News in South Africa 8th March:
1. R40 petrol price unfounded:
Fears that SA’s petrol price could double to R40/l in the short term are unfounded, but the country can still expect some economic pain as long as the Ukraine crisis continues, say economists.
This was in response to media reports which shared comments that SA consumers could face a doubling of the petrol price from its current level of just over R20/l.
While the price of benchmark Brent crude oil has surged and left markets reeling in the wake of the Russian attack on its neighbour, the reality is that about half of SA’s petrol price comprises various levies such as that paid to the Road Accident Fund, said Econometrix chief economist Azar Jammine.
As long as government does not alter those levies, the impact of higher oil prices will be much less dramatic than some commentators fear, he said.
“The price of oil would have to go to $400 a barrel,” said Jammine, adding that he anticipated the price at the pumps could rise to around R24/litre.
South Africans should, however, brace themselves for some economic fallout from the crisis though the impact would not be as severe in SA as in other countries.
SA has the advantage of having less printed money in circulation and this will have the effect of cushioning the blow that many advanced economies are likely to feel.
“The growth in money supply is less than inflation,” he said. “This is a function of the weakness of the SA economy. The general expectation is that there will be a knock-on effect, however.”
2. No extension for expired licences:
It appears unlikely there will be a further extension to the validity period of driving licences that expired during the Covid-19 lockdowns.
This is despite a current backlog of 534 807 driving licences in the system and protests at Driving Licence Test Centres (DLTCs) reportedly leading to the closure of more than 10 DLTCs in Gauteng.
Transport Minister Fikile Mbalula on Monday urged those motorists whose driving licences have expired to renew their licences and not wait for the last moment as “the final deadline” of the grace period approaches. The grace period applies to those whose driving licences expired between March 26 2020 and August 31 2021.
He said those who are not covered by the grace period and whose licence cards have already expired will also have to apply for a temporary driving licence (in addition to the actual licence renewal).
The Automobile Association (AA) has however urged the government to extend the deadline for “another month or two” in the interests of keeping motorists legitimate.
Mbalula said the Department of Transport (DoT) remains on track to clear the renewal backlog.
Licences and schools:
Basic Education minister Angie Motshekga says her department is working with the Road Traffic Management Corporation (RTMC) to offer driving and learner licences at schools across the country.
Answering in a recent parliamentary Q&A, Motshekga said the agreement will include both classroom lessons as well as formal accreditation through the RTMC. However, she said that the planned rollout of the scheme had somewhat stalled due to budgetary constraints – but was still a key priority.
“Learner road safety education has been incorporated in the open-source Life Orientation textbooks. The Department is collaborating with Road Traffic Management Corporation in ensuring that learners can exit the schooling system having obtained a learner driver’s licence,” she said.
“The RTMC is the authority in the issuing of learner and driver’s licences, and they have limited budget and resources to implement this programme. The two departments share plans as required by the protocol and this is a priority in the joint programmes.”
3. BRICS halts work with Russia:
The New Development Bank (NDB), set up by BRICS countries to reduce the influence of what they consider Western-dominated finance institutions, has stopped doing business with Russia.
The bank announced the move in a statement that made no mention of sanctions, invasion, or Ukraine – and which used 101 characters, (including a full stop) to announce its decision: “In light of unfolding uncertainties and restrictions, NDB has put new transactions in Russia on hold.”
That was sandwiched between a generic statement on its application of “sound banking principles” and a commitment to continuing to be “in full conformity with the highest compliance standards”, which required a further 254 characters.
South Africa has put R25.5 billion into the bank to date.
The bank lists Russian projects worth around $4.86 billion, or around R74.5 billion, that have either been implemented or approved, and so will not be affected by the halt in new business.
Russia has no pending projects listed.
For South Africa, approved NDB projects total around $5.39 billion, or around R82.7 billion, including project finance to the likes of Eskom and Transnet.
Access to such funding has meant far more to South Africa than to Russia. South Africa’s budget now forecasts that its huge debt burden will stop growing in the medium term (though not everyone believes that to be a sure thing), which should see foreign debt peak at 11.3% of the borrowings that are vital to keeping government going.
While debt is a matter of survival for South Africa, and foreign debt is a vital component of that, Russia in the recent past borrowed money because it chose to do so. By the last set of solid numbers available, from September, Russia was a net creditor on international markets to the tune of some $440 million.
But Russia now has a credit rating significantly worse than that of South Africa, with a negative outlook from all of Moody’s, Fitch, and S&P, suggesting that if a Russia impoverished by sanctions returns to markets looking for money in future, institutions such as the New Development Bank that consider political factors in lending will be all the more important to it.
