Volume 21 Issue 2 – March 2023
There is nothing like a dream to create the future. – Victor Hugo
COMMENT AND OUTLOOK – More Of The Same
The cabinet reshuffle announced by President Ramaphosa was disappointing as, yet again, ANC party political interests were put ahead of the country. Another opportunity to bring in new ministers not clouded by state capture involvement was passed up and while there have been changes made there were no significant changes to portfolio responsibilities. ANC party heavyweights all retained the portfolios they had. Some of the opponents of the president were removed, notably Lindiwe Sisulu, and some such as Nkosasana Dlamini-Zuma, have assumed lesser portfolios. A new post of minister of electricity was created with the specific task of addressing the load shedding crisis the country is facing. Apart from that specific challenge, the appointed minister is also going to have to manage the dynamics between minerals and energy minister Mantashe and department of public enterprises minister Gordhan, both of whom have responsibilities linked to Eskom. That in itself is not an easy task. The country also has a new deputy president with ANC deputy president Paul Mashatile being appointed in place of David Mabuza who stepped down. President Ramaphosa did make the point that with only a year to go to national elections, continuity was important. The 2024 elections are going to be a real challenge for the ANC. As the country deals with the worst load shedding experience and service delivery falters it appears more likely that the ANC is going to lose its majority support level next year. That brings the prospect of a coalition government into focus and as we have seen at a local government level, they do not work well in South Africa.
Finance Minister Godongwana delivered the budget speech in February and it was largely accepted as a reasonable budget. Fiscal consolidation and reduction of national debt were a key part of the budget. Revenue collection for the current year is well ahead of the Medium Term Budget projections and this is a result of a tax bonanza from the mining sector and well as significantly increased tax collection efficiency by SARS. SARS is one of the few entities compromised by state capture that has recovered its operational capacity. A notable feature of the budget was the proposed plan for the government to take over a significant portion of Eskom’s debt in order to make it a more viable operating entity. Load shedding was referenced as a significant constraint to economic growth and tax relief proposals for business and households to deploy solar energy were tabled. There were no increases in tax rates which was welcomed.
South Africa has been placed on the Financial Action Task Force grey list which means that it is going to place additional administrative burdens on doing business and financial transactions into and out of South Africa. The reason for the greylisting is that the controls applied in South Africa against money laundering and corruption amongst other things, were found to be deficient. The FATF did acknowledge that South Africa had made significant progress in overcoming the identified shortcomings but that more needed to be done. The country can be removed from the FATF grey list but it is going to take improved compliance with the requirements and it could take at least 2 years to be removed. This came just before the
2022 4th quarter GDP contraction of 1.3% was announced. Load shedding was a significant contributor to the contraction in economic growth and many companies are stating what the costs of load shedding are to their businesses, both directly and indirectly. There are many headwinds facing the economy. The Rand has weakened quite considerably this year but it is not just about problems in SA as there are global issues that are having an effect as well.
US inflation numbers have remained higher than market watchers were hoping for. The US Federal Reserve Chairperson has said that US interest rates will have to go up further to help bring the inflation levels down. That has boosted the US Dollar against many currencies but has spooked the markets as the prospect of higher rates for a longer period of time was not what the markets wanted. This has also impacted commodity prices. The oil price appears to have stabilised at around 80 US Dollars per barrel and there is still no end to the conflict in Ukraine in sight. Global markets retreated in February after the strong start to the year. It is not just in the USA that inflation remains at elevated levels as inflation numbers in Europe and the UK are still very high and inflation in Japan has risen to 4.3% which is the highest inflation there since 1981. The prospect of a global recession resulting from higher interest rates and a slowdown in economic growth is still a concern. US employment numbers remain very high and consumer spending is still strong which is not indicative of an economic downturn. The US housing market is showing signs of weakness and housing is a key component of the wealth effect in the USA. Higher interest rates for longer are going to have an effect on growth at some stage.
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