News in South Africa 6th January:
1. Rand weakens over red flags:
The South African rand has weakened alongside other emerging market currencies as the dollar rebounded this week.
On Thursday (5 January), the rand weakened in early trade as investors awaited the monthly purchasing managers’ index (PMI) survey by S&P Global to find clues on South Africa’s economic health.
The latest PMI survey’s key findings include the following about South Africa:
- New business fell for the third time in four months;
- Load shedding continued to harm output and supply chains;
- Cost pressures remained marked but slower than earlier in 2022.
David Owen, an S&P Global Market Intelligence economist, said that businesses in the country continued to show a large sum of factors harming the economic conditions towards the end of the year: load shedding, inflation, supply issues and weak demand.
“While the PMI stayed above 50.0 in December for the second month running, this mainly reflected a slight uplift in employment numbers…the later findings suggest that GDP figures are likely to disappoint in the fourth quarter,” he said.
According to TreasuryOne, the rand briefly broke below R16.80 earlier this week. However, it softened after that – slipping in line with other emerging market currencies.
In late 2022, Investec chief economist Annabel Bishop said that in 2023, emerging market economies would face the additional risk of an increase in risk aversion in global financial markets if the Fed’s monetary policy does prove too restrictive.
She added that if this were to be the case, it would add a weak underpin to the rand.
2. African startups – tough times ahead:
African startups raised a record $5.3 billion last year, though that may be the high-water mark as a deepening slump in the technology industry reduces the funding pool.
While investment in 2022 exceeded the previous year by just $100,000, the number of deals jumped 20% to 964, according to data from Briter Bridges, a market intelligence company.
“There are some red flags in that the mega-deals are largely driven by overseas, non-African-committed investors,” said Dario Giuliani, director at Briter Bridges. “There is a risk that the pool for growth funding may be limited in 2023.”
Global funds such as Sequoia Capital, Tiger Global and the failed crypto firm FTX led the largest investments in African startups over the past few years.
But with a recession looming in many Western nations and job cuts accelerating across technology companies — Amazon.com Inc. is laying off more than 18,000 employees — private-equity and venture-capital firms may choose to conserve cash.
“Valuations of tech companies” are depressed, said William Sonneborn, International Finance Corp’s global director of disruptive technology and funds. “Private businesses aren’t immune from how listed comparables are valued. I expect several high-profile downrounds on the continent this year.”
While more than a third of African startup funding was for fintechs last year, the trend is shifting, Sonneborn said. Health-tech, climate and farming technology will attract funds this year, he said.
Investment has been concentrated in four of the continent’s more developed markets — Egypt, Nigeria, Kenya and South Africa — which are battling economic challenges from slowing growth to currency depreciation. That may hit financing opportunities, according to Briter Bridges’ Giuliani.
“While in 2021, companies were encouraged to grow at all costs, they now are focused on preserving cash, reducing burn and delaying their next round as long as possible,” Sonneborn said.
3. Basic income grant concerns:
The Social Policy Initiative, a feminist research think- and do- tank, says the possibility of the current R350 social relief of distress grant forming the basis for a permanent Basic Income Grant (BIG) should be “celebrated with enthusiasm”.
Finance Minister Enoch Godongwana extended the grant, introduced in May 2020, for another year until March 2024. Currently more than seven million South Africans are receiving the grant.
According to the Social Policy Initiative (SPI) additional public spending through social grants will have a “highly positive impact” by stimulating economic growth and jobs in a period of turgid growth and growing hunger and hopelessness.
Negatives outweigh the positives
Their statement is in direct contrast to the findings of an Economic Research Southern Africa working paper published earlier this year. The research by authors and associate researchers at the Stellenbosch University Hylton Hollander, Roy Havemann and Daan Steenkamp found that the negative economic effects of an expansion in social grants would outweigh the positive effects.
At the very least, their research found that by converting the current R350 grant into a permanent BIG will require an estimated increase in public debt of about three percentage points of GDP after five years.
It will also require a marginal increase in effective indirect taxes (mainly the value added tax rate, VAT), an increase in the effective personal income tax rate of about two percentage points, and an increase in the effective corporate income tax rate of about 0.25 percentage points.
Long-term sustainability
“Although the consumption of poor households would rise, the model predicts there would be some job losses owing to the contractionary impact on investment and growth from higher debt and higher taxes.”
Steenkamp says most of the discussions relating to the extensions of social support lacks solid macroeconomic analysis of the long-term sustainability of higher expenditure, debt and taxes.
“The studies used to advocate for grant extensions do not incorporate the inevitable effects of the required fiscal settings on interest rates, inflation or investment in their analysis.”
Decisions:
During the medium-term budget policy statement in October Godongwana said discussions were still under way to consider options for a replacement of the temporary grant and no final decision has been made about a replacement or how it will be financed.
4. Load shedding until further notice:
Eskom said that the current pattern of stage 3 load shedding in the mornings until afternoons, and stage 4 from thereon into the evenings, would be implemented daily until further notice.
The rolling power cuts are currently at stage 3 until 4pm on Friday, whereafter stage 4 kicks in until 5am on Saturday.
The utility has been battling to return to service seven generating units that tripped at several power stations.
This added pressure on the power grid, forcing the ramping up of the power cuts.
As technicians attend to the breakdowns, Eskom appealed for the spare use of electricity to preserve the current levels of limited power.
“We currently have 6,014 megawatts on planned maintenance, while another 17,278 megawatts of capacity is unavailable,” said Eskom crisis communication manager Menzi Mngomezulu.
Eskom said it would provide further updates on the status of the grid.
5. Covid outbreak unlikely in SA:
Health experts say that a new Covid-19 outbreak in South Africa is not likely, even as a serious outbreak of the virus hits China.
According to the experts, the Chinese population has very low levels of immunity to the virus due to its intensive lockdowns – and a low vaccination rate worsens the situation.
Meanwhile, South Africans have a high level of immunity from vaccination and prior infection.
All information sourced from articles posted by: BusinessTech, DailyInvestor, Moneyweb, EWN, and News24.
