News in South Africa 3rd May:

1. South Africa closer to a failed state:

South Africa is coming closer to being a failed state, with national and local governments unable to provide many basic services outlined in the Constitution. 

South Africa closer to a failed state
Photo by Алесь Усцінаў

This is the view of Lumkile Mondi, a senior lecturer at the School of Economics and Business Science at the University of the Witwatersrand. Mondi was speaking on 702 with Bruce Whitfield. 

Business leaders have become increasingly outspoken in criticising the government and its economic failings. 

MTN CEO Ralph Mupita warned in the company’s annual results that South Africa is at risk of becoming a failed state. 

FirstRand CEO Alan Pullinger said South Africa’s support for Russia could have “extremely negative consequences” for the country.

Pullinger highlighted that South Africa benefits far more from its trade and economic partnerships with the United States, the UK, and Europe than from Russia.

Standard Bank CEO Sim Tshabalala also urged the government to ensure its position on Russia does not adversely impact South Africa’s financial institutions.

Tshabalala also noted the growing risk of a total blackout in South Africa and its catastrophic impact on the country. 

Nedbank CEO Mike Brown said economic growth and job creation suffer because the government failed to fix Eskom and stop load-shedding.

He previously said the damage done to South Africa’s economy over the last ten years is greater than many people thought. It means that the turnaround is going to be slower.

Many more have complained about the adverse effects of load-shedding and inefficient logistical services from Transnet. 

2. Money tightening for households:

The National Association of Automobile Manufacturers of South Africa’s (Naamsa) New Vehicle Sales stats for April 2023 show a year-on-year decline of 0.2% due to the shrinking disposable income of consumers amid record high headline inflation.

For the period under review, aggregate domestic new vehicle sales, recorded at 37,107 units, reflected a decline of 88 units from the 37,195 new vehicles sold in April 2022.

The main reason for this was the decline in new passenger vehicles, which decreased from 25,735 new passenger cars sold in April 2022 to 24,174 units in April 2023 – a year-on-year decrease of 6.1%.

Naama said that this resulted from severely financially constrained consumers’ affordability to purchase vehicles or to service their car loan repayments amid the cost of living crisis in 2023.

This sentiment comes as the latest Stats SA data shows that headline inflation increased to 7.1% from 7.0%, against market expectations that it would drop to 6.9%. Food & non-alcoholic beverages also continued to accelerate in March, with prices increasing by 14.0%.

This represents the most significant annual increase since the 14.7% rise in March 2009 (14 years ago).

However, the association added that domestic sales of new light commercial vehicles, bakkies and minibuses increased by 11.% year-on-year, from 9,562 units in April 2022 to 10,611 units during April 2023.

The breakdown of these four segments is as follows:

  • Dealers represented 90.3% of sales, with an estimated 33,492 units sold.
  • The rental industry represented 5.2% of sales.
  • Government sales represented 1.7% of sales.
  • Industry corporate fleets represented 2.8% of sales.

Notably, export sales increased by 1,026 units or 13.4% to 37,107 units in April 2023 compared to the 27,117 vehicles exported in April last year.

Despite a positive sign on the back of a decline experienced in February 2023, month-on-month export sales reflected a decrease of 2,380 units or 7,18% for April 2023 at 30,756 units, compared to the 33,136 export vehicle units recorded for March 2023.

3. Private sector bailing out Eskom:

The problems at Eskom and the effect of unreliable electricity supply on the economy are undisputed.

Business leaders, economists and government are all well aware that continuous load shedding is hampering economic growth and making it impossible to reduce record high unemployment, poverty and inequality.

Eskom is not the solution to these problems. Anyone who might have thought there was even a remote possibility of fixing decades’ worth of mismanagement in a few years only needs to look at the worsening load shedding schedules and the massive challenges the utility’s managers face when tasked with fixing the ailing entity.

However, all is not lost. Peter Armitage, founder and chief investment officer of fund manager Anchor Capital, says there “is light at the end of the tunnel”.

Eskom was an important point of discussion during Anchor’s recent online presentation on where to invest.

Armitage says load shedding has a huge impact on companies and investors.

“Take a company like Pick n Pay who generates R2 billion to R3 billion in operating profit. They recently said that diesel to run generators cost them R600 million to R700 million. It is reducing their profits by 30% to 40%,” he says.

Interesting phenomenon …

Nolan Wapenaar, Anchor’s co-chief investment officer, says Eskom is the single biggest risk factor to the SA economy.

However, he has noticed an interesting phenomenon when business leaders talk about the electricity crisis – the narrative is changing.

“The chatter when I speak to people outside the company is becoming incrementally more positive.” says Wapenaar.

“That is actually something I needed a bit of time to digest, because you wouldn’t think so.

“What is actually happening is that the perspective is that things will improve, not that I am saying for a second that Eskom will be turned around and rise to its former glory.

“What analysts are saying now is that, looking at what is happening in the country, you are seeing the private sector fill the void that is being created by Eskom.

“It is very much like private airlines filling the void for air transport with SAA largely dropping out of the picture.”

Wapenaar predicts that Eskom will travel the same road as SAA, once a proud national airline, now surviving on government handouts and operating only seven aeroplanes.

4. Factory managers downbeat:

An index tracking business conditions in South Africa’s manufacturing sector edged up last month, but purchasing managers remained downbeat as new sales orders slumped.  

The gauge, which measures expected business conditions in six months’ time, rose to 49.8 from 48.1 in March, Absa said on Wednesday.

“Despite the improvement, the index failed to edge back above the neutral 50-point mark as business activity and new sales orders worsened relative to March,” the lender said.

“The headline PMI would have deteriorated further if not for a significant improvement in the inventories index. The underlying survey results suggest that the sector experienced another tough month.”

South Africa is suffering its worst bout of electricity rationing yet, with state-owned utility Eskom implementing rolling blackouts —locally known as load-shedding — on more than 200 days last year and almost every day so far in 2023. The outages, which are needed to protect the grid from collapse when Eskom’s plants can’t meet demand, are curbing activity and demand in Africa’s most industrialised economy.

An inventories sub-index rose to its highest level since mid-2022, which could be an indicator that supply chains are working more effectively, according to Absa. 

5. Big changes for driving licences:

The Department of Transports aims to roll out new digital driving licence cards in South Africa this financial year as it pushes towards greater virtualisation and automation of the Driving Licence Card Account (DLCA).

This, combined with previously announced plans, should make it quicker and easier to get and renew driving licences in the country – and they may also be valid for longer.

According to the department’s annual performance plan for the 2023/24 financial year, the digital driving licence is part of the longer-term goals to optimise driving licence production and reduce the turnaround time of producing and distributing licences by the DLCA.

Over the medium term – the next three years to 2025/2026 –  the department said it would prioritise the rollout of virtual cards among various other initiatives, like the automation of manual operations in the driving licence application environment.

The department noted that in 2022, the average processing time to issue a driving licence was 26 days. For 2023, it aims to bring this down to 14 days. By 2025, it aims to have licences processed in 10 days.

“Producing a driving licence card within five days is an achievable goal that requires us to work diligently in the service of our people,” the department said.

“Moving away from paper-based processes in our service delivery environment would enable us to drastically cut the turnaround times. This should include processing of applications for operating licences, tourist accreditations and other similar processes.”

All information sourced from articles posted by: DailyInvestor, BusinessTech, Moneyweb, and Fin24.

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