News in South Africa 28th March:
1. Costs of living soaring:
The costs of the Ukraine war have started to hit closer to home in South Africa. Workers are spending more on transport, food and electricity to make it through the month.
Spiralling international oil prices, largely on the back of the Russia-Ukraine conflict, have seen record fuel prices locally, which is also fuelling higher food prices.
Earned wage access companies Paymenow and Level Finance say already stretched workers are battling to make it through the month without drawing down on wages before the end of the month.
Through the earned wage access process, workers can access part of their earned salary or wages in advance of month-end. Lenders are also able to keep close track on the reasons for borrowing.
As petrol prices are expected to hit around R24 a litre in April, wage increases are starting to fall behind cost of living increases.
According to Transaction Capital, which finances minibus taxi fleets around the country, taxi fares have increased by more than 9% per year since 2013.
This outstrips growth in salaries over the same period by some distance.
Statistics gathered by Paymenow show that those workers who have requested payments have done so mainly to cover their transport costs.
In January, employees signed up with Paymenow requesting advances were trying to cover commuting costs to work 46% of the time. By comparison, only 23% of disbursed payments were used for food. The trend continued in February and March.
The South African government is yet to announce measures to help consumers cope in the face of spiralling fuel costs.
Countries such as Brazil, Japan, South Korea and India have all announced domestic fuel tax cuts and subsidy increases to maintain affordable price levels.
“South Africa did protect consumers from a petrol price jump in 2018, but the seemingly protracted time frame of the Russia-Ukraine conflict looks set to test the country’s balance sheet as global fuel price hikes drive consumer inflation,” says Nobrega.
“Ultimately, South African workers will not be able to cover all their basic costs if input prices continue to drive inflation in the prices of basic goods …
“In a country with a poor savings rate and an economy under pressure, those without early access to their wages stand the greatest chance of falling into a debt trap and potentially losing their jobs as a result. This will be a disaster for the country,” he adds.
2. Food prices to be investigated:
The Competition Commission has announced plans to investigate South Africa’s fresh produce food market.
“Essential foods are critical to the socio-economic well-being of a nation, and in particular to its poorest consumers for whom essential foods form a significant portion of household expenditure relative to other wealthier consumers,” the commission said.
“In the context of the Covid-19 health crisis, it has become clear that nutrition and affordable healthy foods are important for household health as well as maintaining a country’s food security.”
The commission cited several studies noting there is broad concern over price levels and volatility of pricing for fresh produce in South Africa.
“The studies show that the higher prices of fresh produce have a disproportionate effect on the poor and low-income earners who have to spend a far greater portion of their income to purchase essential products.
“A fuller understanding of the main drivers of the apparently high prices of fresh produce in South Africa is a critical area that this inquiry may address.”
The commission said that the Covid-19 pandemic also affected supply and demand within the fresh produce markets, with initial surges in the pricing of some fresh produce and evidence of continued volatility in a market that has seen a number of events in the past two years.
What will be looked at
For the purposes of the inquiry, fresh produce includes unprocessed products such as fruit and vegetables, and forms an important part of South Africa’s wider agriculture industry, the commission said.
The main fruits produced and consumed in South Africa include:
- Oranges and other citrus;
The inquiry is expected to touch on several areas including seed and fertilisers companies, the country’s major farmers, and distributors.
3. Gas deal with Russia:
Gazprombank, owned by Russia’s state-owned gas supplier, confirms it is considering a bid for what is potentially a multibillion-rand contract — which, if awarded, would raise questions on whether South Africa’s stance on Ukraine is being influenced by its thirst for gas.
Amid a war in Ukraine and soaring gas prices, South Africa wants to urgently secure access to vast amounts of natural gas.
The Central Energy Fund (CEF) released a tender last month, looking for a gas aggregator to help secure liquified natural gas (LNG) for various gas-to-power projects planned for the Coega special economic zone in the Eastern Cape.
A gas aggregator is a wholesaler that imports LNG in bulk and sells it to smaller customers.
It has been confirmed that SOCAR, the state-owned oil company of Azerbaijan, and Gazprombank, which is owned by Russia’s state-owned natural gas supplier Gazprom, are contemplating bids. Shell, which was expected to be a front-runner for the gas aggregator tender, has confirmed that it will not bid.
The tender is potentially lucrative: “The average Gas Demand could be more than 200 million cubic feet per day. Such volumes can be managed through multibillion-rand contracts per annum. It would be recommendable to consider aggregating supply … so as to maximise the benefits of economies of scale,” the tender documents explain.
This translates to over 75-million MMBtu per year, the common unit of measure for natural gas when it is sold on the global market.
