News in South Africa 31st March:

1. Motion of no confidence fails:

The Democratic Alliance (DA)’s motion of no confidence in President Cyril Ramaphosa’s Cabinet has failed in the National Assembly.

Motion of no confidence fails
Image taken by: Element5 Digital

After a lengthy roll-call voting process, members of Parliament completed voting with more than half of those present voting against the motion.

Deputy Speaker Lechesa Tsenoli said: “Honourable members, the outcomes are as follows: there’s one abstention, 131 yes, and 231 no. The motion is therefore not agreed to.”

Earlier in the day, the ATM’s motion of no confidence in Ramaphosa was withdrawn after the party refused to move the motion.

The party said the matter of the secret ballot that occurred before still courts.

Speaker Nosiviwe Mapisa-Nqakula said that what would happen next would be discussed on Thursday.

“Parties having made their comments, I highly appreciate that and thank you very much honourable members. I now rule that we are not proceeding with this matter and the details of what we do next will be dealt with at the programming committee tomorrow, I thank you.”

2. Food price increases:

The latest Household Affordability Index by the Pietermaritzburg Economic Justice & Dignity group (PMBEJD) shows that food prices increased in March 2022 – while Russia’s war in Ukraine will likely worsen matters for consumers in the coming months.

The group’s basket of 44 food items increased by R94.39 to R4,450.09, up 2.2% from R4,355.70 recorded in February 2022.

The civil society initiative’s data showed that year-on-year basket prices have increased by 10.2%, far outstripping headline inflation. The cost of the average household food basket increased by R410.53 from R4,039.56 in March 2021.

Statistics South Africa’s latest Consumer Price Index for February 2022 shows that headline inflation is 5.7%. CPI for food inflation was tracked at 6.7%.

The key point of contention around inflation figures is that salaries and wages are negotiated around headline inflation. The national minimum wage is often only increased by headline CPI, and social grants have more recently been raised at rates far lower than CPI.

This creates a scenario where the amount coming in, does not match the rising costs of basic living, pushing the poorest further into poverty.

Food prices

The basket comprises 44 core food items most frequently purchased by lower-income households, who make up most households in the country.

Of the 44 food items, 39 increased in price. Only three food items saw their prices drop over the last 12 months, while two were unchanged.

The most significant increases were cake flour, cooking oil, eggs, tea, and bread. Maize meal, rice, white sugar also saw price hikes.

These were the most significant changes, where prices increased or declined by 10% or more.

Food prices March 2021 to March 2022 – big changes

  • Butternut: +45%
  • Cooking oil: +37%
  • Chicken liver: +32%
  • Beef liver: +30%
  • Polony: +21%
  • Oranges: +20%
  • Onions: +17%
  • Cremora: +16%
  • Tripe: +16%
  • Eggs: +15%
  • Gizzards: +15%
  • Cabbage: +13%
  • Samp: +13%
  • Bananas: +12%
  • Margarine: +12%
  • Apples: +11%
  • Beef: +11%
  • Frozen chicken: +11%
  • Wors: +11%
  • Chicken feet: +10%
  • Tomatoes: +10%

3. Over 100 children killed in war:

More than 100 Ukrainian children have been killed since Russian forces invaded the country nearly five weeks ago, according to UNICEF.

The United Nations Children’s Fund, which provides humanitarian aid to children around the globe, said its Office of the High Commissioner for Human Rights has documented the number of reported child deaths during the conflict and reported an additional 134 children injured as a result of the war.

The true toll, however, is likely much higher, the agency said in a Wednesday press release.

The organization also continued to raise the alarm on the mass number of child refugees resulting from the war. Children now make up half of all refugees from the conflict, according to UNICEF, with more than 1.1 million kids arriving in neighboring countries, and another 2.5 million children estimated to be internally displaced within Ukraine. 

“The situation inside Ukraine is spiraling,” UNICEF Executive Director Catherine Russell said in the press release. “As the number of children fleeing their homes continues to climb, we must remember that every single one of them needs protection, education, safety and support.”  

UNICEF warned in the statement that refugees, especially children, are at a heightened risk of trafficking and exploitation, and said the organization is partnering with civil society partners and national governments to put measures in place to keep kids safe, including protection screening at border crossings.

Last week, the agency said 4.3 million children — more than half of the country’s estimated 7.3 million kids — have been displaced amid the war. Earlier this month, the agency said a Ukrainian child has become a refugee almost every single second since Russia invaded.

4. R89m theft through SASSA:

Between 16 and 28 October last year individuals presumed to be either employed by Postbank or by a Postbank contractor stole at least R89 459 330 in physical cash through SASSA accounts. The brazen fraud involved illicitly crediting grant beneficiary accounts with large sums and then emptying these accounts out at ATMs.

