BizBytes – Monday 3rd July 2023
Monday 3 July, 2023
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South Africa Records Trade Balance Surplus of R10.2 Billion in May 2023, Driven by Exports
The South Africa Revenue Service (SARS) reported a trade balance surplus of R10.2 billion in May 2023, attributing it to exports worth R184.2 billion and imports valued at R174.0 billion, including trade with neighbouring countries. However, the year-to-date trade balance of R9.4 billion is significantly lower than the R107.3 billion recorded in the same period last year. Highlighting a growth of 2.1% in year-on-year export flows and an increase in import flows. China remains South Africa's largest trading partner, followed by Germany and the United States.
National Treasury's Solar Energy Tax Incentive Criticized as Short-Sighted and Ineffective
Webber Wentzel has raised concerns about the National Treasury's approach to the solar energy tax incentive introduced earlier this year. The incentive offers tax rebates for rooftop solar panel installations, but Webber Wentzel argues that it fails to consider the broader functioning of a solar energy system. They point out that the incentives should cover all components, such as inverters and batteries, to increase generation capacity effectively. Additionally, the requirement for "new and unused" solar panels limits the incentive's effectiveness and contradicts the government's commitment to addressing the energy crisis and climate change, as reported by MyBroadBand.
South African Universities Plagued by Corruption and Leadership Turmoil, Says Higher Education Minister
South Africa's higher education institutions are suffering from rampant corruption and leadership instability, according to Blade Nzimande, the Minister of Higher Education, Science, and Innovation. He highlighted the University of Cape Town, Unisa, the University of Fort Hare, and the University of KwaZulu Natal as particularly affected. Nzimande urged closer attention to governance and called out budget allocations and procurement as sites for personal accumulation. Leadership turmoil and corruption allegations have led to resignations, investigations, and calls for administrative interventions at various universities. Inexperienced council members were identified as contributing to poor administration.
Former Eskom CEO's Conduct Questioned by Parliament Committee over Controversial Tender Award
The former CEO of Eskom, André de Ruyter, is facing scrutiny from Parliament's Standing Committee on Public Accounts (Scopa) regarding allegations of flouting procurement processes in awarding a tender to Fidelity as reported by MyBroadBand. Scopa met with the Eskom board and executive team to investigate the claims made by De Ruyter. The committee aims to assess whether De Ruyter complied with regulations and fulfilled his fiduciary duties. Scopa will specifically focus on the R500 million tender granted to Fidelity and questions why only Fidelity was contacted and what services it provided. Karen Pillay, the acting head of security at Eskom, has been suspended in relation to the contract.
Riots in France Subside Following Massive Police Deployment
France experienced a decrease in street unrest after nearly a week of riots and looting triggered by the killing of a teenager by a police officer. The violence has calmed, with the number of arrests dropping significantly. The deployment of approximately 45,000 police, along with special forces and armoured vehicles, helped contain the clashes that damaged numerous public buildings and shops in cities like Paris, Marseille, Lyon, and Strasbourg. French President Emmanuel Macron is engaging with political leaders to address the situation, while the unrest adds to the country's challenges, including economic pressure and concerns about public safety.
Hedge Funds Shift Focus from Bullish Dollar Bets as Rate Hike Expectations Fade
Hedge funds are abandoning their bullish bets on the US dollar as the likelihood of further rate hikes by the Federal Reserve diminishes. Data shows a significant decrease in leveraged funds' long positions on the greenback against eight currencies. Hedge funds are now anticipating potential rate cuts next year and are considering other factors, such as the European Central Bank's need to raise rates to tackle inflation, which could make the dollar less appealing. The shift reflects a growing belief that the peak for the dollar has passed.
