News in South Africa 28th November:

1. Organised crime threatens economy:

Organised crime is fast emerging as the biggest threat to our economy. It is now more damaging than bad policy or service delivery failures. We are in the grip of an epidemic with large industries from mining to construction being targeted by extortion rackets. This is undermining all of our efforts to build a country with a growing economy based on good policy and an effective state.

Organised crime threatens economy
Photo by cottonbro studio

Business must work out how best to respond. BLSA subsidiary Business Against Crime has long been making an important contribution to the fight against crime. Our Eyes and Ears (E2) programme gathers intelligence from partners across business and private security companies to support the police to detect and investigate crime. I urge any business that is subject to an extortion attempt to report it on the Business Against Crime website – this helps us to understand how organised crime is evolving so that we can support the police to tackle it.

These efforts have certainly helped – we have been able to track emerging threats to critical infrastructure and new industries being targeted. We have a good relationship with the police and intelligence sharing with the National Operational Command Centre.

But the explosion of extortion efforts targeting legitimate business across the country calls for new measures.

The problem is that while businesses can pay for security and we can share knowledge, we cannot compile dockets and prosecute. Fundamentally no one can protect our security other than the state, and its capacity to do so is vastly weaker than it needs to be. We have to have an effective police force and turning it around needs to be an urgent national priority.

If we fail, we seriously risk descending into a mafia state with the formal sector squeezed out by criminals whose reach stretches deeply into our law enforcement structures.

2. What is needed to halt rate hikes:

The South African Reserve Bank (SARB) told economists on Friday (25 November) that it needs to see consumer inflation steadily decline to the 4.5% mid-point of its targeted range before it will consider pausing or stopping its current rate hiking cycle.

The central bank hiked rates by 75 basis points last week, taking the repo rate to 7.00% and the prime lending rate to 10.5%.

According to the Bureau for Economic Research (BER), the SARB’s tone following the rate hike heavily implies that more hikes are to come, with the economists now seeing the peak repo rate at 7.25% in 2023.

“Based on the Monetary Policy Committee’s (MPC’s) commentary on Thursday and Friday, there is now some upside risk to our view that the policy rate will be hiked by another 25bps in January to a terminal (peak) rate of 7.25%,” it said.

“(The SARB) session reiterated that a meaningful decline in the inflation rate is necessary before the MPC would cease hiking. Importantly, our current headline inflation forecast is for near-term CPI to remain sticky between 7 to 7.5%. Therefore, all else being equal, the MPC is most likely to increase the repo rate again during its next meeting in January.”

While this position by the central bank means indebted consumers are likely to remain under pressure in the medium term, the situation is not without its positive news.

The BER noted that, in contrast to the hawkish comments from MPC members and the near-term sticky inflation outlook, financial market developments over the past week were more constructive.

Notably, the rand exchange rate gained further ground, moving to stronger than R17/$ at one point after the US dollar came under some pressure as the latest Fed minutes supported expectations that the US central bank could slow down the pace of policy rate hikes at their next meeting in mid-December.

“Another domestic disinflationary impulse came from the oil price, with the 1-month Brent crude future falling below $84 a barrel. So far in November, Brent crude has declined by about $10 barrel or almost 12%,” the BER said.

Although the economic data releases from major economies were, in some cases, not as bad as expected over the past week, the oil price continues to be pressured by rising concern about global growth prospects in 2023, the economists said.

3. India and China buying Russian oil:

Russian energy revenues may finally be feeling the pinch — the European Union’s sweeping sanctions against the country’s energy exports are about to kick in on December 5, more than nine months into the Ukraine invasion.

As Kremlin is set to lose its single largest customer, it is redirecting seaborne exports to Asia, in particular to India and China. 

But that’s proving to be difficult business. India and China now account for about two-thirds of all Russian seaborne crude-oil exports, and as major customers, they are demanding massive discounts for their purchases, Bloomberg’s oil strategist Julian Lee wrote on Sunday.

Russia’s flagship Urals crude oil was trading at a discount of $33.28, or about 40% to the international Brent crude oil at the end of last week, according to Bloomberg’s analysis of data from trade news service Argus and the Intercontinental Exchange in Europe. That’s a steep fall from the $2.85 discount that Urals was trading at in 2021.

Due to the Urals’ widening discount, Russia is losing about $4 billion a month in energy revenues, per Bloomberg’s calculations.

This is significant, especially since oil prices have fallen sharply in recent months due to fears about a recession, strong Russian output, and falling demand, after prices hit multi-year highs earlier in 2022.

That is also why Washington doesn’t appear to be too worried about India and China’s huge purchase of Russian oil, even if they pay prices above a G7 imposed price cap.

Russian oil “is going to be selling at bargain prices and we’re happy to have India get that bargain or Africa or China. It’s fine,” US Treasury Secretary Janet Yellen told Reuters on November 11.

Brent crude futures are about 4.3% higher this year so far at around $81.30 a barrel after spiking over 30% in the days after the Ukraine war broke out.

4. Eskom COO announces retirement:

Eskom chief operating officer Jan Oberholzer will retire from the state-owned power utility in April 2023 after over 30 years of service, News24 reports. He turns 65 in April.

According to the report, it isn’t clear if the Eskom board will ask Oberholzer to train a successor.

The news of Oberholzer’s imminent departure as a permanent Eskom employee comes after the Hawks arrested someone for allegedly making a bomb threat against him.

In addition to losing Oberholzer in April, several Eskom executives left the power utility this year.

Eskom’s generation executive Philip Dukashe resigned in May.

Rhulani Mathebula stepped in as acting head of generation for the second time while the power utility recruited a replacement.

However, Mathebula has also since resigned from the utility. His last day is at the end of November.

Thomas Conradie will be Eskom’s new acting generating executive in the interim.

Eskom’s acting chief nuclear officer, Riedewaan Barkadien, also resigned this year, leaving the power utility on 31 July to join a Canadian nuclear power producer.

Keith Featherstone stepped in as Eskom’s new acting chief nuclear officer.

Eskom and public enterprises minister Pravin Gordhan have admitted that an exodus of experienced individuals has exacerbated the crisis at the power utility.

5. Threats of renewed strike action:

Public service unions look poised to engage in a third strike day this week as the government continues to refuse to meet their wage increase demands.

The threats of renewed strike action follow a march to the offices of the National Treasury in Pretoria last week.

Civil servants are refusing to back down demanding double-digit wage increases while the government is hellbent on a 3% wage hike.

On Friday night, global rating agency Fitch announced it had decided to keep its rating of South Africa unchanged. Fitch affirmed South Africa’s long-term foreign and local currency debt ratings at ‘bb-‘ and maintain a stable outlook but it remained concerned about the standoff.

However, the agency sees the current public sector wage demands pointing to increased upward pressure on spending with the country struggling to get out of debt. But labour unions are having none of this saying it isn’t their concern as public servants need a livable wage.

Three labour union federations – Cosatu, Saftu and Fedusa – threaten the government with another strike day on Friday. At least seven unions have joined forces in their bid to pressure the government to honour the 2018 wage agreement – a request that has been turned down.

All information sourced from articles posted by: Moneyweb, BusinessTech, Business Insider, MyBroadband, and EWN.

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