News in South Africa 3rd August:

1. Tough economic times:

The South African economy, like many others around the world, has had a ‘bumpy’ start to 2022.

Tough economic times
Image taken by: Timur Weber

The Russian invasion of Ukraine, volatility in international financial markets, inflationary pressures and so on have caused an economic environment that threatens to spill over into a global recession.

Locally, the economy is characterised by low levels of economic growth, high levels of unemployment (above 35%), inflation rates above the upper limit of the SA Reserve Bank’s inflation target (above 6%) and a cycle of increases to the repo rate (increasing the cost of credit).

The inflation rate for June is 7.4% – up from 6.5% in May.

More concerning than these two figures being above the 6% target upper limit of the Reserve Bank, is the way these figures are made up.

According to the Consumer Price Index report published by Statistics SA in June, the lowest two expenditure deciles (the 20% of people who spend the least) faced the highest inflation rate, with the lowest decile facing 9.1% and the second lowest decile facing 8.5%.

This indicates that the worst of the local inflation is being faced by the most marginalised groups.

This makes sense as the proportion spent on basic goods such as food, fuel and transport is much larger within the spending basket of the lowest expenditure deciles.

How hard a hit?

Presently, food inflation is up 9%, electricity and other household fuels are up 14.5% and petrol is up 45.3%.

To the poorest consumers, this has a significant impact on their ability to meet their needs as their already-stretched finances are now being asked to absorb the toughest of conditions faced by the SA economy (from an inflationary perspective).

The SA Reserve Bank has acted in accordance with its mandate to keep inflation between 3% and 6% and, as a result, increased the repo rate by 75 basis points (0.75%) to combat some of the worst inflation figures in nearly two decades.

Until the world adjusts to the pressure placed on various supply chains by the Russia-Ukraine war and the impact it has had on global oil prices, this inflationary problem will persist around the world.

Advanced economies are fortunate in that they tend to have appropriate levels of financial protection built into their economies to weather such a storm, while developing economies tend to suffer the brunt of such situations as their economies are often vulnerable in times like this.

The South African economy is one such developing economy that is currently battling high unemployment, low economic growth, high inflation and increasing interest rates.

The economy and population should brace for tough times ahead.

2. Alternatives to energy policy:

The Democratic Alliance (DA) has published its Energy and Electricity Policy – an alternative to the energy plan published by president Cyril Ramaphosa last week – focusing on access to cheap electricity and ending load shedding in South Africa

According to the DA, its policy differs from what the government has put forward in that it is actively ‘consumer-centric’ and proposes to facilitate feeding surplus energy from customers into the grid.

Notably, the new policy proposes incentives for personal solar installations by granting a once-off tax rebate to households that install them.

Broadly, the key proposal are:

  • A tax rebate for households installing solar;
  • Opening up alternative sources of power supply to meet the country’s basic requirements to end load shedding;
  • Provide amnesty to households with illegal connections to incentivise the move away from such connections;
  • End the state’s monopoly on energy generation, supply and distribution;
  • Privatise and unbundle Eskom by selling power stations to private owners until their end of life.

“Commercially viable power stations should be sold to private owners and operated until the end of the remaining life of the station. The envisioned end state for generation is of a diversified and competitive generation sector,” said the DA.

The party argues that Eskom should be unbundled so that there are multiple entirely separate enterprises that do not fall under a holding company. These companies can then be purchased by private owners to drive competition in the energy sector.

“The envisioned end state for generation is of a diversified and competitive generation sector.”

The DA’s alternative energy plan can be read here.

3. Chicken prices soaring:

Chicken is an essential part of South African culture and the economy. A Google search beginning with “nearest …” often automatically offers choices such as “KFC”, “Nandos”, or “Chicken Licken”. 

Not only are there almost 1,000 KFC locations in the country, but South Africans use the entire bird when cooking — including the heads and feet, known as “walkie talkies” and “runaways”. Chicken is the biggest source of protein in the country of 60,1 million people.

The average per capita consumption of chicken in South Africa in 2020 was nearly 39kg a year, more than double the beef consumption of 16kg a year, and more than four times the 9kg a year of egg consumption, according to the South African Poultry Association.

As of the beginning of July, the price for a whole frozen chicken has increased 20% year-over-year to about R33,65, according to research by the banking group Absa’s Agri Trends: Livestock Report.

And poultry prices will continue to climb, according to the report.

“We expect chicken prices to follow an upward trend over the coming weeks, supported by a weaker exchange rate, sustained high input costs, and firm consumer demand for affordable sources of meat protein,” the report says.

In a country where more than half of adults are living below the national poverty line, and 27% of children in the country have stunted growth, according to UNICEF, a 20% increase in the cost of a food staple such as chicken means fewer people will be able to afford a major source of protein. Rising prices are causing stress for consumers, poultry farmers, and small-scale fast-food outlets.

4. Nursing shortage:

The South African Nursing Council is reportedly blocking private hospitals from training more nurses – as the country continues to face a skills shortage in that sector.

SA has an acute shortage of healthcare professionals, but private hospitals are particularly frustrated by the nursing shortage as they are well placed to help fix the problem.

The Hospital Association of South Africa has previously highlighted the urgent need for new nurses as many currently working are reaching retirement aid. It says the private sector has the skills and capacity to train thousands each year but needs the government of official bodies to work with it. 

5. Riot risks up:

Economists at Absa, and now experts in the health sector, have identified unrest as the biggest risk to South Africa right now, as the spectre of the 2021 July riots looms over simmering tensions in communities across the country.

What started as a service delivery protest in Tembisa on Friday has degenerated into looting, adding to the tension that has simmered below the surface in South Africa since violence and vandalism rocked KwaZulu-Natal and Gauteng in July last year.

The unrest in Hospital View in Tembisa, east of Johannesburg, which left four people dead and public infrastructure destroyed in what started as protests against high electricity tariffs and poor service delivery on Monday, comes amid rising anger west of the city after the gang rape of a group of young women by suspected illegal miners.

Tembisa residents were angered after community members, who wanted to meet with Ekurhuleni mayor Tania Campbell last Friday, 29 July, to address their grievances, had to contend with instead meeting members of the mayoral committee (MMCs) on her behalf.

The Tembisa protest is the latest evidence of the raging discontent that has persisted in the country and which partly spurred last year’s violence during the riots in July that left more than 350 people dead.

All information sourced from articles posted by: Moneyweb, BusinessTech, Business Insider, BusinessLive and Mail & Guardian.

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