4. 40% of water lost:
As 40% of South Africa’s water is lost due to leaks, non-payment and other factors, the National Water and Sanitation Minister Senzo Mchunu has revealed plans to establish a national water infrastructure agency that aims to refurbish and expand the country’s critical water infrastructure.
Mchunu, who took over the water and sanitation portfolio in August, acknowledges that sourcing new water and protecting existing resources will cost a fortune. But with regard to old or dysfunctional infrastructure, the country could only “slide to backyard status” if efforts did not start immediately.
“There will be expenses of course … it’s already very expensive. It requires billions of rands. But it’s still better to tackle the problem now rather than waiting for any other time when it gets more expensive,” he told Our Burning Planet in an interview.
Where will this money come from?
While some would come from his department’s own trading account, it was also planning to set up a new National Water Resources Infrastructure Agency which would be built around the existing Trans-Caledon Tunnel Authority (TCTA).
The TCTA is a state-owned entity set up in 1986 to finance and build the South African section of the Lesotho Highlands Water Project, but its mandate was later expanded to fund other water projects.
Mchunu said one of the new agency’s main duties would be to attract new investment by packaging major water infrastructure projects.
This idea dates back to at least 2008, when a Bill was published to give effect to a new water resources infrastructure agency that would raise private sector funds in an efficient and cost-effective manner.
“The latest statistic was a startling 54% of water lost to bursts and theft monthly. This sat at between 30% and 40% for the past 10 years, but is now out of control. This also has a significant impact on our finances and income,” she says,
To address these “difficulties”, Mchunu says his department is also considering a reconfiguring and “streamlining” of the country’s approximately 140 water service boards.
5. Massmart investing big:
Over the next five years, Massmart will invest substantially all its efforts in three areas of the business: Makro, Builders and e-commerce.
Already, nearly three-quarters of its capex for this year has been allocated to this. Expect an even greater portion in the years ahead. From the build out of additional Makro and Builders stores, it sees as much as R9.4 billion in new sales over the next five years.
Absent from this investment drive? Game.
The uncomfortable truth is that (still relatively new) CEO Mitchell Slape as well as the group more broadly have spent an immense amount of time and effort to fix the underperforming unit.
Over the last three years, Game has reported total trading losses of R1.95 billion.
That’s on around R51 billion in sales. This means for every R1 billion in sales, Game loses R38 million. To be fair, half of those trading losses came last year as the business was hit by civil unrest and riots (primarily in KwaZulu-Natal, with some impact in Gauteng) and challenges in having enough stock in stores (due to global supply chain disruptions).
The bet is that the slimmed-down portfolio – it is divesting 14 East- and West African stores and 15 unprofitable ones in South Africa – will deliver a “much improved” performance.
How realistic is the growth strategy?
More Makro
The plan for Makro is to expand its store base by a quarter (a curious way of phrasing the opportunity, which translates to 5.5 stores). We would assume this means another five to six stores by 2026. But given the lead times, it is unlikely we’ll see a new store until the end of next year. Expect, then, one or two stores a year from that point. Because of their size, Makros have a large catchment area. Each store does between R1.5 billion and R2 billion in revenue a year.
Bigger Builders
Massmart says it sees the potential to increase its footprint in the country by 50% in the next five years.
With 109 Builders stores in SA (and what presumes to be the current sustainable figure of nine outside of SA), that is going to require the group to add more than 50 new stores. That is a big ask.
Ambitious?
One gets the sense that Massmart is up against it and simply must double down on formats and divisions that are working in order to grow. Otherwise, this is a business that’s going to be stuck growing in line with the market (as it has been over recent years, excluding the cash and carry mess where sales continue to evaporate).
Right now, online sales are running at 2.2% of what it terms “sales participation” (where those products are actually available for sale online).
In 2020, it reported GMV of R1.1 billion. Growth of 56% gives you R1.7 billion (which is scarily close to the 2.2%). Last year (to March 2021), Takealot group’s GMV was R16.7 billion (this includes sales by third parties on Takealot’s marketplace as well as the Mr D Food platform).
But Massmart’s growth plan for e-commerce sees its online revenue at comfortably over R13 billion by 2026 (at the low end of its estimated compound annual growth rate). That’s about as big as the entire Builders business in South Africa right now (or just smaller than the Takealot group, which includes Superbalist).
By then, it plans that R150 in every R1 000 in sales will be online.
All information sourced from articles posted by: TimesLive, Moneyweb, Business Insider, BusinessTech, and Daily Maverick.
