News in South Africa 5th July:
1. Planned petrol price changes:
Director of fuel pricing mechanism at the Department of Energy, Robert Maake, says the government is working on several regulatory changes to address South Africa’s high petrol price.
Speaking to radio station 702, Maake said this includes:
- The possible introduction of a price cap;
- A proposal to stop publishing guidance on diesel prices;
- A process to review the Regulatory Accounting System (RAS).
These interventions are the three that remain from the initial list of planned changes announced in March 2022, which included a reduction in the basic fuel price of 3c per litre and the removal of the 10c per litre Demand Side Management Levy (DSML) on 95 unleaded petrol sold inland – both of which were part of interventions introduced in May 2022.
Treasury previously said that a review of the RAS could result in a significant decrease of R1.03 cents/litre by 2028. However, this will take significantly longer to implement than other measures and investigations need to take place to fully understand the changes that can be implemented.
Similarly, while Treasury has previously proposed a fuel price cap, it warned that it will require ‘significant investigations’ before officially being introduced. The introduction of a petrol price cap was suggested for 93 unleaded petrol, which would retailers to sell fuel below the regulated prices.
Removing the guidance on diesel prices, meanwhile, would promote competition among retailers.
Maake’s comments come as South Africa faces its largest petrol price increase on record on Wednesday (7 July).
The adjustments announced by the Department of Mineral Resources and Energy (DMRE) include an increase of R2.57 to 95 petrol in Gauteng, which will push the cost of this fuel to R26.74. The increase of R2.37 to 93 petrol will push this fuel price to R26.31, all-new record high prices.
2. 85% of adults have bank accounts:
The South Africa financial sector has made marked improvement in getting people to open bank accounts, with over 40 million people now having an account.
The percentage of people over the age of 15 with accounts has risen sharply, from 54% in 2011 to 84% in 2021, according to The Global Findex Database 2021 Financial Inclusion, Digital Payments, and Resilience in the Age of Covid-19, compiled by the World Bank.
The report, which gathers data on global access to financial services for 123 countries, found that the combination of traditional back accounts and phone-based financial services was behind the steep increase.
Though there was a big increase in SA since 2011, the last five years has seen the biggest rise in the number of accounts opened in the country.
“SA saw a 16 percentage point increase in account ownership from 2017 to 2021, also led by both financial institution and mobile money accounts,” according to the report.
This period coincides with launch of new entrants such as TymeBank, Discovery Bank, and Bank Zero. Their impact has been notable, with TymeBank at four million customers, and Discovery Bank now having a million accounts, held by more than 450,000 clients. Bank Zero has yet to release numbers.
The sector is also seeing competition from companies that have not really competed in this space before. MTN, for example, announced a year ago that it was hiring 10,000 agents for its MoMo service. The mobile operator now has two million active users using this service.
SA was not alone in seeing a rise in the number of people opening bank accounts.
“Among the economies experiencing significant growth just since 2017 are Brazil, Ghana, Morocco, and SA, each of which have seen double-digit growth in account ownership,” according to the report.
3. Poor equity performance for 1st half:
June was a brutal month for global equities, capping the worst first half of a year since the launch of the MSCI All Country World Index in 1987. For indices with longer track records, the story is worse. In the case of the US S&P500, the first-half performance has not been this bad since 1962. Global bonds were also deeply negative, leaving global dollar-based investors with almost nowhere to hide.
As a rugby or football commentator might say, it was a first half to forget. Next, they will ask if the performance can improve in the second half. History shows it is possible, as indicated by chart 1. However, given the depth of the decline and the murky macro backdrop, it seems unlikely that the first-half losses will be reversed in the second half. Recovery could take time but will happen eventually.
Equity markets move up and down over the short term, but the longer-term trend is upwards.
Chart 1: MSCI All Country World Index returns, in dollars
The reasons for the declines across asset classes are well-known by now but can be summarised as follows.
Expectations of inflation and interest rates have been marked up substantially since January, while expectations for global economic growth have been notably reduced in recent weeks. The ongoing Russian invasion of Ukraine takes much of the blame, but inflation was already rising rapidly late last year, partly because of strong consumer demand, and partly because of Covid-induced supply disruptions.
4. Policy uncertainty climbing:
Policy uncertainty in South Africa has climbed to levels last seen over seven years ago.
That’s according to the latest North West University Policy Uncertainty Index.
The index shows that policy uncertainty in the second quarter of this year increased to 60.9 from 59.7 in the previous period.
It highlights that a lot of the uncertainty has been driven by the Russian Invasion of Ukraine which has threatened global economic growth.
Global uncertainty has also put the spotlight on policy concerns in South Africa.
The report says that persistent blackouts, which have reached Stage 6, continue to weaken an already fragile economy.
Policy uncertainty affects growth, employment and investment.
The ANC-led government has lagged in implementing critical structural reforms and policies.
5. Gold coins instead of Zim currency:
Zimbabwe’s central bank said it would start selling gold coins this month as a store of value to tame runaway inflation, which has considerably weakened the local currency.
The central bank governor John Mangudya said in a statement on Monday that the coins will be available for sale from July 25 in local currency, U.S. dollars and other foreign currencies at a price based on the prevailing international price of gold and the cost of production.
The “Mosi-oa-tunya” coin, named after Victoria Falls, can be converted into cash and be traded locally and internationally, the central bank said.
The gold coin will contain one troy ounce of gold and will be sold by Fidelity Gold Refinery, Aurex and local banks, it added.
Gold coins are used by investors internationally to hedge against inflation and wars.
Last week, Zimbabwe more than doubled its policy rate to 200% from 80% and outlined plans to make the U.S. dollar legal tender for the next five years to boost confidence.
Soaring inflation in the southern African country has been piling pressure on a population already struggling with shortages and stirring memories of economic chaos years ago under veteran leader Robert Mugabe’s near four-decade rule.
Annual inflation, which hit almost 192% in June, cast a shadow over President Emmerson Mnangagwa’s bid to revitalise the economy.
Zimbabwe abandoned its inflation-ravaged dollar in 2009, opting instead to use foreign currencies, mostly the U.S. dollar. The government reintroduced the local currency in 2019, but it has rapidly lost value again.