News in South Africa 6th October:
1. Cost of living crisis:
Economists have flagged South Africa’s fiscal crisis, a weakening rand, and the consequences of poor governance – painting a bleak future for the average South African as the cost of living crisis deteriorates.
South African Reward Association member Kirk Kruger said South Africans are among the most indebted people in the world, with as much as 73% of disposable household income servicing debt repayments.
“We find ourselves in an environment of rising interest rates, high levels of unemployment, and escalating food and energy prices,” Kruger said.
“Many people are facing extraordinary financial headwinds and struggling to service their debt on home loans, vehicle loans, credit cards and overdrafts.”
“These interest rate hikes have significantly impacted the cost of repaying loans, and this has been felt by the average South African consumer,” Kruger added.
He noted that the interest rate has increased by close to 5% in the last two years and used the example of a South African salary earner – reflective of the country’s middle class – to illustrate this impact.
A middle-class South African with a bond of R1.5 million, a car loan of R300,000, and a personal loan of R50,000 is now paying approximately R5,438 more per month on loan repayments compared to November 2021, he said.
This means this person will need to earn R8,915 more per month at a gross level to have the extra R5,438 after tax. That is more than a R106,000 per year.
This illustration serves as a double blow when considering the fact that, on average, analysts, businesses and trade union groups expect salaries and wages to increase by only 5% in 2023 and to then gain momentum to 5.4% in 2024.
However, inflation is touted to exceed this expectation – meaning many South Africans aren’t benefiting from any increases but rather only getting poorer.
Other economists say the petrol increase has come at a bad time and will likely push inflation back quite a bit above 5%. “With this petrol price coming through with the currency a bit weaker, I think the Reserve Bank will be nervous, with the distinct possibility that it will push interest rates up again.
“Obviously, that then hurts even more because you’ve still got to pay for the higher petrol price, the higher energy price, the higher food price,” said Chief Economist at Stanlib Asset Management, Kevin Lings.
2. Government hunts for eggs:
The Department of Agriculture, Land Reform and Rural Development is looking far and wide for table eggs it can import to ease the country’s egg shortage, it confirmed on Thursday.
According to spokesperson Reggie Ngcobo, the government is looking to buy eggs “anywhere in the world where there are eggs” as part of a short-term solution to the country’s already reported shortage of eggs on retail shelves.
Ngcobo listed the SADC region, Africa, Europe, and South America as some of the markets the state is considering for help.
South Africa already has an import relationship with countries such as Brazil, the US and Argentina. These markets supply a significant portion of bone-in chicken imports to the local market.
Media reports this week revealed that the department is looking for ways to fast-track import permits for the industry, creating an avenue to assist an industry battered by different strains of the highly pathogenic avian influenza (HPAI) virus.
“We are currently importing chicken meat from Europe and Brazil. So importing is happening,” Ngcobo said.
“As soon as importers apply for permits, permits will be issued in [a] short space of time and without compromising any legislation. They will import.”
Volumes unclear
The local poultry industry is battling the toughest bird flu outbreak since the virus first hit the country’s shores in 2017. In a previous interview with Moneyweb, Izaak Breitenbach of the South African Poultry Association placed this year’s slaughtered bird figure at over seven million, with the virus dealing a more vicious attack in the country’s densely populated inland region.
The department did not clarify just how large the import volumes of eggs would have to be to plug the supply gap in the market. Instead, Ngcobo told Moneyweb that the volumes will be dictated by demand in the market.
“It’s not government that determines the volume, rather the industry being informed by the shortage in their stock,” he said.
However, in September, Breitenbach told reporters that the sector is looking to import some 11 million fertilised eggs to help reduce the impact of the shortfall on consumers.
3. Rand hits weakest level:
The rand was trading on Wednesday morning at its worst level against the dollar since early June, with interest in the greenback surging as strong US data fueled speculation the Federal Reserve will once again need to hike interest rates, and keep them elevated for a sustained period.
The third straight month of US manufacturing improvement reported by the Institute for Supply Management (ISM) strengthened economists’ expectations that growth accelerated in the third quarter, Reuters reported on Tuesday. At the same time, the number of job openings at US employers unexpectedly jumped in August, a testament to the resilience of the labour market. The reaction of markets was “sharp and clear,” Swissquote Bank senior analyst Ipek Ozkardeskaya said in a note.
The dollar rallied, and US bond yields spiked. “Alas, a catastrophic scenario for the global financial markets where the rising US yields threaten to destroy value everywhere,” she said.
Markets are now pricing in an over 50% chance of the Fed hiking rates later this year again, according to currency strategist at TreasuryONE Andre Cilliers, and bets that the Reserve Bank will need to follow suit are on the rise. Wednesday’s big petrol price hike is also likely to raise inflation fears, he added.
The rand was trading about 0.3% weaker at R19.38/$ as of 9:15, earlier trading as low as about R19.43. This is its weakest level since early June when SA was grappling with concerns stemming from US accusations it was supplying arms to Russia. A panel subsequently found no evidence that arms were loaded onto the Lady R vessel.
4. VAT increase warning:
Many economists warned that South Africa may have to significantly increase value-added tax (VAT) to fund the government’s growing expenditure, which is counterproductive.
The National Treasury recently revealed that South Africa recorded its largest budget deficit since at least 2004.
The budget moved to a deficit of R143.8 billion for July, much wider than the R115.5 billion forecast by economists.
The growing deficit means that South Africa has to borrow more money to plug the gap, which in turn increases the debt levels.
Efficient Group chief economist Dawie Roodt warned that South Africa’s deficit and debt levels are approaching dangerous territory.
South Africa’s current debt-to-gross domestic product (GDP) ratio is 73%. In nominal terms, the country owes around R5 trillion.
At the current trajectory, Roodt expects the debt-to-GDP ratio to reach 76% in the current financial year and increase to 80% the year after that.
“A debt-to-GDP ratio of 80% for South Africa is getting into dangerous territory,” Roodt warned.
The National Treasury has proposed drastic steps to rein in spending as the government has run out of money and faces a debt trap.
However, the government is not keen on reigning in spending, especially ahead of a general election where the ANC faces a challenge to maintain an outright majority.
5. Businesses not happy with City Power:
Several businesses in the Johannesburg CBD are accusing City Power of skyrocketing meter readings as the entity continues with its operation to cut off non-payers.
However, City Power said its readings are accurate, and those who have problems can follow the right process.
The utility noted illegal electricity connections are on the rise, particularly in the business sector, with culprits diverting electricity using prepaid meters.
In the Joburg inner City, the entity is owed a whopping R33 million.
All information sourced from articles posted by: BusinessTech, Moneyweb, Fin24, DailyInvestor, and eNCA.
