News in South Africa 27th September:

1. Government to fail on its promises:

South Africa is set to miss all but one of the 2030 development targets its National Planning Commission set just over a decade ago.

Government to fail on its promises
Photo by Nicola Barts

Of nine targets set in the National Development Plan, ranging from employment to investment, five measures have deteriorated from their baseline, one is unchanged, and three have improved, the commission said in a 10-year review of the progress of the plan.

Still, of the three that improved, only one is ahead of the target set.

“Economic growth has been stagnating, investment restrained, employment declining relative to a growing population, and poverty and inequality consequently remaining entrenched,” the commission said. “There is a greater need for the state to work closer with the private sector.”

The commission was established to advise the president and cabinet on long-term development goals as South Africa struggled to overcome the challenges of inequality, poverty and unemployment that the government has blamed on the legacy of apartheid.

While South Africa made significant gains in growing its economy and reducing unemployment between 2000 and 2008, much of that progress unravelled during the nine-year tenure of President Jacob Zuma, which ended in 2018.

The government estimated that during his reign, at least R500 billion ($26.2 billion) was stolen from state coffers. He has denied wrongdoing.

In its report, the commission listed the progress, or lack of, made toward the targets between 2012 and 2022.

In 2011 the economy expanded by 3.3%, and in recent years, it has fallen well short of a 2030 target of 5.4% growth. Unemployment surged to 32.9% against a target of 6% and a level of 25.4% in 2011.

Investment, or gross fixed capital formation, as a percentage of gross domestic product, has fallen to 14.1% from 19.4% while a target of 30% was set.

Progress has been seen in boosting the labour force participation rate to 59.4% from 55.4%, putting it ahead of the target of 56.6%.

The employment number has also risen to 16.1 million from 13.65 million, against a 2030 target of 24 million, but that increase has come as the population expanded.

Particularly stubborn has been the Gini coefficient, a measure of inequality, which hasn’t shifted from 0.69 against a target of 0.60.

South Africa is the most unequal country in the world for which data is available, according to the Thomas Piketty-backed World Inequality Lab.

2. Rand back at R19/$:

The dollar rose to a new 10-month peak against a basket of major currencies on Tuesday as US bond yields hit their highest level since October 2007.

The rand hit R19/$ after strengthening to below R18.70 over the past week. The currency has now lost 6% of its value over the past year.

Federal Reserve policymaker Neel Kashkari said on Monday that, given the strength of the US economy, interest rates should probably rise again and be held “higher for longer” until inflation falls back down to 2%.

His comments helped push up the yield on the 10-year U.S. Treasury – the benchmark US yield that sets the tone for borrowing costs around the world – to 4.566% on Tuesday. Bond yields move inversely to prices.

Higher US yields boosted the allure of the greenback, pushing the dollar index to 106.2, the highest since late November 2022. The index, which tracks the currency against six major peers, was last up very slightly at 105.96.

The euro was last up 0.1% against the dollar at $1.0596, having hit its lowest since March at $1.057 earlier in the session. “The dollar is just a steamroller, it’s absolutely extraordinary,” said Joe Tuckey, head of FX analysis at broker Argentex.

Elsewhere, the British pound slid to its lowest level since mid-March at $1.2168 and was last down 0.19% at $1.219. It follows the BoE’s decision to hold rates at 5.25% last week and a spate of bad economic data. Tuesday marks a year since the pound crashed to a record low of $1.0327 against the dollar after then-Prime Minister Liz Truss’s disastrous budget.

The Swiss franc also fell to its lowest since March at 0.915 francs to the dollar, having slid since the Swiss National Bank unexpectedly kept interest rates on hold last week. 

3. Another interest rate increase on the cards:

Renowned economist Dawie Roodt said there was a change in the South African Reserve Bank’s (SARB’s) interest rate outlook, with another increase on the cards this year.

On Thursday, the SARB’s Monetary Policy Committee (MPC) decided to keep South Africa’s repo rate stable at 8.25% for the second meeting in a row.

This decision was made on the back of better monthly outcomes, which have led to a downward revision in the MPC’s forecast for core inflation to 4.9% in 2023 (previously 5.2%).

The Reserve Bank has been attempting to bring inflation down and within its target range of 3% to 6% since the hiking cycle started in November 2021.