It is the second major security breach since the South African Post Office (SAPO) and its subsidiary Postbank took control of the bulk of the social grant system in 2018. In that year the Postbank “master key”, a digital encryption code safeguarding customer ATM pin codes and other encrypted means of accessing accounts, was stolen. Roughly R56-million was leached from Postbank accounts over the course of nearly two years leading to an instruction from the South African Reserve Bank that Postbank reissue a reported 12-million cards at enormous expense.

This time around the damage was far larger and far faster.

Approached for comment Postbank confirmed the theft but stressed that the money was not stolen from customers but rather from Postbank itself.

“Postbank wishes not to provide too much information about the modus operandi of the cybercrime fraud incident in order to protect the sensitive processes of the investigation that is currently underway,” Postbank acting chief executive Kevin Maartens said in response to questions.

The scheme was only accidentally discovered and quashed when a call-centre operator noticed a SASSA grant beneficiary account with a balance of just under R100 000 — highly anomalous for a grant recipient.

While the scam involved the use of cloned SASSA bank cards to withdraw funds, the cooperation of real grant recipients was seemingly necessary.

A report commissioned from Ankura Consulting Group to analyse the security breach noted that the perpetrators would have needed “a large-scale co-ordinated effort on the ‘outside’ to recruit beneficiaries willing to participate in allowing fraudulent activity to take place through their accounts”.

The Ankura report, dated 9 December, concluded that “the attack demonstrates high levels of sophistication on the part of the malicious actor, and a high degree of knowledge of the Postbank network, database structure and working practices”.

5. Interest rates on the rise:

Interest rates are on an upward march almost everywhere – 23 central banks have raised rates so far this month, notably including the US Federal Reserve and the South African Reserve Bank.

Also noteworthy is the 150 basis points hike that took Brazilian short rates to 11.75%. They were only 2% a year ago.

A US Federal Reserve (Fed) rate increase in March had been on the cards for some time and did not come as a surprise. What is notable, however, is how the tone of Fed officials has changed, particularly that of its chair Jerome Powell.

In a speech last week, Powell noted that inflation in the US (now running at almost 8%) was “much too high” and that the Fed has to move “expeditiously” to remove stimulus measures and ultimately move its policy stance into restrictive territory.

The so-called dot plot summarising the forecasts of Fed officials now points to interest rate increases to 2.4% by the end of next year.

The Fed is aiming for a ‘soft landing’ by trying to contain inflationary pressures without triggering a recession. Powell noted that this should be possible given the currently low unemployment rate.

Bonds battered

Rising interest rate expectations have hammered bond investors this year. The FTSE World Government Bond Index has suffered an equity-like drawdown of 12% in 2022 in dollar terms as prices fell and yields rose. Bond returns are the combination of interest payments (coupons) and price changes. Since yields were so low to begin with, investors had little cushion from interest payments and were heavily exposed to price declines.

The benchmark US 10-year government bond yield was only 1.5% at the start of the year and has now zoomed up to 2.3%. Shorter-dated bonds, like the two-year Treasury note is even more exposed to expectations of Fed hikes and has surged higher from 0.7% to 2.1% this year.

Repo rate raised

This is the backdrop against which the South African Reserve Bank’s Monetary Policy Committee (MPC) met last week. The 25 basis points increase in the repo rate to 4.25% was widely expected. However, two members favoured a 50 basis points hike, and this suggests a decidedly hawkish shift within the MPC.

In the current fluid and uncertain environment, a 50 basis points hike would be overkill.

The Reserve Bank doesn’t control food and fuel prices and therefore shouldn’t respond to them even if they rise sharply.

What it needs to respond to is evidence that food and energy costs are putting upward pressure on other prices (known as the second-round effect) and that consumer expectations of future inflation are starting to rise too much.

Inflation excluding food, fuel and electricity (core inflation) was just 3.5% in February while the headline inflation rate was much higher at 5.7% but, unusually, lower than that of the US, UK or Eurozone.

Headline inflation will probably rise above 6% in the next few months as the big petrol price increases in March and April show up in the data.

The Reserve Bank revised its forecast of headline inflation for 2022 up from 4.9%, to 5.8% largely due to the higher food and fuel prices.

Unexpected

Together with the stronger rand, local assets have handsomely outperformed their global counterparts in common currency so far this year.

As we saw two years ago when the Covid shock first hit markets, and now again with the war in Ukraine, markets don’t always react the way you think they will.

Few would have expected that South Africa would end up as a safe haven during a global crisis, but here we are.

That is why market timing is so difficult and diversification so important.


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

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