News in South Africa 24th November:
1. SARB keeps rates on hold:
For its final decision of the year, the Monetary Policy Committee left SA’s key interest rate unchanged at 8.25% for a third consecutive meeting, in line with economists’ expectations.
This comes after annual consumer price inflation leapt to 5.9% in October from 5.4% in September, closing in on the upper end of the SA Reserve Bank’s targeted band of 3% to 6% and marking a third month of increases. That figure was higher than economists expected.
“Risks to the inflation outlook are still assessed to the upside,” Reserve Bank Governor Lesetja Kganyago said in Pretoria on Thursday. The decision to keep interest rates on hold was unanimous, but the committee stands ready to act should risks materialise, Kganyago said.
Inflation has been accelerating over the past three months, the opposite of what the MPC would like to see – and there is the added risk of what South Africa’s latest round of port challenges could do to prices in the coming weeks, said Angelika Goliger, EY Africa Chief Economist, referring to Transnet’s delays at various harbours. Kganyago also noted the lengthy delays and said the operation of ports and rail “have become a serious constraint”.
For consumers, their loans won’t cost them more over the festive season, but rates are at 14-year highs and most economists don’t expect any chance for cuts until at least March next year. HSBC was less optimistic than others and said the MPC may only cut rates from September.
“The near-term risk is for interest rates to edge higher, should the SA Reserve Bank’s inflation projections start to deteriorate, lowering the real policy rate and delaying the return to the 4.5% midpoint target,” HSBC said.
The Reserve Bank’s gross domestic product outlook improved, with it forecasting 0.8% growth this year, up from 0.7%, and increased it to 1.2% next year. This was after spending by firms, households, public corporations and general government remained positive in real terms on an annual basis; the disposable income of households being expected to grow, albeit slowly; the investment forecast for the year was revised up to 7.7% in September and credit growth to households and corporates slowed, but remained positive.
“At the current repurchase rate level, policy is restrictive, consistent with the inflation outlook and elevated inflation expectations. Decisions will continue to be data dependent and sensitive to the balance of risks to the outlook,” Kganyago said.
2. Interest rate relief not enough for indebted South Africans:
Businesses and consumers may have welcomed South Africa’s recent interest rate hold, but the pain at the till is not going away anytime soon.
This was despite inflation ticking up from 5.4% in September to 5.9% in October.
Stats SA said that inflated transport costs and higher food prices – following the panic buying of poultry products following the bird flu outbreak – were the main reasons for the increase in the headline figure.
Neil Roets, CEO of Debt Rescue, said that the persistent increases in food prices are forcing more consumers to take out credit to pay their monthly grocery bills.
“This is a dangerous trend and definitely not a long-term solution,” Roets warned.
He added that the steady increase in interest rates earlier this year led to a steep increase in loan instalments, resulting in more owners defaulting on vehicle and home repayments.
“Distressed house sales are on the rise in South Africa, as the majority of sellers are downgrading due to financial pressure,” he added.
Lightstone data supports this, with the number of homeowners selling their properties within two years of purchase having jumped from 2% of sales in May 2022 to 3.7% of sales a year later – primarily due to increased living costs and the larger number of homeowners in debt traps following the pandemic.
In addition, the average consumer needs to spend roughly 63% of their take-home pay to service their debt, with those earning R35,000 or more a month paying 67% of their income on debt repayments.
The latest NedFinHealth Monitor shows that 69% of South Africans cannot pay their bills on time, whilst 33% could not even pay their home loan over the last year.
Roets said that there will likely be a higher number of defaults in the coming months, including those on bank loans and credit facilities.
3. SARB considers government access to R497b forex reserves:
South Africa’s central bank confirmed that it is in talks with the National Treasury to find a way to tap contingency reserves to fund the country’s growing budget deficit.
“We are engaged with the Treasury,” Governor Lesetja Kganyago told reporters on Thursday after the monetary policy committee held rates steady.
“We have also bought in international expertise to engage on these matters,” including on how to deal with the capital position of the bank, he said.
The two institutions are ironing out how much the withdrawal could be, over what length of time and the cost involved for the central bank. The value of the reserves is currently R497 billion, Kganyago said.
He declined to name the outside advisers or say when a decision would be made.
He did spell out that it was a complicated issue because the profit on the reserves is on paper, changing from month to month, and realizing it would mean selling part of the reserves and potentially unnerving investors.
“The issue is not that simple,” he said.
The central bank oversees the Gold & Foreign Exchange Contingency Reserve Account on behalf of the Treasury. The account contains unrealized profit or losses on the reserves that are incurred due to exchange-rate fluctuations and any gains or losses accrue to the government.