Its efforts started to yield results in recent months, with inflation cooling since April and reaching an almost two-year low in June.

However, MPC member voting revealed that further interest rates are a definite possibility. Three members preferred to keep the rate on hold, while two wanted a 25 basis point hike.

Unsurprisingly, SARB Governor Lesetja Kganyago said tackling inflation is not yet done, and more interest rate hikes could be on the cards.

He said risks like fuel and food price inflation remain, and should they see them materialise, they “stand ready to act”.

Roodt explained that the SARB’s decisions are influenced by the United States Federal Reserve, which took a more hawkish stance with the risk of further interest rate increases.

He added that the small margin in the MPC voting signals that the Reserve Bank is not convinced that high inflation is a thing of the past.

“I now predict that interest rates may even go up a little bit more, and we may have to wait until next year for the Reserve Bank to cut interest rates.”

Roodt now expects the first interest rate cut in the second quarter of 2024, significantly later than he predicted a few months ago.

4. Eskom emissions soar:

Four of South African state utility Eskom’s 15 coal-fired power plants are breaching government emissions regulations as it pushes ageing facilities to their limits, a Reuters analysis of company data found and Eskom officials confirmed.

Africa’s most developed economy is facing its worst power crisis on record, with a persistent electricity shortfall necessitating daily scheduled rolling blackouts – known locally as load shedding – of up to 10 hours for the past 18 months.

Two senior Eskom officials and Electricity Minister Kgosientsho Ramokgopa told Reuters they were aware of the violations, which last year helped reverse a four-decade trend of declining emissions of so-called particulate matter – mainly ash and soot.

However, they said making the plants compliant would take time and could undermine efforts to address the power shortfall.

This leaves South Africa in the meantime with a choice between keeping the lights on and protecting the health of its citizens.

The environment ministry did not respond to Reuters questions about the emissions violations.

“We’ve got a constrained system. It’s just that there’s not enough space for maintenance, and there is sometimes a trade-off made,” Deidre Herbst, Eskom’s senior environmental manager, said of the emissions breaches.

Though some 80% of South Africa’s electricity is generated from burning coal, Eskom had succeeded in reducing particulate matter emissions by 75% through a programme of plant upgrades launched in the 1980s, Herbst said.

But with power cuts expected to erase two percentage points from economic growth this year, she said Eskom is having to run plants harder and delay upgrades to keep generating power.

Company-wide, Eskom’s particulate emissions last year were at their worst levels since the early 1990s, an internal Eskom presentation reviewed by Reuters showed.

“We’ve really been struggling a bit in the last couple of years,” said Herbst, who acknowledged that the power plants have been exceeding emissions limits for the last six to 12 months.

Of the four plants in breach of regulations – Matimba, Matla, Kendal, Kriel – two were emitting more than double the permitted limit of particulate matter in February, the most recent month of available Eskom data showed.

5. New renewable energy deal:

South Africa and Japan have entered a new agreement that will see Japan helping South Africa decarbonise key industries like steel, cement and aviation.

It will also allow SA and Japan to work on hydrogen and ammonia projects, building critical skills. SA is expected to see a rapid growth in these sectors as it boosts its investment in renewables in the coming years. 

A Memorandum of Cooperation was signed between the two nations on Monday, with the goal of supporting the reduction of carbon emissions in the domestic economy.

The agreement will allow for the transfer of technologies from Japan to help South Africa decarbonise, especially industries that have proved hard to abate or reduce emissions. 

Minister of Higher Education, Science and Innovation Blade Nzimande said the agreement would allow for partnerships to facilitate training and development in critical and technical skills needed for the growing hydrogen economy, as well as developing necessary standards for hydrogen production, transportation and regulatory frameworks.

Furthermore, the two countries intend to work together commercialising intellectual property that is locally developed, which Nzimande says will lead to licencing opportunities “both ways”. 

Notably, the two countries mean to work on carbon capture technologies – which remove carbon dioxide from the atmosphere. This is a very expensive technology, and some researchers believe it should be a last resort when cheaper alternatives like rolling out more solar and wind technology are more feasible to reduce emissions.

However, SA’s government is still open to pursuing this technology.

“South Africa will use the Memorandum of Cooperation to increase commercial partnerships with Japan in the Carbon Capture and Use technologies,” Nzimande said.

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

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