News in South Africa 29th November:

1. No support after bird flu outbreak:

Government’s promises to assist the local poultry industry following the avian flu outbreak earlier this year have yet to materialise. The outbreak led to the culling of millions of birds, which caused a reduction of 30% in the production of hatching eggs.

No support after bird flu outbreak
Photo by Teun Nijn

Deputy President Paul Mashatile promised a support package for affected farmers a month ago, and Minister of Trade, Industry and Competition Ebrahim Patel asked for an urgent investigation into creating a rebate on poultry imports almost two months ago.

In the meantime, local producers started importing hatching eggs to alleviate the shortage.

Shortage or no shortage?

The Association of Meat Importers and Exporters (Amie) on Tuesday warned consumers that there will be a “ramp up” in poultry prices over the festive season and into the new year.

This is due to the cumulative effect of the shortages caused by the bird flu outbreak and the inability of the government to introduce a rebate on import tariffs timeously, says Paul Matthew, CEO of Amie.

Matthew says every effort is needed to keep poultry prices down. “Government’s mandate is to act on behalf of its citizens, and this requires it to do all it can to ensure that the country is food secure, and that the poor are able to afford poultry.”

The South African Poultry Association (Sapa) says there will be no poultry meat shortage due to avian influenza. Sapa general manager Izaak Breitenbach says the first eggs arrived in early October.

A total of 100 million fertilised eggs will be imported over the next four months. The eggs are used to produce day-old chicks, and in turn, the day-old chicks are grown out for five weeks before being slaughtered. “These actions by the industry have negated the biggest impact on price,” he says.

Matthew believes price increases will be “inescapable” unless government takes action.

Since the eggs have been imported on an urgent basis (and flown in by air), they are coming in at three times the price of a locally grown day-old chick, he adds.

2. Sentiment improves for the building sector:

Sentiment is improving in the building sector, even if businesses in the sector are still dissatisfied with the prevailing economic environment.

The FNB/BER Building Confidence Index, which measures sentiment in the building sector, grew by nine index points to an eight-year high of 43 in 4Q2023.

However, this means that 57% of respondents are still dissatisfied with prevailing business conditions.

From Q3 to Q4, the following changes in confidence were recorded:

  • Architects (+24),
  • Hardware retailers (+18),
  • Building sub-contractors (+11),
  • Building material manufacturers (+3),
  • Quantity surveyors (-1).
  • Main contractors (0)

The core building confidence index (excluding building material manufacturers and hardware retailers) also grew to 48 in 4Q2023, meaning that sentiment, using this measure, is broadly balanced.

“Also encouraging from these results is that activity this quarter was generally upbeat. This means that the better sentiment is based on stronger underlying fundamentals, namely actual work currently available,” said Siphamandla Mkhwanazi, Senior Economist at FNB.

Main contractor confidence was unchanged at 41 in 4Q2023 and has remained at a similar level for the whole year. That said, the index measuring the growth in activity decreased sharply in the quarter.

“It is unsurprising that the activity index recorded a marked decline this quarter. The building sector has registered robust growth since the middle of last year. Indeed, growth in building demand accelerated, in real terms, by an average of 6.4% year-on-year (y-o-y) in the first half of this year,” said Mkhwanazi.

“Therefore, the decline in the activity index this quarter merely means that the growth momentum is normalising after a brief growth spurt.”

Although the overall results are reasonably upbeat, the divergence between the residential and non-residential sub-segments is becoming more obvious.

The activity for residential building work still held up well, but order books worsened.

Non-residential builders are far more optimistic – confidence climbed further above the neutral 50 mark mainly due to much better overall profitability.

“Given the worsening state of the residential property sector, it is expected that residential builders are also starting to feel the strain in terms of the outlook for new work,” said Mkhwanazi.

“In contrast, the non-residential property sector is weak but improving. Non-residential builders are faring relatively better, albeit off a very low base.”

The business mood for architects increased to 54 in 4Q2023, its best level since 3Q2015, underpinned by the higher activity across the architect value chain.

The index measuring quantity surveyor activity also moved sharply higher to its best level since 3Q2007. Nevertheless, sentiment edged one point lower to 38.

“It is clear that activity at the start of the building pipeline was on a solid footing in 4Q2023. However, there is concern among respondents regarding the sustainability of this uptick and broader conditions within the sector, which in part explains the downbeat confidence of quantity surveyors relative to activity,” Mkhwanazi added.

Despite moving higher, building material manufacturer confidence is still low 29. This is due to the below-average growth in production, even if it is up from 3Q2023

Hardware retailer sales did, however, improve significantly to their best level this year.

“Within the retail sector, hardware firms have been the worst performers in terms of sales over the past few quarters as consumers sacrificed DIY and other renovation projects to maintain spending elsewhere. Some of this renovation demand seems to have returned this quarter,” said Mkhwanazi.

Building sub-contractor confidence also gained 11 points to register a level of 58 in 4Q2023.

3. SA electricity downfall:

Energy analyst Chris Yelland said South Africa is following in Nigeria’s footsteps, where all businesses and households must provide their own electricity.

On Tuesday, Eskom announced it would implement stage 6 load-shedding during the evenings to replenish reserves.

“The pattern of implementing Stage 4 from 05:00 until 20:00 and Stage 6 from 20:00 until 05:00 will be repeated daily until Saturday morning,” Eskom stated.

Higher stages of load-shedding surprised many people since Electricity Minister Kgosientsho Ramokgopa said Eskom’s performance has improved.

“The energy availability factor (EAF) has been consistent on an average of 60% for the past 14 days. We are getting much closer to the target of 70% EAF that we had promised,” he said in June.

