to swallow if there was any guarantee that this would be the worst outages the country would ever experience – but a lack of progress in resolving the wider energy crisis does not instil hope.
“The National Electricity Crisis Committee (Necom) last year pulled together the best minds on electricity and set out a plan to address the crisis as best we can, both in the short term and long term.
“Necom’s Energy Action Plan has had some successes…But key further steps are now mired in confusion and political contestation,” she said.
While South Africa has managed to make amendments to the Electricity Regulation Act to free up the private sector to build new generating plants at scale – and a request for proposals for battery storage has been published, with bids due in July – other measures have stalled or gone completely off track.
2. Average consumer is highly indebted:
The average consumer in South Africa is in a desperate and highly indebted position, which is significantly denting their intent to purchase either a new or used vehicle plus other products.
This was one of the major themes to emerge from a webinar and panel discussion last week about the Deloitte 2023 South African Automotive Consumer Study.
According to Deloitte global automotive research leader Ryan Robinson:
- About one in four consumers in South Africa is concerned about making coming payments;
- More than two-thirds of consumers are concerned about the amount of money they have saved; and
- Almost one in four consumers is concerned about the amount of credit card debt they are carrying.
Robinson said this all rolls into buying behaviour and the spending patterns of consumers.
“About 54% of consumers right now in the South African market are telling us that they are actively considering a delay of a large purchase, which could be white goods, such as home appliances, but it also includes vehicle purchases,” he said.
TransUnion Africa CEO Lee Naik said the average South African consumer is highly indebted and if you are talking about a basket of goods and affordability, the average household has a R1 million home loan and an average car, which in this cycle has generally gone up from under R300 000 to R350 000.
3. President loses confidence of businesses:
South African President Cyril Ramaphosa has lost the confidence of a key constituency.
Five years after ushering in a wave of business optimism that he’d revive an economy hobbled by industrial-scale corruption under his predecessor, executives are running out of patience with the 70-year-old leader.
Economic stagnation spawned by record daily power outages, rampant crime, disintegrating infrastructure and foreign policy missteps is leading investors to the exits, with the rand fast-approaching a record low of 20 per dollar.
The business community’s growing disaffection with Ramaphosa’s administration was expected to be a topic of discussion at talks between his deputy, Paul Mashatile, and company executives on Friday evening.
The mood going into the meeting was summed up by Investec Group Chief Executive Officer Fani Titi.
“We are going nowhere fast,” he said in an interview on Thursday. “The government is disorganised. Totally disorganised.”
Business leaders raised concerns about issues affecting their constituents in their discussions with Mashatile, the presidency said in a statement after the meeting on Friday night.
“They urged the government to work with a greater sense of urgency in attending to the energy crisis, crime and corruption, and processing of applications relating to statutory obligations hindering their ability to conduct business effectively,” it said.
4. Interest rate hike this week:
South African households are facing yet another interest rate hike this week – and the numbers could come in worse than initially anticipated.
The South African Reserve Bank (SARB) will hold its Monetary Policy Committee (MPC) meeting this week, with an announcement in interest rates expected on Thursday (25 May).
Markets have suffered multiple blows in the last few weeks amid intensified load shedding and geopolitical missteps, which have severely strained the economy. According to the Bureau for Economic Research (BER), as a result of this, the central bank is now more likely to push rates higher than previously expected.
In March, the MPC surprised the market when it hiked the rate by 50 basis points, increasing the repo rate to 7.75% and the prime lending rate to a 14-year high of 11.25%. At the time, analysts and economists anticipated an end the hike cycle, with only a few expecting one more hike of 25 basis points to follow in May.
However, given the current economic environment, the view has shifted, and it is now more likely to be another 50 basis point hike, the BER said. Worse still, there may be even more rate hikes to follow.
“Although a further worsening of the power situation is undoubtedly bad for growth and in isolation would argue against further domestic policy interest rate hikes, it is also inflationary,” the economists said.
5. High risk of public violence:
Efficient Group chief economist Dawie Roodt warned things could go very wrong in South Africa with a toxic mix of unemployment, absolute poverty, rising food prices, and a looming election.
Roodt told WorldView that the people in South Africa are working on improving the country, but the ANC and politicians are standing in the way of progress.
He said the ANC is making life very difficult for South Africans to do what is needed and is causing damage to the economy in the process.
He highlighted that South Africa has 30 million people receiving an income from the state who rely on this money to survive.
However, the state’s finances are under severe strain, which means it will spend less money on these 30 million people.
With the high levels of unemployment, increased poverty, rising food costs and an election around the corner, he is “very concerned that things can go horribly wrong”.
Roodt previously said he is worried about a recurrence of the public violence and riots in KwaZulu-Natal and Gauteng two years ago.
“The economy is not growing. We have high levels of unemployment and poverty, and I am concerned about public violence seen two years ago,” he said.
Numerous business leaders, including Pick n Pay chairman Gareth Ackerman and CEO Pieter Boone, echo Roodt’s concerns.
Ackerman cautioned that the entire food industry in South Africa is under existential threat because of load-shedding and government inaction.
“The probability of social unrest relating to food shortages and possible store closures, if blackouts get too high, is now heightened,” he said.
Boone also warned of food shortages and social unrest in South Africa as load-shedding moves to higher stages.
“I foresee, because of the government’s inactivity, that we will experience a further deterioration of power supply. It is not if stage 8 will occur, but when,” he said.
Boone said if South Africa goes to stage 8 load-shedding, food manufacturing will suffer, and South Africa will experience a food shortage.
“It is no longer a question of pricing, but rather whether you can secure stock to serve your customers,” he said.
He added that higher stages of load-shedding also affect the water supply in many parts of the country.
When people struggle to get food and water, it causes severe social problems and can lead to civil unrest.
All information sourced from articles posted by: BusinessTech, Moneyweb, Fin24, and DailyInvestor.
