News in South Africa 4th September:

1. Social unrest warning:

South Africa is at high risk of social unrest due to its high unemployment, rising inequality, and increased lawlessness. 

Social unrest warning
Photo by Vladimir Shipitsin

PwC senior economist Xhanti Payi told 702 that South African companies will face increased uncertainty and volatility until the country addresses its major social problems. 

“This is something we just have to accept. Businesses have to do what they can to build resilience,” Payi said. 

South Africa is uniquely exposed to economic volatility and social unrest due to the country’s high level of unemployment, rising cost of living, and decreasing adherence to the law. 

Payi expects the country to experience an increase in the number of strikes, financial volatility, and general instability. 

“These things are going to continue to work against us. Focus has to be on how one builds resilience to this.”

“The important thing is not just to sit around – it is vital to innovate and adapt,” Payi said. 

Businesses have to analyse their companies’ risks and develop strategies to mitigate against them. 

“Many businesses are very, very concerned about disruptions to their operations through strikes and competition,” Payi said. 

Nearly 40% of CEOs surveyed by PwC said they think that in the next decade, their businesses may not exist if they do not build resilience now.

“Disruption is a multi-faceted thing. We see they are also very concerned about social unrest and developments on this front.”

Payi raised the examples of the recent truck burnings in KwaZulu-Natal and Mpumalanga and the taxi strike in Cape Town in early August. 

South Africa is a high risk of widespread social unrest and local businesses cannot ignore this. “Businesses should do as much as they can towards addressing the social challenges and develop strategies to mitigate their effects.”

‘Ticking time bomb’:

In July, the United Nations Development Programme (UNDP) warned that South Africa’s high unemployment rate, particularly among its youth, is a “ticking time bomb” that could result in social unrest. 

The UNDP released its South Africa National Human Development Report for 2022 in July, which focused on analysing South Africa’s youth employability. 

“Youth unemployment in South Africa is a multipronged challenge that limits the earning potential of youth, stymies business growth, threatens social cohesion, and puts pressure on public resources,” the report said. 

“There is no doubt that the high unemployment rate is a ticking time bomb.”

The UNDP also warned that South Africa is at risk of another lost generation through the erosion of skills and human capital that comes with prolonged unemployment. 

2. Transnet is costing the economy R1b daily:

A study by the GAIN Group says inefficiencies at Transnet are costing the economy R1 billion a day, most of this coming from lost sales of coal and iron ore.

“This means that the economic growth of 0.5% expected for 2023 could have been 10 times higher at 5.4%,” says the report. “The nearly 5% GDP loss is catastrophic and could have been even worse at higher commodity prices.”

Export coal prices declined from a high of $296 a ton in June 2022 and $98/t in June 2023.

The GAIN Group study comes just days after Transnet announced a R5.7 billion loss for the year to March 2023, reversing the R5 billion profit for the previous year. The logistics operator blamed lower rail volumes due to operational ineffectiveness and flooding in Kwazulu-Natal.

Public enterprises minister Pravin Gordhan issued a stern statement on Friday last week calling for “urgent and corrective action”, particularly within the Transnet Freight Rail (TFR) division.

This follows a radical shake-up at board level in July, with nine new appointments. Minerals Council vice-president Andile Sangqu has been appointed as chair, a move seen as shifting Transnet closer to its most important client, the mining sector.

“Transnet is at an inflection point. The deterioration in its operational and financial performance will be stopped. Nothing will be allowed to get in the way of the effective implementation of a radical plan – with some changes being evident in the short term and others taking longer, given the complexity of the entity,” says a statement issued by the Department of Public Enterprises on Friday.

Gordhan has directed the board to address 11 areas of key concern, including radical improvements in operational performance, identify the reasons why management staff are unable to meet performance targets, develop a system of accountability within the organisation, address excessive costs and conduct a review of executive management “with a view to establishing whether persons with the right skills are optimally utilised to deliver on the mandate.”

Stellenbosch University professor of logistics Jan Havenga, who is also a director of GAIN Group, describes Gordhan’s statement as virtually unprecedented in its tone.

“It’s refreshing to see a minister talk so directly about the problems facing Transnet and demand accountability and action in the way that he has,” adds Havenga.

3. National Treasury distress:

With commodity prices sliding and growth weakening on load shedding and logistics constraints, the latest monthly figures from the Treasury show corporate tax receipts have declined by more than 20% since a year ago, while the unbudgeted public sector wage settlement has driven up spending.

Economists now estimate the deficit and debt ratios will be significantly worse than Finance Minister Enoch Godongwana projected in his February budget.

The head of the Treasury’s budget office, Edgar Sishi, has made it clear that the budget in October will have to clamp down on government spending.

“The 2023 medium-term budget is not going to be happy for the spenders,” he said.

4. Diesel to hit record price hike:

The wholesale diesel price may be hiked by almost R2.85 a litre on Wednesday, the latest unaudited data from the Central Energy Fund shows. According to the Automobile Association (AA), this will be a record price increase.  

The expected hike will increase the suggested wholesale diesel price to R23.06, the highest since December last year.

The latest data suggests unleaded petrol (95) will climb by almost R1.65 a litre, pushing petrol prices to the highest level since August last year, the AA says.

Illuminating paraffin prices may increase by as much as R2.80 a litre.

Local fuel prices are determined by the oil price and the rand-dollar exchange rate, as oil is priced in dollar.   

According to the CEF’s data, higher international oil prices are contributing between 80% and 88% to the expected increases, with the weaker rand against the dollar contributing the rest, says the AA.

Brent crude oil prices increased by almost 4% over the past month as Russia cut back on its exports. Saudi Arabia has also lowered its production, while oil prices have also been firming on expectations that the US may avoid a recession and that the Chinese government will stimulate its economy. 

The rand has weakened more than 1% against the dollar over the past month.

5. New plan to tackle corruption:

The Gordon Institute of Business Science (GIBS) has created a new guide to tackle business corruption in South Africa.

The insitute created the guide with funding from Business Leadership South Africa (BLSA).

Although the public sector in South Africa is mainly seen as the epicentre of corruption in South Africa, several corporate scandals, such as those at Steinhoff, Tongaat Hulett and EOH, are clear examples of businesses with corruption at their core.

BLSA CEO Busiswe Mavuso noted that a strong criminal justice system is required to ensure that corruption in all forms is tackled, which is why the organisation is providing resources to the National Prosecuting Authority.

Mavuso added that several other countries, including Hong Kong, Singapore and Rwanda, have been able to turn the tide against corruption, adding that the Zondo Commission could be a turning point in South Africa’s battle.

The GIBS report has looked at several international frameworks to create anti-corruption guidelines and sets out eight key principles:

  • The tone from the top or the role of the board – ensuring that the right culture is set and insulating anti-corruption efforts in the business from outside pressure.
  • Adopting and publishing an anti-corruption policy publicly and demonstrating a commitment to zero tolerance.
  • Forming and structuring an anti-corruption function – an autonomous department with lines of reporting directly to the board.
  • The substance of the anti-corruption policy should cover rules on lobbying, donations, procedures for awards of large contracts, effective roles for internal auditors and more.
  • Regular risk assessments to assess how risks are shifting in a dynamic environment and reviewing live contracts for risks.
  • The role of whistle-blowers – a clear process for handling whistle-blowers, including protection.
  • The role of reparations – having an approach to determining reparations when something does go wrong.
  • Guidelines for ethical lobbying – any political activities by companies must have a clear board-approved policy.

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

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