News in South Africa 29th January:

1. SA risks losing out on new ‘gold rush’:

The world’s need to decarbonise should benefit South Africa’s mining sector – but government inefficiencies are pushing the industry off the rails.

SA risks losing out on new ‘gold rush’
Photo by Michael Steinberg

Business Leadership South Africa CEO Busiswe Mavuso said the rapid deterioration of Transnet’s ability to move resources across the country has resulted in a considerable decline in earnings.

National Treasury said that the cost of rail deficiencies in 2023 was roughly 5.5% of GDP, with Richards Bay coal exports hitting a 30-year low.

The National Union of Mineworkers previously said that that nearly 10,000 jobs could be lost by the end of January 2024 due to the inabilty of companies to export and the decline in commodity prices.

Regulatory chaos has also deterred investment in the mining industry, with Amendment Bills proposing extreme resource nationalism, which could give the state the ability to ban the exports of key minerals.

There are also major inefficiencies in rights procession at the Department of Minerals Resources and Energy (DMRE) due to the endless delays in the procurement of a new cadastral system to record mining activity across the nation.

There has also been a decline in expansion investment in the country and a near absence of exploration spending. This means that are no new mines opening and that only existing mines are being slowly mined out.

Despite these prevailing issues, Mavuso highlighted the huge potential of South Africa’s mining industry – particularly in a world where the country’s reserves are in massive demand.

“Despite our long history of mining, we still have some of the best reserves of critical minerals and metals in the world, including 91% of the world’s platinum and 80% of the world’s manganese.

“The need to decarbonise the global economy means demand for manganese, chrome, vanadium, copper, nickel and iron ore looks bright, all of which South Africa has in abundance,” Mavuso said.

“Were it possible to wave a magic wand and give the domestic industry a certain and conducive policy environment, efficient regulation and reliable network industries including electricity and logistics, the GDP and employment impact would be enormous.”

She added that the National Logistics Crisis Committee – a public-private partnership – and the logistics roadmap could make a big difference if done quickly.

A reduction in the intensity of load shedding and further investment in renewable energy has eased energy constraints in the sector.

In addition, the Department of Minerals Resources and Energy Minister Gwede Mantashe said that the department would fix the licensing backlog and complete the cadastre procurement.

“Along with that he could resolve the swathe of other unresolved legislative and regulatory uncertainties that hang over the industry,” Mavuso said.

“I hope that Transnet and the department will be there (at the Indaba) in force to engage with global and local investors to demonstrate that tangible and reliable progress is being made.

“They must assure investors that efforts to concession part of the Durban port and some rail access will be redoubled and successfully concluded, and that many more concessions of port and rail infrastructure is in the offing.”

2. Boom in economic growth expected:

Bank of America expects South Africa’s economic growth to triple to 1.5% in 2024 from a paltry 0.5% in 2023. 

Sub-Saharan Africa economist at Bank of America, Tatonga Rusike, told CNBC Africa that this growth rate is nothing special and not good enough for the country. 

Rusike said 2024 will be a very tumultuous year for South Africa, with national elections, interest cuts expected in the second half, and deteriorating public finances. 

South Africa’s economy performed poorly in 2023, predominantly due to record load-shedding. Bank of America expects this to improve. 

“Our starting assumption for the year is that South Africa will have fewer power cuts as Kusile’s units come back online and households and corporates continue their uptake of rooftop solar,” Rusike said. 

This will make the economy more resilient and somewhat immune to load-shedding, attracting investment to the country. 

Another factor in South Africa’s improved economic growth will be the Reserve Bank cutting interest rates in the second half of the year. 

Rusike said that rate cuts will likely boost consumer spending and consumption, resulting in economic growth. 

Bank of America also expects foreign investment to pick up in South Africa once the Federal Reserve cuts interest in the US. 

Rate cuts in the US will increase investors’ risk appetite, which will benefit emerging markets, including South Africa. 

However, Rusike said rate cuts in the US will not result in foreign investors committing capital to long-term projects in the country as local structural issues will still deter them.

“I must also say that an improvement to 1.5% economic growth is positive, but it is not special and is roughly equal to South Africa’s population growth. In per capita terms, the economy will be stagnant,” he said. 

Bank of America’s expectations for economic growth are not dissimilar to those of the Reserve Bank, which sees the economy growing 1.2% in 2024.

The Reserve Bank said the deterioration in the performance of its ports and rail has seriously constrained the local economy.

Transnet’s failures and lengthy periods of load-shedding contributed to weak economic growth in 2023 and higher inflation throughout the year.

On a more positive note, the Reserve Bank expects the electricity supply to increase gradually over the long term due to the rapid uptake of alternative energy sources from the private sector.

South Africa, being a small and very open economy, is highly vulnerable to changes in the global economic environment.

And so, weaker-than-expected global economic growth will also weigh on the performance of the local economy.

The Reserve Bank expects global economic growth of only 2.6% in 2024, resulting in a minor uptick in demand for South Africa’s valuable mineral resources.

3. Sanral to boost market with R28bn in tenders:

The South African National Roads Agency (Sanral) is aiming to have about R28 billion worth of tenders in the market by the end of its financial year in March this year.

The injection of these tenders into the economy will provide a welcome boost to South Africa’s struggling construction industry.

Sanral CEO Reginald Demana said the roads agency intends to put out at least another 70 tenders to the market “in the next couple of weeks”.

Demana said this will result in about R28 billion of tenders advertised under Sanral’s Interim Preferential Procurement Policy (PPP) in the current 2023/2024 financial year.

