News in South Africa 5th June:

1. Food security and riots warnings:

The Consumer Goods Council of South Africa has warned of food shortages which can lead to a repeat of the July 2021 riots which ravaged parts of KwaZulu-Natal and Gauteng.

Food security and riots warnings
Photo by Jakayla Toney:

Zinhle Tyikwe, CEO of the Consumer Goods Council, told Business Day TV that around 50% of South Africans go hungry and that 50% of food gets wasted.

Load-shedding exacerbated the situation, causing more food to get wasted and more people going hungry.

Tyikwe said increased load-shedding, especially stage 6 and stage 8, will lead to higher levels of crime because of civil unrest and service delivery problems.

She said with prolonged power outages, shops will have to close, and there will be increased food wastage. It will also impact food security.

Load-shedding further increases the operational cost for food retailers, which is passed on to consumers.

Food inflation is devastating to many South Africans who rely on social grants and are already stretched to make ends meet.

The Consumer Goods Council of South Africa wants the government to speed up the process of getting new power onto the grid.

The Consumer Goods Council of South Africa’s concerns echo warnings from Pick n Pay’s CEO Pieter Boone and chairman Gareth Ackerman.

Boone warned South Africa is at increased risk of food shortages and social unrest as load-shedding moves to higher stages.

Boone said if South Africa goes to stage 8 load-shedding, food manufacturing will suffer, and South Africa will experience a food shortage.

“It is no longer a question of pricing, but rather whether you can secure stock to serve your customers,” he said.

He added that higher stages of load-shedding also affect the water supply in many parts of the country.

When people struggle to get food and water, it causes severe social problems and can lead to civil unrest.

2. GDP data released this week:

Stats SA will publish South Africa’s gross domestic product (GDP) figures for the first quarter of 2023 this week, revealing whether the country has entered into a technical recession or not.

Following the shock GDP decline of 1.3% in the fourth quarter of 2022 amid record levels of load shedding and a significant downturn in economic activity, economists and analysts did not hold much hope for Q1 data.

This is because the quarter saw load shedding escalate even further amid a myriad of other economic issues – both related and unrelated to load shedding – add pressure.

However, as the months progressed, industry data started switching up the narrative, with sectors of the economy reporting surprisingly positive data. In a few short months, economists are now expecting the quarter to show marginal GDP growth – sparing the country from a technical recession.

According to economists at Nedbank, despite persistent power shortages, the economy performed slightly better than expected in Q1 2023.

Load shedding remains the ever-present thorn in the economy’s side, with the South African Reserve Bank noting that the near-permanent outages have likely wiped two whole percentage points off annual growth this year.

Given the economic data available, however, Nedbank has increased its Q1 GDP growth forecast from a flat 0% to marginal growth of 0.3% quarter on quarter.

However, as with most economic data, this position does not come without its caveats.

Firstly, it should be noted that Q4 2022’s data caught markets by surprise. While markets anticipated a decline in GDP over the quarter, the final figure was more than double what was expected (-0.6% vs -1.3%). This means that there are huge downside risks to the GDP data coming this week.

In addition to this, even if South Africa managed to grow the economy in arguably some of the worst economic conditions it has faced (outside of Covid), it does not mean that the country is in the clear.

According to Nedbank, the outlook for the rest of the year remains bleak.

3. Bird flu virus changing rapidly:

The latest outbreak of the highly pathogenic avian influenza (HPAI) in the Western Cape, has resulted in at least 550 000 chickens being slaughtered and many more eggs being destroyed in attempts to contain the disease.

This is according to general manager of the South African Poultry Association (Sapa), Izaak Breitenbach, who spoke to reporters on Thursday.

This is the second bird flu outbreak to hit the region this year. The first one took place in April, concerning the JSE-listed producer of Nulaid Eggs, Quantum Foods, which had to slaughter at least 420 000 birds to curb the disease’s spread.