Slowing Economic Growth Dampens China's IPO Activity
Despite mainland China being the world's busiest IPO market in the first half of the year, slowing economic growth is expected to hinder domestic IPO activity. While China maintained its top position in terms of listings, the amount raised was 14% lower than the previous year, and activity has been slowing month by month. Chinese companies are adopting a cautious approach due to uncertainties in the economic outlook. Hong Kong's market revival depends on spin-offs from tech giants and listings from AI or automotive startups. To boost IPOs, market sentiment and confidence in the Chinese economy need improvement. -Bloomberg
Pound Outperforms G-10 Currencies, Despite Economic Concerns Linger
Despite growing concerns about the UK economy, the British pound had the strongest performance among G-10 currencies in the second quarter. The pound rose nearly 3% against the US dollar and recorded its biggest gain against the yen in over a decade. Surging bond yields and expectations of further interest rate hikes by the Bank of England have supported the currency. However, uncertainties remain as rising borrowing costs indicate potential challenges for households and businesses, while the gilt market and pound have shown signs of weakness. -Bloomberg
South African Reserve Bank Projects Load Shedding Relief Delayed Until 2024
The South African Reserve Bank (SARB) has indicated that relief from load shedding, the rolling blackouts that have plagued the country, will not be realised until 2024 or later, as reported by BusinessTech. The SARB's economic note highlights the severe negative impact of load shedding on production and overall economic confidence, with potential GDP growth for 2023 forecasted close to 0.0%. The ongoing unreliability of existing power capacity, alleged sabotage, corruption, and necessary repair projects at Eskom contribute to the expected persistence of load shedding. Key energy reforms are expected to gradually improve the situation, but their meaningful impact is not anticipated before the second half of 2024.
Rand Strengthens 4.6% in June Despite Load Shedding Concerns
Despite worries over winter load shedding, the South African rand gained 4.6% in June. Reduction in blackouts boosted the currency. Ashley Dickinson from Sasfin Securities suggests high interest rates could attract investors, further supporting the rand, as reported by Business Day. On July 3rd, the rand traded at R18.79/$, R20.52/€, and R23.88/£. Brent crude stood at $75.37 per barrel. The rand's strong performance and potential investment appeal offer optimism for its future growth.
Rand Expected to Strengthen Further Despite Recent Volatility, According to Investec Economist
Investec chief economist Annabel Bishop believes that the South African rand is undervalued and expects it to strengthen in the coming months, as reported by BusinessTech. She anticipates a return to R17.50 against the US dollar this year, supported by the Reserve Bank's interest rate hikes and reduced geopolitical noise. Bishop acknowledges that international events, particularly the US interest rate cycle, will heavily influence the rand's trajectory. While inflation remains elevated, she predicts it will eventually settle around 5.5% by year-end, reinforcing the rand's strength. Investec outlines multiple scenarios, with the baseline predicting the rand to average R18.75 in Q2 2023 and strengthen to R17.90 by year-end.
New Grid Access Rules for Energy Projects Could Deter Investors, Warns SA Independent Power Producers Association Chairperson
Brian Day, chairperson of the SA Association of Independent Power Producers, has expressed concerns over new regulations that require energy project developers to meet additional requirements to access the power grid, as reported by City Press. The rules introduced by Eskom include signed purchase agreements and data on sun and wind availability. Day warns that these requirements may discourage investors, as they will significantly increase project costs, from around R6 million to R30 million. The regulations pose potential challenges to the growth of South Africa's energy sector and overall economic development.
Zimbabwe's Stock Market Surges 800% as Inflation Fears Drive Investors
Zimbabwe's stock market has experienced a remarkable 800% rally this year, attracting local investors seeking a hedge against soaring inflation. With consumer prices rising over 100% annually, Zimbabweans are pouring their savings into equities as a means of preserving the value of their money. The country's small stock market, with a total capitalisation of $1.8 billion, provides an accessible investment option as the local currency depreciates rapidly. Despite concerns over economic instability and past stock market shutdowns, retail investors are participating in the bull run, while foreign investors remain cautious due to the market's inflation-driven gains.
South Africa Implements Approval Process for Money Transfers Abroad Amid Greylisting
South Africa's recent greylisting by the Financial Action Task Force (FATF) has led to increased scrutiny of cross-border transactions, particularly those involving money leaving the country, as reported by BusinessTech. In response, the South African Revenue Service (SARS) has introduced the "Approval International Transfer" (AIT) Tax Compliance Status process. Under this process, individuals and businesses must obtain approval from SARS before remitting funds abroad. Failure to obtain this approval can result in penalties, fines, or imprisonment. The AIT process requires the submission of various documents, and even small transactions such as sending money to family members require SARS approval. The new process impacts various sectors, including banking, property, financial services, and legal services, and aims to enhance compliance with anti-money laundering and counter-terrorism financing measures.
