News in South Africa 7th August:

1. Government credibility scares off investors:

The government’s lack of credibility due to its poor economic policy, unsustainable debt burden, and policy uncertainty adds to the risk premium on South African assets, making investors fearful of investing in the country. 

Government credibility scares off investors
Photo by Tima Miroshnichenko

Following the South African Reserve Bank’s (SARB) Annual General Meeting (AGM) last week, Old Mutual investment strategist Izak Odendaal told CNBC Africa that the SARB is right to be concerned about the country’s fiscal policy

SARB governor Lesetja Kganyago has been vocal about the government’s failings throughout 2023, particularly emphasising the structural constraints of load-shedding and logistics. 

Kganyago has bemoaned the “idiosyncratic factors such as load-shedding and the country’s greylisting” that keep local inflation elevated while it is declining globally.

In particular, the ongoing energy supply challenges are fuelling inflation by raising operating costs for businesses which are passed on to consumers.

The Reserve Bank has to fight inflation “in a context where many of the drivers of both inflation and growth are outside of its control”, according to Kganyago.

2. Rand is 50% undervalued:

The latest update to The Economist’s Big Mac index shows that – theoretically – the rand should be trading at R8.94/dollar.

The index compares the prices of McDonald’s Big Mac hamburgers in different countries to determine whether currencies are overvalued, or too cheap.

The idea is that an identical product must cost the same across countries and that a disparity indicates whether the local currency is not at the correct value. The index has been compiled since 1986.

A Big Mac costs R49.90 in South Africa and $5.58 in the United States.

“The implied exchange rate is 8.94. The difference between this and the actual exchange rate, 17.78, suggests the South African rand is 49.7% undervalued,” The Economist says.

Source: The Economist

A year ago, the rand was 55% undervalued. South Africa has often been the world’s most undervalued currency, and in 2020 was undervalued by 70%. 

But currently, the currencies of India (-55%), Egypt (-53%), and Taiwan (-57%) are more undervalued. The rand has lost more than 10% of its value against the dollar over the past year.

3. New laws look to stop corruption:

The Public Procurement Bill, introduced to the National Assembly in June 2023, hopes to create a framework to end tender corruption.

According to Wright-Rose Innes, tender corruption was one of the reasons that South Africa was grey listed by the Financial Action Task Force (FATF) earlier this year.

In response, Finance Minister Enoch Godongwana introduced the draft Public Procurement Bill to ensure stability and transparency in public procurement at local and national levels.

Treasury wants to create a single regulatory system for public procurement that will apply to all entities that fall under the Public Finance Management Act and Municipal Finance Management Act. This aims to stop the corruption that is fraught in the current decentralised procurement system.

To create a uniform procurement system, the Bill wants to establish different regulatory bodies. These bodies will include a new Public Procurement Office that will develop measures to ensure the integrity of procurement, promote standardisation in procurement and supervise the implementation of the Bill.

Provincial Treasures will also have to assist in enforcing effective management and transparency of procurement processes. They will also have to introduce non-binding guidelines that will help procuring institutions in the implementation of the Act or any other procurement-related matters.

Godongwana will have to define a procurement system, and the Public Procurement Office can be instructed to determine the standard bid documents.

The Bill is also looking to introduce the use of technology in regard to procurement.

4. Extreme weather warning:

Experts warn South Africans to expect the worst when it comes to changing weather patterns – with the El Nino (dry) weather system approaching.

As the winter chill relinquishes its grip on South Africa, the nation is bracing for an enigmatic weather phenomenon that has the potential to disrupt the delicate balance of its ecosystems and communities: El Niño. 

The phenomenon is no stranger to South Africa, and its cyclical arrival has been documented for decades. While this naturally occurring climate cycle, characterised by the warming of ocean waters in the equatorial Pacific, has long been anticipated and forecast, its impacts remain a complex riddle for meteorologists and climatologists alike. Accordingly, the projected and likely outcomes of this year’s El Niño are both a source of concern and curiosity.

“We can only really see El Niño impacts when our summer rainfall comes… in general, there’s a relationship between the state of the ENSO (El Niño-Southern Oscillation) and the South African climate. In general, there’s an established relationship, but it’s kind of statistical because it’s not always a linear relationship. It’s more like, when we have El Niño, ‘this is the historical pattern and general likelihood of an impact’.” 

Rapolaki noted that “the nature of extreme weather impacts varies due to the complex interaction between the El Niño event and other regional atmospheric circulation systems. These systems can either intensify or weaken the effects of El Niño over our region. 

“At this stage, we can only anticipate the occurrence of El Niño events, but we cannot precisely predict their exact impacts. As a result, expecting El Niño does not guarantee the occurrence of severe drought conditions, given the complex nature of ocean-atmospheric circulation at play.”

Sweijd suggested we look to our neighbours in the northern hemisphere for clues. 

“We’ve seen these record temperatures in the northern hemisphere, which were kind of predicted. That doesn’t automatically mean we will see the same thing in the southern hemisphere summer… these record temperatures in the northern hemisphere are a combination of things. There is a general warming trend that’s taking place and then you’re adding an extreme on top of that. On average, if you’re starting with a temperature increase, and you add two more degrees to that, then you’re gonna hit a record.” 

While it’s difficult to predict the exact outcome of the system, experts say that the country should gear up for drought conditions and heatwaves nevertheless. The agri sector has warned of the damage the hotter weather can cause to crops and yields, which could impact food prices in the country.

5. Biggest load shedding culprit:

Electricity minister Kgosientsho Ramokgopa says that vacant offices and government buildings are some of the biggest energy hogs in the country, and they need to become more efficient to avoid higher stages of load shedding.

He called on South Africans at large to become more efficient in their energy use but said it is vital for the government to lead by example.

All information sourced from articles posted by: DailyInvestor, Fin24, BusinessTech, Daily Maverick, and The Citizen.

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