In the early 2000s, Treasury paid more than R28 billion over four fiscal years to the central bank to defray a loss on the account.
There have been growing calls from economists, academics, civil society organizations and the Institute for Economic Justice, an economic think tank, for the Treasury to use the account to avoid budget cuts.
The move would have to be done in collaboration with the central bank, which has warned against it as contingency reserves are seen as a buffer for extreme currency shocks.
In an interview with Bloomberg after delivering his medium-term budget statement on Nov. 1, Finance Minister Enoch Godongwana said the Treasury can’t rule out tapping the reserves and that the matter is being discussed with the central bank.
4. Billions in irregular spending at SOEs:
Stage 4 load shedding, kilometres of coal trucks blocking the roads, stranded train passengers, hundreds of ships floating outside harbours waiting to offload cargo, missing postal packages – and at the root of it is bad financial oversight at the relevant state-owned enterprise (SOE) tasked to provide services.
Minister in the Presidency Khumbudzo Ntshavheni was wrong when, while giving feedback on recent cabinet meetings on Monday, she said things in SA are improving and when she accused the private sector of deliberately trying to “collapse” SA.
Irregular, fruitless and wasteful expenditure is so rife at state companies that it is impossible to calculate how many billions are lost to corruption, fraud and theft every year. Even the Auditor-General has noted in many of its audit reports that it is impossible to determine if the figures provided by the SOEs are accurate.
Context
Not all irregular spending is money stolen or wasted.
Irregular expenditure means expenditure incurred in contravention of or not in accordance with requirements of any applicable legislation, including the Public Finance Management Act (PFMA) – but a seemingly ‘innocent’ transgression of a tender requirement opens the door to corruption.
Fruitless and wasteful expenditure is expenditure that was made in vain and would have been avoided had reasonable care been exercised.
PetroSA notes in its annual report that a few questions will determine whether expenditure should be classified as fruitless and wasteful or irregular:
- Could reasonable steps have been taken to avoid the expenditure?
- Were there policies and/or procedures governing the incurred expenditure?
- Is it material (for disclosure purposes)?
Whatever the classification, the task of looking at all the annual reports of the big SOEs and calculating a total figure for irregular and for fruitless and wasteful expenditure are overwhelming.
5. Billions in potholes:
The National Department of Transport (DoT) spent in excess of R3.65 billion over the last six months repairing the country’s crumbling roads.
Responding to a parliamentary Q&A from Inkatha Freedom Party’s KP Sithole, the minister of transport Sindisiwe Chikunga said the number of potholes on roads that fall under her administration repaired in each province in the past six months amounted to 1,291,442m², the bulk of the patching happening in KwaZulu-Natal.
To be exact, the DoT’s expenditure was recorded at R3,650,251,022 for the six months ending September, accounting for roughly 29% of the total Provincial Roads Maintenance Grant of R12,665,440,753.
Per province, the six-month expenditure on road repairs and the area of roads that were restored were:
| Province | Potholes patched | Budget allocation | Six-month expenditure |
|---|---|---|---|
| Eastern Cape | 112,286m² | R2,057,539,888 | R472,776,761 |
| Free State | 20,000m² | R1,337,642,000 | R347,299,000 |
| Gauteng | 213,321m² | R680,058,000 | R61,111,024 |
| KwaZulu-Natal | 500,000m² | R3,309,978,000 | R673,500,452 |
| Limpopo | 139,925m² | R1,280,899,865 | R551,826,653 |
| Mpumalanga | 141,186m² | R905,915,000 | R272,084,082 |
| Northern Cape | 23,676m² | R1,064,972,000 | R491,859,499 |
| North West | 94,996m² | R1,068,127,000 | R265,741,551 |
| Western Cape | 46,052m² | R960,309,000 | R514,052,000 |
| Total | 1,291,442m² | R12,665,440,753 | R3,650,251,022 |
It must be noted that these figures not only account for potholes, but also for general road maintenance.
“There was no specific budget allocated for the pothole repair/maintenance of the provincial road network for the six-month period, however, provinces are allocated the maintenance budget as provided in the table above of which blacktop patching and pothole repairs form part of 2022/23 financial year,” said Chikunga.
“This budget covers the entire maintenance of provincial Strategic and Secondary road networks inclusive of blacktop patching and pothole repairs.”
All information sourced from articles posted by: Fin24, BusinessTech, DailyInvestor, Moneyweb, and TopAuto.