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Eskom Latest: Generation Improves, Off-Peak Blackouts Suspended
By Paul Burkhardt and Loni Prinsloo
Eskom Holdings SOC Ltd.'s new rules on allocating connections to the national transmission grid will impose greater costs on developers of new generation plants and their customers, according to the South African Independent Power Producers Association.
The state-owned utility last week revised the protocol for developers to acquire connections to the grid after projects were sidelined because of a lack of access. The new rules will increase the amount of money that developers must spend before they know whether they have access to the grid, Brian Day, chairman of SAIPPA, said in an interview Monday on Johannesburg-based broadcaster 702.
A solution that enables the connection of more projects is needed, Day said.
Power Minister Says Generation Is Recovering (July 2, 12:26 p.m.)
South Africa's power generation system is recovering and that's been reflected in fewer power cuts, according to the minister of electricity.
It's "no accident" that the country has seen a recent reduction in so-called loadshedding, as South Africa has boosted generation to more than 29,900 megawatts, with demand at about 30,000 megawatts, Kgosientsho Ramokgopa told reporters in Pretoria, the capital, on Sunday.
Grid Access Rules Drafted (June 28, 11:47 a.m.)
Eskom said it's developed guidelines to allocate access to the country's electricity grid, prioritizing projects that are ready for development.
While the most industrialized nation on the continent is in need of generation capacity to end record power outages, projects have been sidelined due to a shortage of connections to the grid. The utility has drafted rules designed to grant equal access to stations "based on a demonstrated readiness," according to Eskom officials.
The practice of "grid-capacity hogging" presents a challenge, the utility said in a presentation on its Interim Grid Capacity Allocation rules. "All grid connection applications shall be treated in a non-discriminatory manner to ensure a fair, transparent, equitable, open access."
Thieves Threaten World Bank's Coal Rail Project (June 28, 6 a.m.)
A World Bank Group-funded effort to increase train access to a power plant in South Africa's coal-rich region has started to significantly backslide as criminals target the country's rail system.
Development of a 68-kilometer route between Ermelo, east of Johannesburg, and Eskom's Majuba power station started over a decade ago to replace the continuous flow of trucks delivering coal to the plant. Once completed, the rail line will be cheaper, faster and more environmentally friendly, according to the World Bank.
-Bloomberg
South Africa Increases Salaries of Public Office Bearers by 3%
President Cyril Ramaphosa has approved a 3% salary increase for all public office bearers, including judges, magistrates, and traditional leaders, according to a statement from the presidency. The decision was made in light of recommendations from the Independent Commission for the Remuneration for Public Office Bearers. The increase comes amidst economic challenges faced by the country, including a primary budget deficit and concerns over the wage bill. The decision is pending approval from parliament for the salaries of judges and magistrates. The South African economy has shown slight growth after a contraction in the previous quarter. -Bloomberg
South Africa's Food Prices Soar Again, Hitting Consumers Hard
Food prices are continuing to rise, with Bloomberg's Shisa Nyama Index showing a 15% increase in June compared to the previous year. This acceleration ends a three-month period of slower price growth, adding to the challenges faced by South Africans already grappling with power outages and a stagnant economy. The rising costs, particularly for items like onions that saw a 97% surge in June, are impacting restaurant owners who are unable to pass them on to consumers. Farmers are also facing higher input costs, leading to reduced onion planting. -Bloomberg
Friday 30 June, 2023
Load Shedding Respite in South Africa Shows Positive Trend, But Caution Advised
The recent suspension of load shedding during the day in South Africa over the past three weeks has had a significant impact on the country's load shedding trend. Independent energy analyst Pieter Jordaan's data reveals that the blackout hours and Power Availability Ratio (PAR) have improved, as reported by BusinessTech. The PAR-7, which tracks PAR over a moving seven-day period, climbed 19 percentage points to 91%. However, the longer-term data still indicates a downward trend compared to 2022. Despite the recent improvement, experts caution against complacency, as load shedding remains a concern and can change rapidly. South Africans are urged to use power sparingly.
