CT loses battle to axe Eskom; bad loans hit Absa; Harmony Gold expects bumper profits; business confidence

By Jackie Cameron

  • The City of Cape Town’s attempt to secure South African municipalities the legal right to select their electricity suppliers has been set back by a court ruling that it must first exhaust negotiations with the government on the matter, says Bloomberg. The city currently has to buy all its electricity from national utility Eskom, which generates most of its output from coal and is struggling to keep pace with demand. A lawsuit aimed at enabling it to tap more renewable energy from independent producers was initially filed in the High Court in 2017 and was heard in May. “Essentially the judge didn’t deal with the substantive constitutional decision. It does mean more delays,” said Nicole Loser, a lawyer with the Centre for Environmental Rights, which presented evidence to back up the city’s case. “It’s a procedural judgment.” Had it won the case, the city of four million people had planned to set up its own power-purchasing office, which would secure supplies within six years. That would have paved the way for other municipalities to follow suit and eroded revenue for Eskom, which is already failing to generate enough revenue to cover its costs and is reliant on government bailouts to continue operating, reports Bloomberg.
  • South African business confidence recovered from a 35-year low in July as global economic activity improved, but the measure remained below average over worries about the slow re-opening of the economy and soaring local infections, reports Reuters. The South African Chamber of Commerce and Industry’s (SACCI) monthly business confidence index (BCI) rose to 82.8 in July from 81.4 in June. “The index plunged to 70.1 in May, its lowest since the survey began in 1985 and below last year’s average of 92.6. The business body said one reason for the recovery was that “the global economy has moved beyond the economic trough”. SACCI added that the slow re-opening of the local economy and allegations of government mismanagement relating to Covid-19 procurement was sapping enthusiasm. Last week, President Cyril Ramaphosa set up a ministerial committee to investigate alleged corruption in state tenders in the fight against Covid-19. Between March and June, South Africa enforced one the world’s strictest coronavirus lockdowns, forcing mines, manufacturers, retailers and services to shut down or operate under tight regulation.
  • Absa said on Wednesday its half-year earnings could be almost wiped out as a steep rise in bad loans dented its performance. “Credit impairments were four times higher,” Absa said, adding it expected bad debts to fall significantly in the second half of the year. “The Covid-19 pandemic, national lockdowns and weak economy during the first half had a material impact on customer loan and transaction volumes, while significantly lower policy rates reduced our net interest margin,” it is quoted as saying.
  • Gold miner Harmony Gold on Wednesday said it sees production recovering to pre-coronavirus lockdown levels around the end of August and that it expects a soaring gold price to double its margin. The gold price was 25% higher in Rand terms this financial year, Harmony said, while the increase in dollar terms was 14%. South African gold miners have rallied recently as investors rush to buy shares in the export-oriented companies which do well when the Rand depreciates against the dollar.