Sanral confirmed last week that some of the largest and most important tenders being advertised include reissued tenders for:

  • The improvement of the N2 Section 34 from Leiden to Camden, with an estimated value of R1.9 billion, which was out on tender and closed on Friday [26 January 2024];
  • Package 1 for the Moss Kolnik-Umlazi Canal, with an estimated value of R4.1 billion, which is currently out on tender and will close on Wednesday [31 January 2024]; and
  • The Marianhill Plaza-Key Ridge project, with an estimated value of R3.1 billion, is out on tender and will close 28 February 2024.

The announcement about the R28 billion in tenders to be advertised follows Sanral reporting in December that it had closed almost 77 tenders worth R6.43 billion and had started adjudicating these tenders with the aim of awarding them early in 2024.

These tenders were among those cancelled because of a high court legal challenge by several construction companies to Sanral’s new PPP scoring system, which it adopted in May 2023 and was to be used to adjudicate these tenders.

The legal challenge led to Sanral withdrawing the scoring system in October 2023, cancelling all existing advertised tenders that had not yet closed and embarking on a public participation consultation process with interested and affected parties on a proposed interim PPP.

This resulted in Sanral readvertising 86 road construction tenders, collectively valued at R7.2 billion, at the end of November 2023 and indicating that its stated aim is to fast-track the adjudication of these tenders to get these projects back on track as speedily as possible.

Sanral confirmed last week that of the 77 tenders worth R6.43 billion that closed late last year:

  • One national project valued at R331 million has been awarded to date, consisting of 28 packages awarded to 14 tenderers for bridge and major culvert inspection;
  • One tender is currently in the adjudication process; and
  • 75 tenders are still at various evaluation stages.

Demana said earlier this month that Sanral is on a mission to accelerate work in the construction industry early in the first half of 2024.

“There is quite a lot of work we want to dish out. By March, we want to have about R28 billion worth of tenders in the market.

“However, some will be closed towards April when we enter the new financial year,” he said.

Demana said the full rollout of the additional contracts Sanral will be issuing will include dividing the R28 billion across the entire country and into all provinces.

“We try and make sure that we are distributing work and tenders equitably so that we don’t leave any part of the country feeling that we are not looking after the national road network in their area,” he said.

The spread of work across Sanral’s four regions:

  • The Western Region, comprising the Western Cape and Northern Cape, will get contracts worth R600 million;
  • The Southern Region, which encompasses the Eastern Cape, will get contracts worth R2.8 billion;
  • The Eastern Region, which includes the Free State and KwaZulu-Natal, will get contracts worth R2.1 billion; and
  • The Northern Region, comprising Gauteng, Limpopo, Mpumalanga and North West, will get contracts worth more than R500 million.

Demana said the Eastern and Southern regions are allocated much bigger portions because they encompass significant infrastructure projects, such as the N2/N3 expansion in KwaZulu-Natal and N2 Wild Coast project in the Eastern Cape.

He added that wherever the Sanral projects are located, the roads agency has a mandate that value must flow through to small, medium and micro enterprises (SMMEs), local contractors and local communities.

Demana said this means that at least 30% of these tenders will be allocated to smaller black-owned construction companies as part of Sanral’s efforts to deepen transformation and in terms of its interim PPP.

Through these contracts, Sanral aims to ensure that small businesses graduate to become major construction companies, he added.

Demana stressed that the aim, as Sanral embarks on this extensive rollout of tenders, is to stimulate economic growth, promote infrastructure, development and create opportunities across the country.

4. Climate change raising insurance premiums:

Climate change poses the most significant threat for South African insurance companies and risks raising premiums and the cost of reinsurance, a top official at its biggest insurer by assets said.

After staying almost flat in the decade to 2020, the cost of reinsuring against catastrophic events for Old Mutual has climbed as much as 30%, according to Garth Napier, managing director at a unit.

In addition to Covid-19, reinsurance costs have jumped due to the worst flooding in almost three decades that drowned more than 400 people in landslides and washed away houses in 2022, he said in an interview Friday. 

Reinsurers — the businesses that underwrite insurance companies — paid out R30 billion for that catastrophe. In total, the industry has reimbursed more than R100 billion for the pandemic, floods, and riots in the past three years, Napier said, citing data from reinsurance broker Gallagher Re Inc.

“The biggest concern for the industry is climate change driving a significant increase in the number of events that are happening,” he said.

“There’s definitely some data to support that we are seeing an increase in frequency in South Africa and globally and that the extent of the damage is definitely a lot higher than what it would’ve been in the past.”

Customers could see a 10% increase in premiums across the board this year, Napier estimated.

Last year, an investment-management arm of Old Mutual said it would vote against some resolutions at an annual general meeting of Sasol Ltd. because of the petrochemicals and fuel firm’s poor record on climate targets.

The company accounts for about a fifth of South Africa’s greenhouse gas emissions and releases a slew of pollutants. It has set a target of cutting emissions by 30% by 2030 and reaching so-called net zero by 2050.

South Africa is highly vulnerable to climate change and is ranked 96 out of 182 countries assessed under the Notre Dame Global Adaptation Initiative index.

The economy is also at risk due to the nation’s dependence on rain-fed farming and natural resources, according to the World Bank.

5. Fall of win exports:

SA’s wine exports fell 17% to 306-million litres in 2023, in part because high inflation and high interest rates in some of SA’s key wine export markets affected how consumers chose to spend their money, says wine export promotion body Wines of SA (WoSA).

Wine exporters say also that, like the fruit exporters, they were hampered by logistical challenges at the Port of Cape Town.

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

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