Before the Russian invasion of Ukraine, 1MMBtu was priced at roughly $26. At the beginning of March, 1MMBtu hit a record-high of $52. Even at pre-Ukraine prices, that would put the size of the potential contract at $2-billion (R29-billion) a year.
But that depends on the gas aggregator finding willing buyers. In Coega, these would be independent power producers (IPPs) who will burn natural gas to generate electricity. Coega currently has no gas-to-power projects but hopes to secure a portion of the 3,000MW gas-to-power IPP programme which is scheduled to be rolled out later this year.
Gas aggregators are not unusual in the energy sector; Singapore has appointed several — including Shell and Exxon — to bring LNG into the country.
What is unusual is that the CEF wants to partner with the oil and gas industry to set up a new state-owned gas trading entity to aggregate these multibillion-rand contracts.
4. Russia trying to split Ukraine:
Russia is now trying to split Ukraine in two after failing to conquer the whole country during its military offensive, according to Ukrainian military intelligence.
Kyrylo Budanov, Ukraine’s defence intelligence chief, said on Sunday that Russian President Vladimir Putin wants to create a situation “like North and South Korea in Ukraine” by dividing the nation and creating a Moscow-controlled state, Sky News reported.
After World War II, Korea was divided into Soviet-backed North Korea and US-backed South Korea.
Budanov said that Ukraine believes Putin is now prioritizing seizing the east and south of the country, per BBC News. The alleged strategy, Budanov added, involves building a land corridor between the east and Crimea.
Putin would then draw a demarcation line separating that area from the rest of Ukraine like there is between South Korea and North Korea, Budanov said, according to BBC News.
Budanov said the fierce resistance Russian troops face in “unbreakable” Mariupol, situated in the land corridor Putin purportedly desires, is a major obstacle to this strategy.
“The main objectives of the first stage of the operation have generally been accomplished. The combat potential of the Armed Forces of Ukraine has been considerably reduced, which, I emphasize once again, makes it possible to focus on the main efforts to achieve the main goal, liberation of Donbas,” Russian General Sergei Rudskoi said in a briefing on Friday, Interfax reported.
Russia is seemingly scaling back its invasion of Ukraine, which appears to have stalled after being met with strong resistance in Ukraine. It is focusing on the “liberation” of Donbas, it claims.
The Donbas region comprises the Luhansk region and the Donetsk region.
5. Rail woes plague SA:
South Africa is missing out on some of the riches on offer from the commodities boom as a rail network beset by problems hobbles its exports.
While coal prices recently soared to a record and iron ore is historically high, miners are being forced to stockpile supplies as state-owned Transnet’s rail network buckles under issues from cable theft to breakdowns, compounded by years of corruption. Last year alone, more than $2 billion in potential coal, iron ore and chrome exports were lost, an industry group said.
Transnet’s lines are critical for moving bulk commodities – which have rallied further amid the war in Ukraine – from mines to ports. As lost earnings mount for miners, executives are becoming more frustrated by rail failures. It’s become such a headache that South Africa’s top thermal coal shipper, Thungela Resources, is weighing buying overseas assets to limit its local exposure.
“South Africa is losing money, we are losing money as an industry and we as a company are losing money,” Thungela Chief Executive Officer July Ndlovu said. “It doesn’t make sense for us to concentrate our risk on exactly the same infrastructure that has cost us as much.”
Transnet’s 31 000-kilometer network includes a route taking high grade iron ore from Kumba Iron Ore’s giant Sishen pit in the Northern Cape to the west coast, and one from Mpumalanga’s vast coal fields to the east coast. Companies using it also include Exxaro Resources and Glencore.
The network is being increasingly targeted by thieves taking cables which disrupts operations. It has suffered from locomotive shortages and has even suspected sabotage of infrastructure. Frequent locusts infestations that affect traction on the iron ore line and bad weather also add to the list of problems.
Transnet is among state firms that were hollowed out by mismanagement under former President Jacob Zuma. It said it has turned to general freight locomotives to haul some coal after part of its fleet specifically designed to transport the fuel was grounded by shortages of spare parts. That’s partly due to suspension of supplier contracts in the wake of widespread state corruption.
Coal, iron ore and chrome companies missed out on about R35 billion last year from contracted volumes that couldn’t reach ports, the Minerals Council South Africa said. Even as coal prices and demand surged in 2021 on the back of an energy crunch, volumes of the fuel transported by Transnet fell to a 13-year low, according to Anglo American spinoff Thungela.
The producer is among those stockpiling coal, Chief Financial Officer Deon Smith said.