South African Bills Await President's Signature, Including Eskom Debt Relief and Official Language Expansion
A number of bills in South Africa are awaiting President Cyril Ramaphosa's signature to become law. These bills cover significant areas such as Eskom's debt relief, the expansion of official languages, and the establishment of a state-owned bank. The Eskom Debt Relief Bill aims to write off Eskom's outstanding debts, while the Appropriation Bill provides financial backing for the debt relief plan. Other bills include the Financial Matters Amendment Bill, which makes changes to pension-related, monetary, and auditing provisions, and the Constitution Eighteenth Amendment Bill, recognizing South African Sign Language as an official language. Additionally, the South African Postbank Limited Amendment Bill facilitates the setting up of a Bank Controlling Company for the Postbank.
Takealot Group's Loss Widens to $22 Million as Growth Slows and Costs Rise
MyBroadband reports that South African eCommerce giant, Takealot, reported a loss of $22 million (R407 million) for the year, a significant increase compared to the previous year's loss of $7 million (R129 million). Despite growth in gross merchandise value (GMV) and revenue, the company's profitability was impacted by slowing consumer demand, rising operational costs, persistent power blackouts, fuel costs, and global supply-chain constraints. Takealot's three main operating units, Takealot.com, Superbalist, and Mr D, experienced slower growth, raising concerns about the company's ability to control costs and achieve profitability.
South African President Ramaphosa Cleared by Graft Ombudsman in Forex Theft Scandal
South Africa's President Cyril Ramaphosa has been cleared of wrongdoing by the nation's graft ombudsman, Kholeka Gcaleka, in an investigation into the theft of foreign currency at his farm. The ombudsman stated that there is no evidence of Ramaphosa's active involvement or violation of the Executive Ethics Code. This comes after a parliamentary panel previously suggested that Ramaphosa may have breached the constitution. The scandal raised concerns about his presidency and leadership of the African National Congress. While the ANC's ethics committee's findings remain undisclosed, Ramaphosa has been found tax compliant by the revenue authority, with a central bank investigation ongoing. -Bloomberg
City of Cape Town smashes auction records
The City of Cape Town conducted a successful land auction, including the iconic Green Point Virgin Active site lease. Virgin Active retained the lease for the next 20 years with a winning bid of R3.7 million per month. The auction involved the sale of 32 non-core municipal land parcels and houses across various areas. The City aims to drive inclusive economic growth through the auction, but emphasized that the auctioned sites were not designated for affordable housing developments. The auction received record registrations and sales, indicating a strong interest in Cape Town property. Final approvals from the Council are still pending.
South Africa's mortgage loan lending drops 17% yoy in 1Q
The latest data on mortgage lending for the first quarter of 2023 indicates a continued decline in the value of new mortgage loans granted. FNB's Property Insights says this decline was anticipated due to rising interest rates and a slower economy. The year-on-year decline in new mortgage loans reached -17.1% in the first quarter, with the residential mortgage sector experiencing a decline of -19.28%. The commercial mortgage sector also saw a decline of -5.66%. This decrease in lending is in line with expectations, as property sales activity has been losing momentum since 2022.
Provisional liquidators believe Business Rescue not an option for SAPO
The South African Post Office (Post Office) is facing insolvency with a debt of R9.4 billion. The Post Office and the government ignored court orders to pay retirement fund and medical aid deductions from employees' salaries, aggravating the financial situation. As a result, the Post Office was put into provisional liquidation, and numerous landlords and creditors are owed unpaid amounts. The joint provisional liquidators suggest a formal compromise with creditors under section 155 of the Companies Act as a more suitable option than Business Rescue. They argue that this approach would clear the debts, make the Post Office solvent, and allow the government to restructure it. The Minister of Communications and Digital Technologies applied for Business Rescue, but the provisional liquidators believe it relies on uncertain events and could negatively impact the Postbank, which relies on the Post Office's license. The fate of the Post Office will be determined by the creditors and the court in a hearing on July 4, 2023.
