News in South Africa 9th May:
1. Rand remains weak:
South Africa’s rand remains in a weak position as it awaits a shift in global markets, says Investec chief economist Annabel Bishop.
Despite firming slightly on Monday (8 May) amid a softer dollar, the local unit has been sitting around R18.30/USD for some time.
According to Bishop, the rand is seeking a “directional driver” as a risk-averse environment persists in global financial markets, and so for emerging markets and currencies.
“Monetary policy globally is also seen to likely have some divergence,” she said.
Financial markets have taken the latest interest rate hike from the US Federal Reserve as the peak for US interest rates for the current cycle. The Federal Open Market Committee (FOMC) has not been explicit or clear on this, however.
The European Central Bank (ECB), meanwhile, has said that its recent hike is not the last of its cycle, with the president of the bank stating there is more ground to cover and it is not pausing.
“The benchmark deposit rate of the ECB is now at 3.25%, lagging the rapid pace of hikes in the US, with the focus firmly on subduing inflation still, and that this month’s hike would not be the last this year, despite monetary policy in ‘restrictive territory’,” Bishop said.
From a domestic perspective, a 25 basis point hike from the South African Reserve Bank (SARB) is fully factored in for the repo rate, with the next announcement from the Monetary Policy Committee (MPC) planned for the end of May.
Bishop said this still leaves some space for a repeat of the last MPC move when the SARB lifted its bank rate by 50 basis points.
As a result of the surprising hike, the country’s repo rate increased to 7.75%, leading to the prime lending rate reaching its highest level in 14 years at 11.25%.
Despite expectations that the SARB interest rate hike cycle would end soon, the central bank has remained determined to curb inflation to bring it within the target range of 3% to 6%.
Recent CPI data showed inflation rising to 7.1%, making it less likely that the SARB will ease rates in May.
Most analysts and researchers expect a further 25 basis point hike this month.
The rand is traded earlier today at:
- R18.33/$
- R20.15/€
- R23.12/£
2. 14th straight primary budget deficit:
South Africa will likely miss its primary budget surplus target for the 2023 fiscal year by about R8.9 billion, after revenue collections narrowly undershot estimates due to higher-than-anticipated value-added tax refunds.
South Africa recorded a primary budget deficit of R1.53 billion, in the fiscal year through March 2023, the National Treasury said in an emailed response to questions, citing preliminary data.
The outcome compares with February’s budget review forecast for a surplus of R6.7 billion, which would have been the country’s first positive primary budget balance — where revenue exceeds non-interest expenditure — since the global financial crisis. That projection was later revised to R7.33 billion, the Treasury said late Monday in an updated response to questions sent by Bloomberg.
The narrow miss shows that the Treasury continues to face challenges bringing revenue back in line with expenditure years after South Africa’s public finances were weakened by an era of government graft and after the coronavirus pandemic curbed tax income and led to an increase in welfare payouts.
Preliminary data also shows a main budget deficit of R310 billion, or 4.7% of GDP, was recorded for the fiscal year, the Treasury said. The main budget deficit worsened relative to the government’s February projection of 4.5% of GDP after revenue undershot estimates and spending increased more than expected.
“The outcomes are less positive than projected, but still reflect significant improvements in the fiscal position of government compared to recent years,” Edgar Sishi, the head of the budget office, said in an email.
3. Credit ratings unaffected by greylisting:
South Africa’s inclusion on a global watchdog’s dirty-money watchlist is unlikely to have an immediate impact on its credit ratings, according to Fundi Tshazibana, a deputy central bank governor.
The Paris-based Financial Action Task Force put South Africa on its so-called grey list in February because of shortcomings in tackling illicit financial flows and terrorism financing and gave it until Jan. 31, 2025, to address the deficiencies.
Among the measures it must take is to step up corruption investigations and prosecutions, and ensure the authorities have timeous access to accurate and up-to-date beneficial ownership information.
“The reason why the rating agencies are saying that they’re not going to yet look at it negatively is that the nature of greylisting is that you are under enhanced monitoring” so remedial action can be taken, Tshazibana said in an interview last week.
“It only becomes a problem if you’re missing your deadline because it’s demonstrating that you’re not serious” about following through, she said.
Assessments of South Africa’s debt by the three major rating firms are at their lowest since the country first obtained credit ratings in 1994.
Moody’s Investors Service pegs the nation at two steps below investment grade, while S&P Global Ratings and Fitch Ratings both rank it three notches below. All three have South Africa on a stable outlook.
4. Nersa fails to address wheeling tariffs:
In its comment on energy regulator Nersa’s consultation paper on the municipal electricity tariffs that are set to kick in on 1 July, the Association of South African Chambers (Asac) criticises Nersa for failing to address wheeling tariffs.
Wheeling is the transmission of electricity originating from any power producer through transmission or distribution lines – you could, for example, have a private wind farm in the Eastern Cape wheeling electricity through the Eskom network and several municipal networks in order to supply a factory in Gauteng.
While the unit cost of the electricity is determined in an agreement between the power producer and its client, the wheeling tariffs must still be determined.
Electricity and wheeling tariffs are however currently bundled together. This was not previously an issue, but in a competitive market with multiple generators of power using the same network the tariff for the use of the network needs to be stripped out and charged separately.
Call for fair tariffs
Against the background of uncertainty about the way municipal electricity tariffs will be determined in future, Asac proposes fair, non-discriminatory tariffs based on the current municipal tariffs for electricity supplied by Eskom.
“Wheeling tariffs must reflect the cost of the wheeling service,” it says.
“Our proposal is based on the comparison of wheeling tariffs with existing tariffs for similar or identical services,” Asac argues.
There is no difference in cost for the municipality between the importation (transport) of electricity, whether it originates from Eskom or an independent power producer (IPP).
“As such, the municipal mark-up from Eskom’s Megaflex tariff per kWh (kWh mark-up = municipal kWh tariff – Eskom Megaflex tariff) and the kWh wheeling charge for the same tariff period must be the same,” according to Asac.
“It needs noting that the municipality does not need to add any assets to enable wheeling of power which is supplied through the Eskom grid,” it adds.
5. Botswana hit by blackout earlier on Monday:
Botswana suffered a countrywide electricity blackout just after midnight on Monday.
According to a statement from the Botswana Power Corporation (BPC), a “grid disturbance” caused an outage of both Morupule A and B power plants, which supply almost all of the country’s electricity. This caused a “countrywide blackout”, according to the BPC.
The outage also hit the transmission power line that connects Botswana to South Africa.
Botswana was exporting 60MW of power at the time. Last year, Botswana offered to sell Eskom off-peak generated electricity. However, the country also still imports electricity from Zambia and South Africa amid performance problems at Morupule.
In a statement shared on social media, the BPC said that the Morupule power plants, near Palapye in the centre of the country, are currently being restarted. Load shedding has been implemented.
All information sourced from articles posted by: BusinessTech, Fin24, DailyInvestor, Moneyweb, and News24.
