News in South Africa 25th July:
1. Rand makes a comeback:
The rand is looking set for a tough week ahead, with US rate hikes likely to weaken the local currency.
The rand has been one of the worst-performing major currencies in the world and reached a record high of nearly $20.00/$ in May.
The rand has, however, made a serious comeback and currently stands at R17.68/$. This is still weaker than the start of the year but marks a substantial improvement from the record low recorded two months ago.
Recent economic data has also been broadly positive, with Consumer Price Inflation dropping from 6.3% in May to 5.4% in June – which is in the South African Reserve Bank’s (SARB) target range.
With inflation cooling, the SARB’s Monetary Policy Committee voted to keep the repo rate at 8.25% after ten consecutive rate hikes.
Although a pause in the rate hike cycle should have weakened the rand – as investors look for the greatest possible returns on their investment, the rand remained below the R18.00/$ mark.
Risk
However, the US Federal Reserve will make its interest rate decision this week, and the likely hike will probably hurt the rand.
Last month, the Fed paused its interest rates after ten consecutive rate hikes as it wanted to see where inflation was heading.
The CPI in the US dropped to its lowest level in two years, but the core CPI rate, which excludes food and energy, still jumped by 4.8% year-on-year. CNBC said that the US policymakers have remained committed to bringing inflation down to the Fed’s 2% target.
According to the CME Group Fedwatch tool, there is a 98.9% chance that the Fed will hike interest rates by 25 basis points, which will bring the target Fed Funds rate to between 5.25% and 5.5%.
The increase in interest rates will likely see the dollar strengthen, damaging the rand’s recent gains.
Positive signs coming
However, the Fed could keep interest rates on hold following the likely hike this week.
“The Fed has communicated its willingness to raise rates again if necessary, but the July rate hike could be the last — as markets currently expect — if labour market and inflation data for July and August provide additional evidence that wage and inflationary pressures have now subsided to levels consistent with the Fed’s target,” economists at Moody’s Investors Service said.
2. Government losing control:
The government is losing control of the country as South Africans no longer trust it to follow through on its stated policies or engage effectively with the population.
The Afrobarometer, with assistance from Insititute for Justice and Reconciliation, interviewed over 1,500 adults South Africans to study their perceptions of key institutions and government officials.
Public trust in key institutions has remained weak, with only 27% of South Africans in 2022 (2021: 38%) saying that they trust the president “somewhat” or “a lot.”
Trust in Parliament also dropped from 28% to 23%, which the Afrobarometer links to ongoing scandals surrounding members of parliament and a perception of ineffective anti-corruption laws.
Political analyst Khaya Sithole told 702 that this loss of trust in the government would negatively affect the country.
“In the South African context, it is unsurprising that there is a loss of faith. What is alarming is how deep the loss of faith in the government’s ability to do anything has been,” Sithole said.
Such a deep loss of trust in the government will make it difficult to engage with South Africans about policy matters “because as soon as they start talking, a lot of us just reject it based on the government’s track record”.
South Africa’s political system is highly consultative, as the government has to have public consultations before enacting legislation through public hearings or comments.
However, South Africans no longer want to consult with the government or, in extreme cases, do not want the government to do anything at all.
“We are fast getting to a stage where the government may end up being paralysed on the basis that they know South Africans will reject its proposals,” Sithole warned.
This risks government policy announcements becoming mere gimmicks, with South Africans no longer taking it seriously as it has consistently failed to implement policy.
The government may become ineffective and unable to do anything, and recent events have exemplified the increasing ineffectiveness of the government.
3. Company liquidations declining:
A total of 128 companies permanently shut their doors in South Africa in June, representing an 11.7% decline in company liquidations compared to the same month in 2022.
According to data released by Statistics SA on Monday, the country has seen 802 liquidations so far this year, 14% less than in the same six-month period last year.
Most were voluntary (90.6%), with over half initiated by companies and 45.31% by close corporations.
The financing, insurance, real estate and business services industry led with the most liquidations in June, accounting for 32% of business closures, followed by businesses in unclassified industries (31.25%) and the trade, catering and accommodation industry (16.62%).
The electricity, gas and water; agriculture, hunting, forestry and fishing; mining and quarrying; and transport, storage and communication industries reported negligible liquidations, with these four sectors accounting for five liquidations.
Normalisation
According to Stats SA’s statistician general Risenga Maluleke, the downward trend of liquidations reported across most industries in the local economy this year could represent a rebalancing of trends following a volatile Covid-19 pandemic period which saw significant peaks in business liquidations.
“It is important to note that liquidating a company follows an administrative process and also that it takes time for a failing company to reach the point of liquidation,” Maluleke told Moneyweb.
“The slowdown we are seeing could, therefore, mean that the companies that didn’t survive Covid-19 have already been liquidated, and we are now approaching normalcy.”
4. Fears over US retaliation for Russian ties:
The government has warned that US legislators hostile to Pretoria could use the upcoming African Growth and Opportunity Act (Agoa) Forum to highlight the country’s relationship with Russia and China to potentially exclude it from the preferential access to US markets that SA currently enjoys.
The Agoa Forum is scheduled to be hosted by SA in November, shortly after the Brics (Brazil, Russia, India, China and SA) trade bloc holds its summit in Johannesburg where the emerging markets group is expected to continue to ramp up its bid to counter Western hegemony.
5. Sugar and chocolate prices are soaring:
Brown and white sugar, as well as chocolate slabs, have seen major price hikes in the year to June, and prices are expected to remain elevated until at least December.
This comes as global pressures caused by climate issues, such as drought, have stressed sugar production, while locally, two sugar producers – one being Tongaat Hulett – are in business rescue.
International sugar prices remain 30% up year-on-year.
All information sourced from articles posted by: BusinessTech, DailyInvestor, Moneyweb, BusinessDay, and Fin24.
