News in South Africa 8th May:

1. Close call for recession in SA:

Economists say South Africa may have escaped a technical recession in the first quarter of the year, but the extreme volatility in the economic data being put out makes it difficult to call.

Close call for recession in SA
Photo by Riya Kumari

Economists from the Bureau for Economic Research (BER) and banking groups Nedbank and Absa say that mining and manufacturing output data this week will provide a clearer picture of how South Africa’s economy performed in the first quarter of the year.

Given the persistent load shedding hitting the country, expectations are that both sectors are likely to show a decline. However, with outages being less intense in March versus February, the figures may not be as bad as many expect.

According to Nedbank, production probably declined further in March, weighed down by load-shedding, subdued global demand and weaker commodity prices.

“Manufacturing production is forecast to have contracted by 6.1% yoy in March, worse than the 5.2% decline recorded in February. Mining production probably declined further, although the rate of contraction likely moderated, supported by a slight improvement in electricity supply in March and firmer demand from China,” it said.

This sentiment was echoed by Absa, which said that ongoing rotational power cuts, which intensify and abate unpredictably, have introduced a high degree of volatility in the high-frequency activity data, making these difficult to forecast.

“That said, we believe that the moderation in the intensity of load shedding in March to an average of stage 3 relative to an average of stage 4 in February likely supported some improvement in output in both mining and manufacturing,” it said.

In mining, Absa anticipates a partial output recovery of 2.2% m-o-m seasonally adjusted for March after the sharp drop of 4.9% in February. The bank forecasts that production in the manufacturing sector rose 0.9% m-o-m sa in March.

The group said that this translates to a contraction of 7.3% y/y (February: -5.0%) for mining and a decline of 10.1% y/y (February: -5.2%) for manufacturing.

“The release of these data will allow us to update our Q1 23 GDP tracking estimate, which currently sits at 0.9% q/q sa, ahead of our published forecast of 0.2%,” Absa said.

2. Total blackout warning:

Many experts warn there is an increased risk of a grid collapse in South Africa, and insurance companies are now excluding all damages related to a total blackout.

The risk of a total blackout remains low as long as Eskom continues using load-shedding to artificially reduce demand and ensure it does not exceed supply.

South Africa’s electricity grid is designed to automatically shut down if demand exceeds supply for safety reasons and to ensure the grid can be restarted.

However, despite this safeguard, many business leaders have warned that a total blackout is not out of the question.

Political analyst JP Landman said Eskom’s decision to shrink the generation reserve margin to reduce the level of load-shedding is very dangerous as it increases the risk of a total blackout.

Landman had particular concerns that load-shedding is being reduced for political reasons and not due to improved performance.

He explained that a reduction in load-shedding may be due to Eskom reducing the generation reserve margin.

This margin creates a buffer between electricity demand and supply to ensure the grid does not automatically shut down.

Normally this buffer sits at 15%, but recent reports suggest it could have been reduced to as little as 6% to reduce load-shedding.

This is very concerning for Landman as it puts South Africa at risk of a total blackout. “Give me stage 15, stage 16 load-shedding rather than a national blackout,” he said.

Nedbank chief economist Nicky Weimar said South Africans should “watch this space” as the country is sailing close to the edge regarding a total grid collapse.

3. ‘Uncertain’ energy crisis plan called out:

Questions have been raised about the feasibility of exempting schools, clinics, hospitals, and police stations from load shedding.

The court on Friday 5 May ordered Minister of Public Enterprises Pravin Gordhan, whether in conjunction with other organs of state or not, to ensure uninterrupted power supply to:

  • All “public health establishments” as defined in the Public Health Act, including public hospitals and clinics;
  • Public schools as defined in the South African Schools Act; and
  • The South African Police Service and police stations as defined in the South African Police Service Act.

This must be done within 60 days, irrespective of whether these institutions get their power supply from Eskom or a municipal distributor.

This was on the back of legal action from more than a dozen organisations and political parties.

Energy expert Adil Nchabeleng said from a technical point of view, the judgment does not make sense.

He said Eskom would have to revamp its entire infrastructure and distribution networks to be able to comply with this ruling.

He said a more workable solution would be for government to provide these facilities with stored energy batteries during times of load shedding but this will be an expensive exercise.

“Have your solar panels, have your battery package, have your inverter in place of load shedding, and then for backup when there is no sun and other things, you can use generators because load shedding is an alternative thing.

“You don’t have blackouts where you go for days without electricity it is just two or three hours in between and that can be mitigated with a small solar solution for now.”

4. Africa free trade area may lift 50m people out of poverty:

Africa’s continent-wide free-trade area, if successfully implemented, could significantly boost economic growth and improve living standards at a time of rising geopolitical tensions and climate change, the International Monetary Fund said in a study.

“Greater trade openness would help countries adapt to climate change and to strengthen food security, including by improving the availability and affordability of food supplies,” the IMF said in its Trade Integration in Africa – Unleashing the Continent’s Potential in a Changing World report.

“More diversified and broad-based trade would reduce the impact of disruptions in specific markets and products that could result from shifts in global trade patterns.”The lender warned earlier this week that Africa could suffer a permanent economic hit if tensions splinter the global economy into opposing trading blocs around the US and China. It estimated that sub-Saharan Africa could see a 4% decline in gross domestic product after 10 years under a severe version of this bipolar world.To obtain the full benefits of AfCFTA, which could be the world’s biggest free-trade zone by area when the treaty becomes fully operational by 2030, large cuts in tariff and non-tariff trade barriers among African nations will be needed, the IMF said in the report.

“These reductions could increase the median merchandise trade flow between African countries by 15% and median real per-capita GDP by 1.25%,”or more if combined with substantial improvements in the trade environment, the lender said. 

The IMF also found that comprehensive reforms along with the AfCFTA implementation could increase the median merchandise trade flow between African countries by 53% and the rest of the world by 15%. That could raise the median per-capita GDP in Africa by more than 10% and lift as many as 50 million people in the world’s poorest continent from extreme poverty by 2035, it said.

5. Tourism Recovery Plan:

Tourism Minister highlights some of her priorities to get SA’s tourism sector back on track.

There are many issues we need to tackle in the tourism sector and act on. Over the past few weeks, I have engaged a number of stakeholders in the sector, and everywhere there are the same concerns.

We must confront and deal with these issues, and we must do it fast because we all want to go back to pre-Covid visitor numbers and push those numbers even higher. I am looking for ideas and action.

As the sector, you know best what the issues are and what and how we can grow tourism and jobs in this sector.

My priority is clear, let’s get to over 21 million tourist arrivals before 2030. Let’s speak with once clear voice. Let’s have one clear message on destination marketing.

Let’s make South Africa safer for tourists and let’s get to truly opening our country for visitors with the e-visas and improving air access.

East Africa has already surpassed pre-Covid visitor numbers, we need to get there too. Let’s act and make it happen.

The priority areas

I have been given four priority areas by President Cyril Ramaphosa for this portfolio (the tourism ministry) and I am determined to achieve it.

We have less than 400 days in this term of office so time is of the essence.

  • Priority 1: Tourism Sector Master Plan
  • Priority 2: Improve e-Visa turnaround times for tourists
  • Priority number 3: Improve turnaround time for Tourism Operator Licenses
  • Priority 4: Unlock the implementation of the Tourism Equity Fund (TEF)

Air access

Air access is another key priority for me, and I will be working closely with stakeholders to bring more direct flights to South Africa and ensure that the planes also leave the country with travellers so that we grow reciprocal relationships with the world.

The present state of airlift in Africa is improving, but much work still needs to be done in South Africa.

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

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