News in South Africa 5th July:

1. Severe water shortage:

Experts are warning of a looming water crisis on a scale worse than load-shedding in South Africa as criminal syndicates have begun targeting water infrastructure to score tenders. 

Severe water shortage
Photo by Fabiano Rodrigues

Professor Anthony Turton from the Centre for Environmental Management at the University of the Free State warned that the water crisis could have an even greater impact on South Africa than load-shedding if it is not addressed soon. 

The central issue, according to Turton, is not water scarcity but rather that criminal syndicates are embedded in South Africa’s water supply value chain. 

“There is a hierarchy of nested criminal syndicated that have dug themselves into infrastructure in South Africa”, Turton told eNCA

These syndicates are sophisticated and deeply entrenched. Tackling these syndicates is central to solving a looming water crisis in South Africa. 

The primary target for these syndicates is water infrastructure, such as pumping stations, sewage treatment plants, and electrical infrastructure, such as copper cables, generators, and batteries. 

“The whole idea is to create a crisis and then offer a service as a solution,” with syndicates deliberately sabotaging infrastructure to secure a tender. 

For example, syndicates often destroy sewage infrastructure to get a tender for an emergency pump. 

Criminality exacerbates the ageing water infrastructure problems South Africa is already facing and which is worsening. 

According to government reports, nearly 50% of the water from bulk water facilities to the end consumer is unaccounted for. This is up from 30% to 35% a few years ago. 

This is also due to poor maintenance unrelated to criminal syndicates, with the maintenance done in a patchwork manner. 

Criminal syndicates prevent regular, high-quality maintenance from occurring. It means the water problem should be addressed as criminal and not just an infrastructural.

2. Inflation has ‘turned the corner’:

South African Reserve Bank Governor Lesetja Kganyago said the fight to tame rising prices was delivering results and the central bank will stick to its task to get them under control.

“Inflation has turned the corner,” Kganyago said on Tuesday in an interview on Metro FM.

“What we need to see is inflation declining all the way to within our target range.”

The central bank’s monetary policy committee has increased the key rate by 475 basis points to 8.25%, its highest level in 14 years, since it started tightening in November 2021. 

It is trying to bring inflation back down to the 4.5% midpoint of its target range, where it prefers to anchor price-growth expectations. Inflation has been above that level for more than two years and is forecast by the central bank to return to the midpoint in the third quarter of 2025. 

In May, inflation slowed to a 13-month low of 6.3% and is expected to revert to the Reserve Bank’s target range of 3% to 6% either in June or this quarter, Kganyago said in an interview last week. He repeated on Tuesday that he expected inflation to be within the range in the second or third quarter.

3. Eskom grid “exhausted”:

Mineral Resources and Energy Minister Gwede Mantashe says that Eskom has “exhausted” its grid in some areas that were earmarked for renewable energy projects.

Mantashe was responding to a written parliamentary question from the Democratic Alliance (DA) on when the grid capacity allocation rules will be revised to ensure projects don’t take up space on the grid.

The question comes as South Africa needs more generation capacity to end record power cuts.

A lot of renewable energy projects have been derailed due to a shortage of connections to the grid.

Minister Mantashe said that the projects in the Eastern Cape could not be awarded the preferred bidder status.

He said that this was because Eskom, as the grid owner and operator, confirmed to the department that “grid capacity was exhausted” in areas where the project locations were proposed.

Mantashe said that the grid that was available could only accommodate 1,000MW of projects in their respective proposed locations, while the projects were for over 3,000MW.

4. Meat prices are coming down:

Food price inflation remains very high in South Africa – but the Bureau for Food and Agricultural Policy’s (BFAP’s) latest data shows that pricing pressure on meat is starting to ease.

The BFAP’s latest food inflation brief shows that inflation is easing for different kinds of meat in South Africa, despite marginally higher international prices.

However, the easing of inflation isn’t due to lower production prices, generally, but more because of lower demand, as South African households come under pressure and can no longer afford their typical meat purchases.

“Given that the weaker rand would further increase the cost of imported products, the slowdown in meat inflation in South Africa reflects the extent of pressure on consumer’s spending power, as interest rates continue to rise, economic growth remains slow, and load-shedding continues to constrain economic activity,” said BFAP.

Meat prices were recorded 0.4% lower in May than in April, while year-on-year inflation eased to just over 7%, the group said.

International poultry prices were higher in May for the fourth consecutive month amid firm import demand from Asia and persistent supply concerns as Avian Influenza continues to spread.

Despite continued high cattle slaughters in Australia, bovine meat prices rose in May, stemming from higher global demand for supplies from Brazil and tightened supplies from the US. 3

Mutton/lamb and pork recorded year-on-year deflation, with prices lower than a year ago.

Sourced from BusinessTech

Recent data released by the South African Reserve Bank (SARB) has indicated a significant slowdown in disposable income growth during the first quarter of the year. Personal disposable income (PDI) only grew by 0.2%, a decline from 0.6% in the previous quarter.

As a result, seasonally adjusted nominal household debt increased at a faster rate than income in Q1, causing the household debt-to-income ratio to rise from 61.6% to 62.1%.

Consumer confidence, measured through FNB/BER Index (CCI), dropped even further to -25 index points during the second quarter of 2023, highlighting just how cash-strapped consumers are. According to FNB, sustained load shedding and high food inflation are primary concerns to low- and middle-income households.

These pessimistic households are now being forced to reconsider buying habits in light of excess financial pressure.

5. The JSE’s best and worst-performing stocks:

The JSE closed out the first half of 2023 firmly in the green, triumphing over a rough six months characterised by weaker commodity prices, record load shedding, and a rand rout largely induced by South Africa’s relations with Russia.

The benchmark All Share Index (Alsi) closed the first half just over 4% stronger.

While the JSE returned a result that “has not been bad at all”, according to Wayne McCurrie of FNB Wealth and Investments, it has not been able to keep up with its global peers.

The US market performed nearly four times better, with the benchmark S&P 500 index gaining 15.9% over the period, largely on the back of bullish tech stocks.

Biggest losers

The big losers among the JSE’s large-cap stocks are resources companies, where share prices have been depressed by a much softer-than-expected recovery in China’s economy, which came out of an extended Covid lockdown at the end of last year.

Platinum miners have been hammered the most, with the three worst-performing stocks coming from this segment of the mining sector.

Leading the losses is Anglo American Platinum (Amplats), which is heavily exposed to platinum. Its share price plunged 42% between January and the end of June. Impala Platinum (Implats) and Sibanye-Stillwater follow – down just over 41% and over 38% respectively.

“Commodities in general have just been under pressure because of commodity prices,” Peter Takaendesa, head of equities at Mergence Investment Managers, tells Moneyweb. “The share prices are really just following what’s happening to commodity prices.” 

The winners

On the upside, Naspers and Prosus (with the biggest weightings on the JSE) were the biggest contributors to the market’s performance, both gaining more than 13%.

Cape Town-based tech giant Naspers announced last week that it would be undoing its cross-shareholding structure with Prosus, which investors largely viewed as negative.

This and its share buyback plans were very big drivers of the upside in the market, says McCurrie.

He highlights Richemont’s strong performance too. This group also undertook a ‘share consolidation’ this year.

Although China’s mixed recovery has not been able to support commodity stocks, it has propped up consumer demand for luxury goods, which Richemont is benefitting from.

JSE, Stock prices, Moneyweb, Gold Fields, Richemont
Sourced from Moneyweb

“Richemont’s rally is following its global peers like LVMH, initially driven, in part, by the China recovery,” even though “that started to show signs of disappointment,” says Takaendesa.

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

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