Bird flu virus changing rapidly:

The virus causing record cases of avian influenza in birds across the world is changing rapidly, experts have warned, as calls increase for countries to vaccinate their poultry.

While emphasising that the risk to humans remains low, the experts who spoke to AFP said that the surging number of bird flu cases in mammals was a cause for concern.

Since first emerging in 1996, the H5N1 avian influenza virus had previously been confined to mostly seasonal outbreaks.

But “something happened” in mid-2021 that made the group of viruses much more infectious, according to Richard Webby, the head of a World Health Organization collaborating centre studying influenza in animals.

Since then, outbreaks have lasted all year round, spreading to new areas and leading to mass deaths among wild birds and tens of millions of poultry being culled.

Webby, who is a researcher at St Jude Children’s Research Hospital in the US city of Memphis, told AFP it was “absolutely” the largest outbreak of avian influenza the world had seen.

He led research, published this week in the journal Nature Communications, showing how the virus rapidly evolved as it spread from Europe into North America.

The study said the virus increased in virulence, which means it causes more dangerous disease, when in arrived in North America.

The researchers also infected a ferret with one of the new strains of bird flu.

The found an unexpectedly “huge” amount of the virus in its brain, Webby said, indicating it had caused more serious disease than previous strains.

Emphasising that the risk in humans was still low, he said that “this virus is not being static, it’s changing”.

“That does increase the potential that even just by chance” the virus could “pick up genetic traits that allow it to be more of a human virus,” he said.

In rare cases, humans have contracted the sometimes deadly virus, usually after coming in close contact with infected birds.

4. Municipal Debt Relief plan challenges:

Few, if any, municipalities in default on their Eskom accounts will be able to comply with National Treasury’s recently announced Municipal Debt Relief plan, according to Ratings Afrika.

National Treasury last month announced the new debt relief measures for the 165  municipalities that have defaulted on their Eskom bills and technically qualify for relief. The defaulters amount to just over 60% of the total 257 municipalities in the country.

The total amount municipalities owe Eskom is about R56 billion – a figure that keeps ballooning, despite previous efforts to rein it in.

To qualify for debt relief, municipalities must formally apply and then comply with 14 conditions imposed by National Treasury, including monthly monitoring of compliance and the installation of smart meters by Eskom to reduce the incidence of non-payment.

Other preconditions for debt relief include setting electricity tariffs at rates reflecting the costs of delivering services, the adoption of funded budgets, wider use of prepaid services to increase upfront cash flows, and measures to address variances between billing systems and the General Valuation Roll.

Uphill battle

This may be a hill too steep for most defaulting municipalities, says senior Ratings Afrika analyst Leon Claassen. This follows the release of Ratings Afrika’s 2022 Municipal Financial Sustainability Index (MFSI), which charts the continued deterioration in the financial health of SA’s municipal sector.

“The problem is the general lack of financial sustainability among the majority of municipalities in SA,” says Claassen. “Many municipalities are unable to pay their creditors in full, based on analysis of their balance sheets. Eskom forms a significant part of these creditors.

“Our view remains that the quality of management is the deciding factor, so we support any effort to improve this. However, we have strong concerns regarding the way that National Treasury is responding to a major opportunity to encourage improvement.

“Our concern is around the strictness of the conditions in order to qualify for the Municipal Debt Relief plan,” Claassen said.

“In practical terms we are of the view that very few, if any, municipalities that currently are in long-term default on their Eskom accounts, would be able to comply with these conditions, either fully or substantially.”

5. Dwindling appetite for government bonds:

The South African Reserve Bank (SARB) says local investors buying government bonds might not be able to fill the gap left by foreign investors.

The SARB said that South Africa’s greylisting and non-investment grade status could see bond sell-offs by international investors.

However, with local investors stepping in, there are concerns about the country’s financial stability regarding market liquidity, increased volatility and higher domestic government bond yields.

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

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