Yelland and other energy experts warned that the Minister’s optimism was misplaced and South Africans should brace for more load-shedding in the years ahead. They were right.

Eskom’s EAF dropped again in recent weeks and dropped below 53.4% last week.

Yelland highlighted that Eskom initially reported that the EAF for week 46 was 55.5%. However, they corrected it after he alerted them to the error.

Therefore, Eskom’s plant performance is moving in the wrong direction and is behind the increased load-shedding South Africans are experiencing.

The situation is so dire that the People’s Republic of China donated emergency power equipment to assist South Africa with power cuts.

The first consignment of 450 gasoline generators has arrived in South Africa and will be distributed to public service facilities.

“The generators will be used as a backup to alleviate the impacts of load-shedding in the delivery of services in clinics, schools and courts,” the Presidency said.

Commenting on the development, Yelland told 702 that these generators are emergency equipment not intended for continuous use.

“It is a stopgap measure and not a good sign. It is a sign that we are heading in the direction of Nigeria’s electricity supply industry,” he said.

The Nigerian power sector cannot supply adequate electricity to domestic households and industrial producers.

Only 45% of Nigeria’s population is connected to the energy grid, and power supply difficulties are experienced around 85% of the time. It is almost non-existent in certain regions.

This means that in Nigeria, every business and household has to look after their own electricity supply to keep the lights on.

He added that diesel and petrol generators are noisy, pollute the environment and are very expensive to run.

It is, therefore, not a good solution to the country’s energy needs. Solar PV with battery backup is a more sustainable and affordable option.

4. The future for e-tolls:

The Gauteng provincial government (GPG) will table a “concrete proposal” to national government by December 15 outlining plans to pay off the province’s portion of the long-contested e-tolls debt and switch off or repurpose the gantries, assures Gauteng Finance MEC Jacob Mamabolo.

Unpacking the province’s Medium-Term Budget Policy Statement (MTBPS) on Tuesday, he said that it was now time to “conclude the modalities of the settlement of the debt” and that feedback on the proposal and “finality” were expected before the State of the Province Address early next year.

“We reaffirm our longstanding commitment to pay the debt, including augmenting our own provincial revenue without burdening the equitable share, especially priorities for social services such as education, health and social welfare,” he said, noting that it remained an increasingly pronounced risk to Gauteng’s fiscus in resolving the challenges related to raising revenue to settle Gauteng’s R12.9-billion, or 30%, of the e-tolls debt, as announced in a directive by Finance Minister Enoch Godongwana during the 2022 national MTBPS.

“The gantries should be switched off, and be repurposed and repositioned for security, crime prevention and roads-related law enforcement services,” he said.

In line with this, the GPG aims to strengthen its revenue-generation capacity to put a compelling case to national government to switch off the gantries.

Increasing and enhancing revenue collection also remains a significant priority of the GPG amid an increasingly constrained fiscus resulting from fiscal consolidation measures.

“It has become more important to seek alternative sources of funding to ensure that we maintain spending on key priorities and projects of the provincial government,” Mamabolo said, noting that budget cuts from national meant that the province must do more with less.

Revenue enhancement efforts during the current administration have enabled Gauteng to collect R32-billion from its own revenue sources, including hospital patient fees and motor vehicle licence fees, since 2019.

Gauteng is now intensifying revenue enhancement efforts and exploring alternative sources to maintain funding of key priorities.

5. Post office needs more money:

Though the South African Post Office (Sapo) has lost R19bn over the years, the entity’s business rescue practitioners (BRPs) are confident a bailout of R3.8bn could give it a fighting chance.

The multibillion-rand cash injection, however, would not save 6,000 employees from being retrenched.

Sapo business rescuers Anoosh Rooplal and Juanito Damons, in their plan to save the entity, said Sapo lost R19bn due to operating outdated business models and failing to adopt digital developments.

“Sapo incurred operating losses for many years, resulting in accumulated losses of about R19bn as at September 30. Sapo is not customer-focused and has been unable to adapt to changing market conditions. The total operating cost base exceeds 200% of revenue,” the business rescue plan document reads.

The practitioners said Sapo’s lack of investment in its infrastructure has resulted in a decline in its operational efficiency and customer service capabilities.

“The company’s ageing IT infrastructure and data centre infrastructure [last updated in 2012], inefficient mail processing equipment which is past its use of life, and unreliable logistics fleet are hindering its ability to meet the needs of its customers in a timely and qualitative manner.”

According to Sapo, it last made a profit in 2004 and the decline in revenue started in 2006. The entity has not been profitable for 17 years. 

With R3.8bn, the Post Office intends to:

  • pay for retrenchment cost;
  • pay the creditors dividend; and
  • use investment capital to repair and modernise assets.

“The biggest contributor to Sapo’s office’s financial challenges is its employee cost base which accounts for 150% of revenue. A total reduction of approximately 6,000 employees is required to right-size Sapo.”

To facilitate retrenchment packages, Sapo would need R600m.

The business rescuers said the R2.4bn the National Treasury allocated to the entity would not be enough to avoid closure.

“To ensure the effective turnaround of Sapo, this business rescue plan hinges on a further allocation of R3.8bn to serve as a capital buffer to restore confidence in the South African Post Office and to continue trading on a solvent basis.”

The BRPs said they anticipated approval for the allocation of R3.8bn would be finalised in 2024. According to the Sapo’s 2022 annual report, the entity had a debt of R4.4bn last March.

The DA has over the years protested against the approval of more bailouts for Sapo and wanted the entity as a whole to be shut down.

All information sourced from articles posted by: Moneyweb, BusinessTech, DailyInvestor, Engineering News, and TimesLive.

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