News in South Africa 27th October:

1. Warning signs for inflation:

Producer price inflation (PPI) has grown, spelling bad news for South African consumers at the tills.

Warning signs for inflation
Photo by Matheus Cenali

According to Stats SA, September’s headline PPI increased from 4.3% in August to 5.1% in September – slightly worse than the Bloomberg consensus of 5.0%.

The main contributors to the headline PPI annual inflation rate were:

  • Food products, beverages and tobacco products (increased by 4.4% year-on-year and contributed 1.1 percentage points);
  • Metals, machinery, equipment and computing equipment (increased by 6.5% year-on-year and contributed 1.0 percentage points);
  • Paper and printed products (increased by 11.8% year-on-year and contributed 0.9 of a percentage point);
  • Transport equipment (increased by 7.8% year-on-year and contributed 0.7 of a percentage point)
Source: Stats SA

On a month-on-month basis, PPI rose by 1.5%.

On a monthly basis, the increase in coke, petroleum, chemical, rubber and plastic products (increased by 5.1% month-on-month and contributed 1.4 percentage points) was the primary source of the increase.

This followed a rise in fuel prices in September amidst a weak rand and high global oil prices, with October’s print likely affected by the most recent fuel price increase.

Food price pain

Although the manufactured food price inflation dropped from 5.6% in August to 4.4% in September, it still contributed 1.1% to the overall number due to its size in the PPI basket.

Meat and meat product inflation increased from 0.2% y/y in August to 1.8% y/y in September, but the prices of grain mill products, starches products, and animal feeds dropped from 3.9% to 2.9% y/y.

“South Africa has benefitted from the deceleration in global food commodity prices, with the Food and Agriculture Organization of the United Nations’ (FAO) food price index down -10.7% in September when compared to the same period in 2022,” Investec Economist Lara Hodes said.

“Moreover, South Africa has a promising agricultural season, according to Agbiz, with the 2022/23 maize harvest projected at 16,4 million. This is “6% higher than the 2021/22 season’s harvest and the second-largest harvest on record.”

“Despite this, a number of upside risks remain, including challenges relating to the Black Sea Grain Deal and India’s rice exports ban, the avian flu outbreak and heightened weather disturbances (notably from El Nino).”

2. Relief for chicken farmers:

Deputy President Paul Mashatile said the government will soon announce a support package for farmers impacted by the avian flu outbreak.

Answering questions in the National Council of Provinces on Thursday, Mashatile said he didn’t want to reveal too many details as the Minister of Agriculture, Land Reform and Rural Development – Thoko Didiza – is due to make an announcement soon.

Mashatile said discussions have been had with the National Treasury on what the support or compensation might entail.

“It’s really to ensure that we help them to revamp and ramp up production once again. And with respect to vaccination, the department is also assisting to ensure that there’s registration of vaccines and that that process is fast-tracked.”

Mashatile said government has taken note of the appeal from the South African Poultry Association that not only small-scale farmers be assisted.

“Those measures are being put in place and very soon the minister of agriculture will announce that package as to how much those farmers will receive, but we want to see them once again being able to continue to produce and to trade.”

Millions of chickens have been culled since the outbreak in April of two strains of the influenza virus that has also affected the production of eggs.

3. Infrastructure budget cuts:

The possibility of budget cuts to infrastructure development poses a real threat to the currently improved outlook for the civil industry as tenders for infrastructure projects may be reined in, warns construction market intelligence firm Industry Insight.

Construction industry bodies have also expressed concern about possible budget cuts to government infrastructure expenditure, particularly as this expenditure is a catalyst for economic growth and job creation.

Elsie Snyman, CEO of Industry Insight, said the more positive trend shown in civil project awards of late should continue to support higher levels of investment during 2023/24.

However, Snyman said the recent announcement by National Treasury to withhold advertisement of further infrastructure projects and a potential cut in infrastructure to be announced in November could significantly reduce the pipeline.

“This means the anticipated recovery in the civil sector may be temporary,” she said in the firm’s latest Construction Monitor.

Snyman said the total estimated value of civil projects out to tender in the first eight months of 2023, excluding renewable energy sector projects, increased by 130% year-on-year – or by R41.2 billion – to R72.9 billion in current prices.

‘Cuts will be devastating’

Master Builders South Africa (MBSA) executive director Roy Mnisi said their members are very concerned about possible budget cuts to infrastructure expenditure, particularly as everyone knows that infrastructure development plays a key role in ensuring economic growth and creating employment.

Mnisi said the effect of any cuts in infrastructure expenditure by the government will be “devastating”.

He said planned infrastructure development in energy, water and sanitation, transport, ICT, and other sectors of the economy is well known.

“All of those cuts will have a devastating effect, not only to us as the construction sector, but to the economic growth as a whole,” he said.

Mnisi added that MBSA is confused as to why government is even thinking about cuts to infrastructure development expenditure when it is held up to be a catalyst or an enabler of economic development and recovery from the impact of the Covid-19 pandemic.

4. Karpowership gets green light:

Karpowership won environmental authorization for one of three ship-mounted power plants it wants to connect to the South African grid, a key step in fulfilling a contract it won more than two years ago. 

The Turkish company said the Department of Forestry, Fisheries and the Environment gave it permission to go ahead with the installation of a 450-megawatt gas-fired plant in the northeastern port of Richards Bay.

While the company must still complete its agreements with the national ports company before it can proceed, its environmental authorization applications have been the subject of a number of legal challenges from environmental activists.

It has also applied to install a 450 MW plant in the southern port of Ngqura and a 320 MW plant in the western port of Saldanha. 

The “outcome represents a meaningful turning point in this extensive process,” the company said in a statement Friday. The “projects will make an important contribution to combating South Africa’s energy crisis,” it said. 

Karpowership won about 60% of a government tender in March 2021 to supply 2,000 MW to ease chronic power shortages in the country.

While the initial target date for power production for Karpowership and other winners in the tender was August 2022, none of them are up and running yet.

Activists have objected to the company’s planned use of gas, a fossil fuel, and the potential impact of its so-called powerships and associated gas storage vessels on sea life and small-scale fishing.

An unsuccessful court case by a rival bidder that failed to win a contract also delayed Karpowership from implementing its plans.

South Africa has, since about September last year, suffered almost daily power outages, sometimes for as long as 10 hours or more a day, because the state power utility, Eskom, can’t meet demand. Those outages have eased in recent weeks.

5. DBSA wants help from private sector:

The Development Bank of Southern Africa (DBSA) approved several projects worth R25 billion in its past financial year alone and wants the private sector to get involved to help finance them.

The project involves addressing critical infrastructure such as water and sanitation, energy and other sectors such as transportation.

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

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