Government Seeks Plan to Allow Eskom to Accept Green Funding Loans Despite Bailout Agreement
The South African government is working on a plan to enable state-owned power utility Eskom to accept loans for reducing carbon emissions, despite an existing bailout agreement with the National Treasury, as reported by MyBroadband. The Finance Ministry has appointed an unnamed consultant to find a solution that would allow Eskom to access funds from international pledges for transitioning away from coal. The bailout agreement restricts Eskom from taking on more debt and accessing loans for three years without written permission from the Finance Minister. The government aims to present potential solutions to disburse the funding by August.
South Africa's Energy Minister Urges Action on "Energy Poverty" Amid Transition Challenges
South Africa's Minister of Mineral Resources and Energy, Gwede Mantashe, emphasised the need to address "energy poverty" while balancing emissions reduction and energy access. He acknowledged the massive task of transitioning from coal to cleaner energy sources, complicating the implementation of an $8.5 billion green energy pledge. Mantashe, previously dubbed a "coal fundamentalist," has overseen a stop-start program for renewable power generation. He emphasised the importance of considering socio-economic conditions during the transition and criticised the obstruction of offshore oil and gas exploration by environmental groups, calling for a balanced approach between development and environmental concerns. -Bloomberg
South African Major Metros to Experience Rate Increases from July 2023
Starting from July 1, 2023, residents of South Africa's major metros will face increased rates for water, electricity, property, and refuse and sanitation, as reported by MyBroadband. The City of Johannesburg's proposed rate increases, although met with widespread discontent, were adjusted to a 2% property rate increase after receiving around 42,000 objections. Other municipalities, such as eThekwini, implemented higher rate hikes for property rates, electricity, water, and sanitation. However, the City of Cape Town stands out by reducing property rates and providing exemptions for properties valued under R5 million. See the table below for a summary of municipal rate hikes across South Africa.
South Africa to Appeal Court Ruling Preventing Deportation of Zimbabwean Nationals
South Africa plans to appeal a court ruling that deemed the cancellation of special permits for Zimbabwean nationals, allowing them to live and work in the country, as unlawful and unconstitutional. The Pretoria High Court's decision prevents the arrest and deportation of Zimbabwe Exemption Permit holders who lack a valid exemption certificate in their passports. The South African Department of Home Affairs argues that the ruling sets a dangerous precedent and believes their original decision was correct. The court has given the government until the end of 2024 to rectify the process.
Union54, Tiger Global-Backed Startup, Enters Africa's Super App Competition
Union54, an African startup supported by Tiger Global Management, is joining the race to develop super apps in Africa. The company plans to launch its ChitChat app in September, offering secure messaging and dollar-based virtual cards for international transactions. The app will also provide payments, gaming, dating, and food delivery services. Super apps, popular in regions with large unbanked populations, offer a comprehensive platform for services and payments. Union54 aims to retain 40% ownership of ChitChat and partner with local companies in Angola, Tanzania, Uganda, and Zambia, leveraging the growing fintech market in Africa. -Bloomberg
France Sees Third Night of Violent Protests Following Teen's Police Killing
Violent protests continued for a third consecutive night in France over the police killing of a teenager in a Paris suburb. Over 600 people, mostly between 14 and 18 years old, were arrested during the unrest. Protesters targeted municipal buildings, set a hotel on fire, and vandalized stores. The officer who fired the fatal shot has been charged with murder and detained. President Emmanuel Macron is holding a crisis meeting in response to the escalating situation. The protests highlight longstanding tensions in France's poorer suburbs and raise questions about policing in the country. -Bloomberg
Australia Tech Firms Outperform Peers in Best Quarter Since 2020
A gauge of Australia's technology shares has advanced 20% in the second quarter, outperforming peers in the US and Asia as expectations of near-peak interest rates added to the artificial intelligence-driven momentum in the sector. A rotation from finance shares into technology firms also helped the S&P/ASX 200 Information Technology Index to be on track for its best three months since Dec. 2020. "We are positive on the Australia technology sector more broadly given their defensive growth nature as macro conditions remain uncertain" and longer-term structural growth trends continue, said UBS analyst Lucy Huang. -Bloomberg